Weak Chip Prices Compel Acer
To Cut '98 Earnings Projection
By RUSSELL FLANNERY
Staff Reporter of THE WALL STREET JOURNAL
HSINCHU, Taiwan -- Acer Inc. warned that it expects to cut its forecast
of 1998 net profit more than 30% as higher-than-expected losses at its
semiconductor unit eat into earnings from its core personal-computer
business.
"Low memory-chip prices are still a problem," said Henry Wang, a
spokesman for the company, one of the world's 10 largest PC makers.
"Profits on sales of own-brand products have also been lower than
expected."
Acer will post a new full-year profit forecast and second-quarter earnings
on Aug. 28. The company's shares fell 3.4% to NT$36.90 (US$1.07), or
NT$1.30 each, on Friday after Acer said it will cut its fore cast 1998
profit from the NT$5.5 billion it predicted for the year in March. The
company didn't say to what level it expects net profit to fall. Declines
among high-technology companies helped pull down Taiwan's benchmark
stock index, which retreated 57.47 points to 7213.37.
Others Affected
Acer is hardly alone in trying to cope with a downturn in semiconductor
prices that has pressured even U.S. industry leader Intel Corp. Also on
Friday, Taiwan's No. 2 chip maker, United Microelectronics Corp., cut its
forecast of 1998 net profit 42% to NT$5.81 billion.
Yet the reduction in Acer's forecast is a clear signal that the company
doesn't expect to come up with a solution to its chip losses anytime soon,
analysts said.
"The two problems they cited won't be easily turned around," said Andy
Wang, a PC industry analyst at Barits Securities in Taipei. He predicts
Acer will earn about NT$3.7 billion this year, or NT$1.50 a share, about
the same as the NT$3.7 billion profit posted last year. During the first three
months of 1998, Acer reported net profit of NT$1.1 billion, compared
with NT$687 million a year earlier.
The losses this year at Acer's 54%-owned chip unit, Acer Semiconductor
Manufacturing Inc., or ASMI, are a continuation of problems that began in
1997. The unit, which changed its name from Texas Instruments-Acer Inc.
on June 10 after Texas Instruments Inc. of the U.S. sold its stake in the
venture, posted a loss of NT$5 billion last year, one of Taiwan's
largest-ever corporate losses.
For the first three months of 1998, ASMI suffered a loss of NT$1.5
billion, and will announce a loss of "a little bit more" for the second quarter
of the year, said Lora Ho, the company's vice president for finance. But
she said ASMI's losses in the second half of 1998 are expected to narrow
because of a rebound in prices and in creased production. Average spot
prices for the company's main products have gained by about half in the
past month, although that still isn't high enough for ASMI to turn a profit.
ASMI will produce about 21,000 eight-inch wafers of memory chips this
month compared with fewer than 5,000 last month, Ms. Ho said.
Not all analysts expect improvement, however. Eric Wang, a regional chip
analyst at Hong Kong-based Clarion Securities, predicts ASMI will post a
loss of NT$6.5 billion this year, and says total losses by Taiwan makers of
dynamic random-access memory chips could hit NT$25 billion in 1998.
Besides ASMI, other Taiwan chip makers projecting losses this year
include Vanguard International Semiconductor Corp., a 27%-owned
affiliate of local chip-industry leader Taiwan Semiconductor Manufacturing
Co., and Powerchip Semiconductor Corp., an 11%-owned affiliate of
Mitsubishi Electric Co. of Japan.
Commitment to Business
Acer remains committed to the chip business despite ASMI's losses, said
the company's Mr. Wang. Acer signed an agreement to obtain technology
from Inter national Business Machines Corp. earlier this year that will help
ASMI make a wider range of chips.
For this year, Acer is more optimistic about cutting losses at Acer America
Corp., its U.S. unit. Low profit margins resulting from the popularity of
low-cost PCs and aggressive pricing by U.S. rivals such as Compaq
Computer Corp. contributed to a US$30 million loss at Acer America in
the first half of 1998. Acer Inc. President Simon Lin said Acer America
aims to break even in the second half of the year. World-wide, he said, the
group intends to cut costs by reducing the number of assembly plants.
Another overseas Acer unit, Singapore-listed Acer Computer International
Ltd., said on Thursday that first-half profit plunged 98% from a year earlier
because of Asia's economic problems.
Contract manufacturing served as the bright spot during the first half of the
year at Acer, and for virtually all of Taiwan's computer industry. Sales at
Acer Inc., excluding its affiliates and subsidiaries, climbed 41% in the first
half of the year to NT$42.6 billion in part on the strength of increased
contract-manufacturing orders from IBM, one of Acer's biggest
customers.
Multinational PC companies have been increasing offshore purchases to
cut costs, and Taiwan's PC makers that tend to specialize in contract
production have been among the biggest beneficiaries. Another big Taiwan
PC component maker, Asustek Computer Inc., reported on Friday that
net profit more than doubled in the first half to NT$4.77 billion from
NT$2.33 billion a year earlier. Unlike Acer, Asustek doesn't produce
semiconductors.
On other matters, Mr. Lin said Acer still hadn't reached a final agreement
to acquire Siemens AG's PC unit. When the two sides announced a
tentative agreement on April 23, Acer said it expected a final accord at
midyear. Financial terms are currently the main sticking point, he said. |
