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Post-PC Taiwan to Struggle with Industry

This was the first quarter since the third quarter of 2009 that Taiwan’s economy reported a decline in growth. The Taiwanese government trimmed the full year economic-growth forecast, fifth time in a row this year, with slow growth in exports and weak demand in key markets. This positions the central bank to further ease monetary conditions to boost the economy. GDP declined 0.16% in the second quarter compared to 0.39% expansion in the first quarter.  Earlier this month, Singapore reported a surprise 1.1% contraction in GDP, South Korea’s grew by mere 2.4%, the weakest since the third quarter of 2009.  And we all know about China’s effective slowdown.  While Samsung makes up nearly 20% of South Korea’s GDP, the three companies that follow made up 11.8% of Taiwan’s GDP in 2011.


Acer (TWSE: 2353)
is the world's fourth-largest personal computer maker by units shipped after Hewlett-Packard Co. (NYSE:$HPQ), Lenovo Group Ltd. and Dell (NASDAQ:$DELL). In its first quarter results announced in April, Acer reported a 72% drop in first-quarter net profit, owing mainly to shift of consumers preferences to PCs and other mobile electronic gadgets. Sales of Google’s (NASDAQ:$GOOG) Android tablets have been sluggish, even if Acer’s Iconia series are among the bestselling.  Apple’s (NASDAQ:$AAPL) iPad rules tablet market and looks to continue its dominance.  Revenue year over year declined by 11% to NT$113.0 billion ($3.78 billion USD). 

Acer’s struggles stem beyond lagging PC and laptop sales, as accounting irregularities were traced in its European and Middle Eastern operations, forcing inventory write offs and management reshuffling. Market share in the shrinking European market is shrinking, due to aggressive marketing and sales by competitors like Hewlett-Packard, Lenovo and Asustek. They have decided to move upscale working with Intel (NASDAQ:$INTC) to focus more on premium Ultrabooks, while HP and other knife-fight in the sub-$500 space in an attempt to compete with the MacBook Air. 

Asustek (TWSE:2357), is more than a PC assembler, building all manner of computer hardware: motherboards, desktops, laptops, monitors, tablets.  They also act as an ODM for other manufacturers, including Apple, Dell and HP.  It has a 7% share in PC market at the end of the second quarter, making them the fifth largest supplier after HP, Lenovo, Acer and Dell.  Their notebook division saw 38.6% year over year growth. Their big disappointment was from tablet market, where it was able to ship only 600,000 slates, and yet the ASUS Transformer is one of the best-selling Android tablets around.  Google’s lack of control in the development of Android beyond the smartphone has created major headaches for their OEMs.  This is the basis for the opportunity Microsoft has with Windows 8/RT. In the EMEA (Europe, the Middle East and Africa) market ASUS outpaced Dell to become the No.3 PC brand with 10.9% market share.

The last company to look at is HTC (TWSE:2498), who announced recently that it plans to close its office in South Korea. HTC has struggled there not being able to crack the market dominated by the local brands.  In June this year, HTC also closed its Brazil where it couldn’t crack more than 1% of the market.  They are not giving up, but it will be a very tough road ahead for them.  Their planned acquisition of S3 graphics and their patent portfolio is still moving forward.  In short, they are getting their clocks cleaned by Apple and Samsung though China and India sales have been improving with strong market share gains.  HTC is a classic example of a company that squandered first mover advantage by building too much phone with too little power to run it.  Their 2nd quarter results reflect a marketplace, especially in the U.S., that has flatly rejected over-sized phones that last two hours.  Revenue was down year over year by 27% and net earnings were down 57%.

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Peter Pham is a capital market specialist and entrepreneur.  With expertise as a Head of Institutional Sales and Trading he closely watches the market and probes for investment opportunities utilizing a unique blend of quantitative trading experience and macro trend analysis… (read more)

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