NB ODMs expand non NB product lines aggressively given fierce competition and slower growth momentum

TAIWAN: According to DRAMeXchange, the research department of Trendforce, 2Q10 gross profit margin (GPM) of NB-ODMs has been impact by the raising raw material costs and further penetration of EMS vendors.Inventec GPM has declined 18.9 percent points to 4.2 percent in 2Q10 from 5.2 percent in 1Q0, while Quanta indicated the GPM below 4 percent. Compal and Pegatron are less impact benefited by product mix and strategy. However, we see Wistron’s margin has surged to 5.8 percent in 2Q10 from 5.3 percent in 1Q10 due to diversified strategy and product mix.

Quanta exposed 22 percent revenue contribution in its non-NB product lines and expects to reach 25 percent by the year end. Compal only has NB and TV in their product mix, and 5-6 percent has been reached in 1H10 and 10 percent is aimed by the year end. This shows a good support for their margin.

Wistron’s NB exposure has been declined to 67 percent in 2Q10 from 71 percent in 1Q10 given the diversification in TV, monitor, server and Desktop. We forecast non-NB products can account for 35 percent by the year end. Inventec aggressively expand its business in server that it accounts 20 percent of revenue. Pegatron also looks into TV, game consoles, communication and other consumer electronics. Non-NB portion is 22 percent in 1Q10 and 29 percent in 2Q10.

DRAMeXchange expects NB shipment pattern will indicate 50:50=1H:2H given the revised down forecast that 2010 total NB shipment will be recorded at 190 million units. From the observation of component and channel, 4Q10 NB shipment will heavily rely on the channel inventory condition and real demand for Christmas sales. Compared with historical data, NB shipment YoY is revised down to 18.5 percent from 25-30 percent.

As for 2011, NB market will be slowed down by netbook and tablet PC. Over 20 percent growth will no longer the common picture of NB product. According to DRAMeXchange, 2011 NB shipment growth rate is expected to be 18 percent YoY given the better macro economy outlook.

However, NB ODM margin will have challenge with the competition from EMS and ASP erosion. Besides the vertical integration, non-NB product lines has become another catalyst to maintain the GP margin.