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Google's Nexus tablet to help Asustek in brand value: Credit Suisse

2012/07/01 17:02:20

Taipei, July 1 (CNA) Asustek Computer Inc. will benefit from its new tablet computer co-branded with Google Inc. despite the Taiwanese PC vendor having revised its forecast for second-quarter revenues, analysts at Swiss bank Credit Suisse said recently.

On June 27, Google and Asustek unveiled the world's first 7-inch quad-core tablet, the Nexus 7, to break into the less expensive Android tablet market with a price tag of US$199.

The move was seen by analysts as the two companies' attempt to take on Inc.'s Kindle Fire, which is sold with lower margins in its hardware to attract more consumer spending in digital content.

"Nexus selling at cost should not be a surprise to the market, but it begs the question why Asustek co-developed this product," Credit Suisse analyst Thompson Wu wrote in a note to clients.

"We believe Asustek realizes that in a market where OEMs have limited opportunity to differentiate without content and operating systems, it's demonstrating its edge via research and development and innovation, while building upon its brand value," Wu said.

Distinguished from the Amazon Kindle Fire, the Nexus 7 has a front-facing camera, Global Positioning System (GPS) connectivity, Bluetooth and runs on the latest Android 4.1 operating system, dubbed Jelly Bean.

Asustek further believes there is an opportunity to yield some profits with the economic scale of the device, Wu said, but the company also indicated that it incurred development expenses in the first half of 2012 and that the Nexus 7 would be sold at cost.

Moreover, Wu said Asustek has revised down its second-quarter revenue growth forecast to zero to 5 percent from the 5 to 10 percent it previously forecast, due to the production delay of Nexus 7 to the third quarter.

The change would suggest that about 350,000 Nexus 7 tablets were pushed back from the second quarter to the third quarter, while Asustek's full-year tablet shipments will remain unchanged at 3.5 million units, he added.

As a result, Credit Suisse has lowered its forecast for Asustek's earnings per share by 1.1 percent to NT$6.33 (US$0.21) in the second quarter and by 5.9 percent to NT$28.13 for 2012 as a whole, to reflect the increased costs to develop the Nexus 7 and other Windows 8-based tablets.

The brokerage also maintained an "outperform" stock rating on Asustek and a target price of NT$335.

Shares of Asustek closed higher by 0.56 percent at NT$217.5 Friday on the local bourse.

Separately, Deutsche Bank viewed Asustek's revision of the second-quarter revenue growth forecast as a neutral to slightly negative event for the company, saying that it kept a "hold" rating and a target price of NT$290 on the stock.

Google's Nexus 7 and Microsoft Surface tablet PC launches indicated the intensified competition in the tablet PC market, though it might take time for Google tablet PCs or Windows 8 tablet PCs to catch up with Apple's iPad, said Ivy Lee, a Taipei-based analyst at Deutsche Bank.

She predicts that Asustek will ship 650,000 tablet PCs in the second quarter, with the company's third-quarter tablet shipments expected to reach 1.1 million units, which is higher than the bank's earlier forecast of 0.9 million units, given the delayed shipments of the Nexus 7.

(By Jeffrey Wu)