Taipei, Aug. 9 (CNA) A Hong Kong-based brokerage has cut a target price on shares of Taiwanese PC brand Acer Inc. after the company reported disappointing second-quarter results.
In a research note, the Hong Kong securities house said Acer suffered a deteriorating bottom line in the April-June period, in the wake of increased operating costs and reduced revenue.
The brokerage lowered its target price on Acer shares to NT$19.50 (US$0.62) from NT$21.5, while leaving a "hold" recommendation on the stock after the PC vendor released its second-quarter results Wednesday.
The following day, Acer shares rose 1.13 percent to close at NT$17.85 on the Taiwan Stock Exchange, in line with a technical rebound staged by the bellwether electronics sector, which boosted the broader market by 1.04 percent after foreign institutional investors shifted to the "buy" side.
For the three-month period, Acer posted NT$409 million in net profit, down 55 percent from a year earlier and down 43 percent from a quarter earlier, with earnings per share (EPS) of NT$0.13.
Its second-quarter consolidated sales fell 6 percent from a year earlier to NT$55 billion, a fall the brokerage said reflected a relatively high comparison base over the same period of last year, when Acer enjoyed strong gaming PC sales and solid Chromebook shipments.
But, the second quarter sales were up 1 percent from the first quarter.
Due to the higher costs, the brokerage said, Acer saw its gross margin -- the difference between revenue and cost of goods sold -- fell to 10.8 percent from 11 percent a year earlier, and its operating margin -- the difference between sales, cost of goods sold and operating expenses -- dropped to 1.1 percent from 1.6 percent.
The brokerage said a limited supply of Intel's central processing units also capped Acer's PC shipments, while as commercial PCs, which served as an anchor to the growth of PC shipments worldwide, weighed less than consumer PCs in the Taiwanese brand's product mix, the vendor lacked sales growth momentum in the second quarter.
According to global market information advisor International Data Corp. (IDC), PC shipments worldwide totaled 64.86 million in the second quarter, up 4.7 percent from a year earlier, while Acer saw its shipments fall 1.7 percent from a year earlier to 4.29 million, or a 6.6 percent share in the global market to make it the fourth-largest vendor in the world.
The brokerage cited IDC data as saying that the top three PC brands -- China's Lenovo Group Ltd., U.S.-based HP Inc. and Dell Inc. -- took a combined global market share of about 67 percent, so that smaller rivals such as Acer saw their growth squeezed and a falling market share.
The securities house said that although Acer took advantage of its gaming PCs to generate more sales in the past two years, the higher shipments have boosted a comparison base, slowing down the gaming PC growth and reducing the brand's room for profit growth.
The brokerage added that rising completion from rivals also placed pressure on Acer.
As a result, it cut its forecast for Acer's EPS by 7.1 percent, 6.5 percent and 3.9 percent, respectively, for 2019, 2020 and 2021 to NT$1.26, NT$1.41 and NT$1.57.