Asus Is Shifting Its Product Mix from Netbooks to All-New Ultrabooks, Tablets, and Smartphones

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

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Morningstar, Inc.

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Equity Bottom-Up

No-moat Asustek’s third-quarter results were largely in line with our expectations, with revenue down 3%, operating profit down 30%, and net profit down 2.4% from the year ago quarter, respectively. While the PC and component segments showed signs of recovery in the third quarter, the mobile business remained sluggish. The firm’s gross margin improved from a better product mix, but its operating margin deteriorated due to increasing advertising and marketing expenses for the new product launches. We retain our fair value estimate for Asustek at TWD 304 per share, as we expect its profitability will gradually improve in the medium term, bolstered by increasing smartphone shipments and improving product mix in the PC segment. We view the shares as undervalued at current levels, trading at a 15% discount to our fair value estimate.The 3% revenue decline slightly exceeded our forecast, thanks to a strong 23% year-on-year sales growth in the component segment, while the sales of the PC and mobile segments decreased 6% and 14.5% year on year, respectively. We believe the strong demand on motherboard and display cards was the primary driver to the component segment. However, management expects the strong demand will slowdown in the fourth quarter due to product seasonality.Although the PC business retained the fifth position in volume share, it was the only company in the top five to underperform the industry average, with share contracting from 7.3% to 6.2%. Its PC shipments retreated 14.6% year on year to 4.19 million units, versus the market’s 0.5% year-on-year decline, according to IDC. On the positive side, its high-end products, including gaming PC, ZenBook, 2 in 1, and VivoBook, with a faster sales growth in the segment, helped to offset the negative impact of shipment declines in its mass market products. The PC year-on-year sales growth in the third quarter improved to negative 6% from negative 11% in the second quarter.The mobile business did not meet with company nor our expectations, with sales down 14.5% year on year. Despite the average selling prices for the smartphones being higher than last year, Asustek seemed to lose quite some share in the smartphone market, given the global smartphone shipments improving 2.7% year on year in the third quarter, according to IDC. However, management was confident in its ability to boost the smartphone sales volume going forward by focusing its resources on selected markets.Analyst: Allen Cheng

No-moat Asustek’s third-quarter results were largely in line with our expectations, with revenue down 3%, operating profit down 30%, and net profit down 2.4% from the year ago quarter, respectively. While the PC and component segments showed signs of recovery in the third quarter, the mobile business remained sluggish. The firm’s gross margin improved from a better product mix, but its operating margin deteriorated due to increasing advertising and marketing expenses for the new product launches. We retain our fair value estimate for Asustek at TWD 304 per share, as we expect its profitability will gradually improve in the medium term, bolstered by increasing smartphone shipments and improving product mix in the PC segment. We view the shares as undervalued at current levels, trading at a 15% discount to our fair value estimate.The 3% revenue decline slightly exceeded our forecast, thanks to a strong 23% year-on-year sales growth in the component segment, while the sales of the PC and mobile segments decreased 6% and 14.5% year on year, respectively. We believe the strong demand on motherboard and display cards was the primary driver to the component segment. However, management expects the strong demand will slowdown in the fourth quarter due to product seasonality.Although the PC business retained the fifth position in volume share, it was the only company in the top five to underperform the industry average, with share contracting from 7.3% to 6.2%. Its PC shipments retreated 14.6% year on year to 4.19 million units, versus the market’s 0.5% year-on-year decline, according to IDC. On the positive side, its high-end products, including gaming PC, ZenBook, 2 in 1, and VivoBook, with a faster sales growth in the segment, helped to offset the negative impact of shipment declines in its mass market products. The PC year-on-year sales growth in the third quarter improved to negative 6% from negative 11% in the second quarter.The mobile business did not meet with company nor our expectations, with sales down 14.5% year on year. Despite the average selling prices for the smartphones being higher than last year, Asustek seemed to lose quite some share in the smartphone market, given the global smartphone shipments improving 2.7% year on year in the third quarter, according to IDC. However, management was confident in its ability to boost the smartphone sales volume going forward by focusing its resources on selected markets.Analyst: Allen Cheng

Asustek's 3Q Results Largely in Line, Maintaining Our FVE At TWD 304

Asustek Computer

Asustek's 3Q Results Largely in Line, Maintaining Our FVE At TWD 304