Bangkok--11 Mar--Fitch Ratings
Further to the release issued earlier this week on the back of an Asia-Pacific Technology sector-wide review, Fitch Ratings has taken negative rating actions on three Taiwanese personal computer (PC) companies - Acer Inc. (Acer), ASUSTeK Computer Inc. (ASUSTeK) and Quanta Computer Inc. (Quanta). The agency has revised its rating Outlook on Acer and Quanta to Negative from Stable. Also, it has downgraded ASUSTeK's Long-term foreign and local currency (FC/LC) Issuer Default Ratings (IDR) and National Long-term rating by one notch, and placed these ratings on Rating Watch Negative (RWN). At the same time, China's ZTE Corporation's (ZTE) Long-term FC/LC IDRs have been affirmed with a Stable Outlook. Details of the revised ratings and the rationale for the same are given below, and a complete list of rating actions which Fitch has simultaneously taken on 17 rated technology names across Asia-Pacific is also provided at the end of this press release.
Acer:
- Long-term FC and LC IDRs affirmed at 'BBB-' (BBB minus); Outlook revised to Negative from Stable.
- National Long-term rating affirmed at 'A(twn)'; Outlook revised to Negative from Stable.
ASUSTeK:
- Long-term FC and LC IDRs downgraded to 'BB+' from 'BBB-' (BBB minus); Placed on RWN.
- National Long-term Rating downgraded to 'A-(twn)' (A minus(twn)) from 'A(twn)'; Placed on RWN.
Quanta:
- Long-term FC and LC IDRs affirmed at 'BB'; Outlook revised to Negative from Positive.
- National Long-term Rating affirmed at 'BBB+(twn)'; Outlook revised to Negative from Positive.
ZTE:
- Long-term FC and LC IDRs affirmed at 'BB+'; Outlook remains Stable.
"The rating actions on the Taiwanese PC companies reflect Fitch's view that a deterioration in operating performance will be inevitable in 2009 due to the current global economic turmoil which is expected to last until at least midway through 2010. The PC companies are likely to face significant demand contraction as corporations and consumers' abilities to buy or upgrade their computers has diminished, particularly in recession plagued developed countries," says Kevin Chang, Director in Fitch's Asia-Pacific Telecommunications, Media and Technology team.
In Fitch's view, Acer's revenue and margins are likely to decline in 2009. While the company achieved a 10.7% yoy sales increase (unconsolidated) in Q408, and it was successful in closing the gap with Dell Inc. ('A'/Stable) in terms of worldwide PC market share, and also successful in achieving a global notebook PC market share very close to that of Hewlett-Packard Co. ('A+'/Stable). Fitch's negative GDP growth forecasts for its major markets - Europe and US - strongly suggest that Acer is unlikely to be exempted from being negatively affected by the global economic slowdown.
Quanta, the world's largest notebook PC producer, experienced a 15% yoy revenue decline in Q408. The agency believes that Quanta is likely to face challenges in maintaining its profit margins in 2009 given the high level of competition in its contract manufacturing service business. Fitch believes Quanta's customers, PC brand companies, will place greater emphasis on cost-reduction solutions in light of the weakening operating environment.
ASUSTeK's own-brand sales decreased by 6.3% yoy and suffered an EBITDA margin of negative 7.2% in Q408. Fitch says ASUSTeK remains strong in product design but is losing its first-mover advantage on netbook (low-cost mini-notebook) PCs, as competitors are catching up in this segment. Also, Pegatron, its 100%-owned subsidiary, is not only experiencing reduced orders from its parent (as ASUSTeK executes a production-diversification strategy in 2009), it is also facing unstable contract manufacturing demand from PC brands competing against ASUSTeK.
Accordingly, the agency expects funds from operations (not including change in working capital) of the three Taiwanese PC companies to deteriorate during FY2009. Further negative rating actions could be triggered by ongoing negative free cash flow generation or higher financial leverage resulting from continuing weak profitability, higher borrowings, increased capex and larger dividend payouts, if any.
On the other hand, Fitch believes that ZTE is less affected by the current economic downturn than its telecom-equipment peers which focus on advanced economies. This is mainly because growth in local revenues in China is poised to more-than-offset the slowdown in other parts of the world. The company's exports have mainly focused on supplying cheap handsets to developing countries in Asia and Africa where underlying subscriber growth potential remains, as opposed to exporting network equipment to developed countries.
Following China's 3G licensing in early 2009, domestic orders for telecom equipment are likely to increase significantly. While the local Chinese market only represented 36% of ZTE's total revenues in H108, ZTE's leading position in TD-SCDMA technology, which is unique to China and China Mobile ('A+'/Stable), as well as its strong capabilities in WCDMA and CDMA2000 3G technologies (to be rolled out by China Unicom and China Telecom ('A-' (A minus)/Stable)), suggest a sufficient level of insulation to weather the global economic downturn. Accordingly the agency expects ZTE's credit metrics to remain stable during 2009.
The list below summarises the rating actions taken on Fitch's 17 rated technology names across Asia-Pacific, with specific reference to the Long-term foreign currency Issuer Default Ratings.
China:
- ZTE Corporation: Affirmed at 'BB+' with Stable Outlook.
Japan:
- Panasonic Corporation: Downgraded to 'A+' from 'AA-' (AA minus); Rating Watch Negative (RWN) maintained;
- Sharp Corporation: Downgraded to 'A' from 'A+'; Placed on RWN;
- Hitachi, Ltd: Downgraded to 'BBB+' from 'A-' (A minus); Placed on RWN;
- Sony Corporation: Downgraded to 'BBB+' from 'A-' (A minus); RWN maintained;
- NEC Corporation: Downgraded to 'BBB-' (BBB minus) from 'BBB'; Outlook revised to Negative from Stable;
- Toshiba Corporation: Downgraded to 'BB' from 'BBB'; Placed on RWN.
Korea:
- Samsung Electronics Co., Ltd.: Affirmed at 'A+'; Outlook revised to Negative from Stable;
- LG Electronics Co., Ltd.: Affirmed at 'BBB'; Outlook revised to Negative from Stable;
- Hynix Semiconductor Inc.: 'B+'; RWN maintained.
Singapore:
Chartered Semiconductor Manufacturing Ltd: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Stable;
Taiwan:
- Taiwan Semiconductor Manufacturing Company Limited: Affirmed at 'A'; Stable Outlook;
- United Microelectronics Corporation: Affirmed at 'BBB'; Stable Outlook;
- Acer Inc.: Affirmed at 'BBB-' (BBB minus); Outlook revised to Negative from Stable;
- ASUSTeK Computer Inc.: Downgraded to 'BB+' from 'BBB-' (BBB minus); Placed on RWN;
- Quanta Computer Inc.: Affirmed at 'BB'; Outlook revised to Negative from Positive;
- AU Optronics Corporation: Downgraded to 'BB-' (BB minus) from 'BB+'; Outlook revised to Negative from Positive.
Contacts: Kevin Chang, Taipei, +886 2 8175 7609/ [email protected]; Jinqing Li, Beijing, + 86 10 8567 9898 ext.108/ [email protected]; Matt Jamieson, Seoul, + 82 2 3278 8355/ [email protected].
Media Relations: Nicole Batchelor, Singapore, Tel: +65 6796 7214, Email: [email protected].