Tech giants worry ahead of Windows 8 launch

Asian PC makers are set to report mostly higher quarterly profits in the coming weeks, but economic worries and delays in computer purchases before the launch of Microsoft’s Windows 8 operating system in October are casting a pall over their earnings ahead.

Lenovo and other PC makers from the region have made inroads on U.S. competitors Dell and Hewlett-Packard. But uncertainty about Windows 8, the devices running the system and the pricepoints are seen dampening sales of PCs before the launch, and may even discourage users from buying until they have been tried and tested in the market.

“We think that Win8/RT and Ultrabooks will not stimulate PC demand,” Jefferies analysts wrote in a research note on Monday, although they did anticipate seasonal demand in the third and fourth quarters.

China’s Lenovo, which is due to announce first-quarter earnings in mid-August, is expected to report a net profit of $131.2 million, up 21 percent from $108.8 million a year earlier, according to the average estimate of 10 analysts polled by Thomson Reuters I/B/E/S.

Lenovo’s hope is that second- and third-tier cities in China, where PC penetration is relatively low, will be able to provide support. “Going forward it will be increasingly harder for Lenovo to sustain similar growth rates in an environment of limited unit growth and low elasticity,” Bernstein Research said in a report.

Taiwan’s Acer is expected to post a net profit of T$591.9 million ($19.8 million) for the second quarter, according to a Thomson Reuters I/B/E/S poll, up from T$331 million in the first quarter and swinging from a T$6.79 billion loss a year earlier.

But Acer’s focus on the Intel-inspired Ultrabook notebook computers worries some analysts, despite the promise of greater margins.

“Unless prices of the Windows 8 Ultrabook lower to a mainstream level of $699, sales will not be promising,” warned Jenny Lai, an HSBC analyst in Taipei.


South Korea’s Samsung Electronics, which flagged a record April-June quarterly profit earlier this month, is likely to report further profit increases in the second half of this year, as it expands sales of its flagship Galaxy S III smartphone and is set to provide processors and displays for Apple’s new iPhone expected later this year.

The head of Samsung’s mobile division, JK Shin, told Reuters on Sunday that sales of the Galaxy S III, which went on sale in late May, are likely to top his initial forecast of 10 million units by the end of July.

Others likely to benefit from being a supplier to Apple include flat-screen maker LG Display and SK Hynix, both of which are expected to lead the panel sector’s recovery in the second half of this year.

LG Display is likely to report its seventh-consecutive quarterly loss on Thursday, as one-off costs related to price-fixing charges added to a weaker-than-expected recovery in demand. But with panel prices stabilizing, and the expectation of another iPhone in the works, the company is likely to return to profit in the third quarter, although weak demand in the TV market, its biggest earnings generator, is set to crimp upside potential, analysts say.

SK Hynix, the world’s No.2 computer memory-chip maker, is set to report a small quarterly profit on Thursday, ending three quarters of losses, as computer chip prices have started stabilizing amid industry consolidation led by U.S. rival Micron Technology Inc.

LG Electronics has gained market share in its television business from Japanese producers in recent quarters, making it the world’s second-biggest TV maker, and is expected to report on Wednesday that quarterly profit has more than doubled. But its handset business has swung to a loss, squeezed by growing competition from low-cost producers in China and at the high end by Apple and Samsung.

“LG Electronics could be one of the biggest losers in the Korean tech sector as its smartphone business is likely to continue to remain in the red in the second half due to growing competition from the likes of Apple and Samsung,” said Park Sung-min, an analyst at Kyobo Securities.

“But it’ll likely cope better with the challenges than smartphone rivals Research In Motion and Nokia, for example, as steady cash flow from profitable TV and home appliances businesses will provide some support.”


Japan’s Sony, Panasonic and Sharp are also looking for other profit centers as their results for the quarter and the full year will still be dominated by the performances of their laggard TV units.

All three are pulling back from the product that made them global brands, hit by intense competition from foreign rivals led by Samsung Electronics. Combined, the three companies expect to sell 7 million fewer TV sets this business year than last.

To make up for that lost revenue and to generate new growth sources, Sony is looking to cameras, gaming consoles and software, as well as smartphones and other mobile devices. Panasonic is targeting household appliances, batteries and solar panels. Sharp, the maker of Aquos TVs, is looking for salvation through its partnership with Taiwan’s Hon Hai Precision Industries.

Their turnaround efforts, however, are threatened by a fragile global economy and the unresolved debt crisis in Europe, investors say.

“Overall their performance looks disappointing,” said Makoto Kikuchi, CEO of Myojo Asset Management in Tokyo.

“Having seen results in the U.S., the impact of the European crisis and the loss of steam in emerging economies appears to be having an impact. The best we are likely to see for Japan’s electronics firms are in line with projections or struggling to keep on track with their forecasts,” he said.

Sharp will tumble to a 44.4 billion yen ($565 million) first-quarter operating loss from a 3.5 billion yen profit a year earlier, according to the average estimate of five analysts surveyed by Thomson Reuters I/B/E/S. For the full year ending in March 2013, Sharp has forecast an operating profit of 20 billion yen.

Sony is seen posting a first-quarter operating profit of 17.6 billion yen, down from 27.5 billion a year earlier, according to the average forecast of five analysts. Panasonic will see first-quarter operating profit jump to 40 billion yen from 5.6 billion yen, three analysts predicted on average.

For the full year, Sony expects operating profit of 180 billion yen, and Panasonic has forecast 260 billion yen.

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Tech giants worry ahead of Windows 8 launch