Taiwan's Synnex profits from mobile phones

Sacrificed profits in the second quarter of the year in pursuit of a greater share of the mobile phone market appear to have paid off for Synnex Technology International Corp, Taiwan's largest distributor of information technology and communications products, writes Iain Pocock in Taipei.

Synnex confirmed yesterday that its share of the mobile handset market should have exceeded 33 per cent in August. That's up from an 18 per cent share in the first half and 31 per cent in July, said an official at Synnex.

Meanwhile, the share of revenue from communications products rose to 35 per cent of Synnex' total revenue in August, said J J Lin, VP of marketing. Synnex also distributes computer systems and chips.

In the second quarter, revenue from the communications department accounted for 23 per cent of the company's total revenue.

Synnex' August revenue again reached a record high, after posting a record NT$4.69 billion in revenue in July, Lin said. He wouldn't confirm the exact figure as yet. Analysts are expecting August's revenue to come to about NT$4.75 billion.

The growing market share and strong monthly revenue growth come at a time when an over-supply of mobile phones in the local market and fierce competition have cut mobile phone prices and profit margins for all companies concerned.

"In the second quarter, the handset price crashed because our competitors focused too aggressively on their financial target for this year," said Lin. "But they couldn't sustain it with their internal management and efficiency." The profit margin for mobile phones has fallen from about ten per cent last year to as little as two to three per cent now, analysts said.

Meanwhile, Synnex used the season of low prices to off-load its older mobile phone models in preparation for the new products set to come on to the market at the end of the year, analysts said.

"Synnex squeezed its second quarter sales profits because it wanted to reduce inventory," said an analyst at Taiyu Securities Co. But it also knew that a price war would affect only a portion of its sales, unlike its competitors.

"About 80 per cent of Aurora's revenue comes from handsets," the analyst said. "If Synnex cuts its prices, Aurora will follow suit. But for Synnex, it only affects 20 per cent to 30 per cent of sales," he said. Aurora Corp is also major distributor of telecommunications products.

As well as telecommunication products, Synnex also distributes low-priced PCs and IC components. It has recently benefited from Intel's cutting the price of its Pentium III 700MHz at the end of last month by reducing the price of its own PCs, according to local media reports.

So while Synnex' non-communications departments propped up sales during the second quarter, the communications department reduced its inventory of old models. It is now well placed to benefit from the introduction of new mobile phone models in the fourth quarter, said Synnex' Lin.

"Our competitors are still under pressure from a high inventory burden," said Lin. "If they cannot clear it out at the end of this quarter, they will suffer more because in the fourth quarter the new high-speed handset will hit the market."

Several large mobile phone manufacturers, including Nokia and Ericsson, plan to introduce new mobile phone models incorporating the General Packet Radio System in the near future. The system increases user bandwidth and packet data transmission speed to as high as 115 kilobits per second, twice as fast as today's household Internet connection. ®