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Merrill Lynch downgrades notebook makers

Cites falling margins, weakening demand

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Merrill Lynch has further downgraded its performance expectations for the major Taiwanese notebook manufacturers, following indications that they are now anticipating a slowdown in demand for their portable products.

Bearish (at least as far as tech stocks go), ML has lowered its ratings for Quanta, Compal and Wistron, the world's three largest contract manufacturers of notebook PCs. Quanta and Compal stock now carry a 'sell' rating, down from 'neutral' and 'buy', respectively. Wistron has been downgraded from 'buy' to 'neutral', DigiTimes reports.

Compal last week lowered its expectations of worldwide notebook shipments from 47m units to 43-44m. It said gross margins could fall to 5.9 per cent in Q3, down from a record-setting 6.4 per cent in Q2.

Quanta has reportedly trimmed its internal shipment target from 12m to 11m, an 8.3 per cent decline in demand.

ML expects notebook shipments to rise sequentially 10-15 per cent in Q4, so clearly the big dip in demand will come during Q3. Falling prices and rising inventories will keep manufacturers' gross margins down in Q4. ®

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