Wall Street Beat: Asian PC makers rise on Vista dreams

Shares of Asian PC makers are finally shaking off their summer doldrums as back-to-school sales give them a boost and the upcoming launch of Microsoft Corp.’s new Vista OS improves their longer term prospects.

A buying binge on stock of Taiwanese PC maker Acer Inc. started early this week after it was upgraded by Merrill Lynch & Co. Inc. and a few other large investment banks. The firms noted that after sluggish sales in the first half of the year, demand for PCs is on the rise.

The microprocessor price war between Intel Corp. and Advanced Micro Devices Inc. (AMD) saw the price on some desktop chips halved, lifting PC demand, analysts say. Microsoft’s new OS is expected to come out on time and give the PC market an additional long term boost.

“The PC replacement cycle should take place gradually following Microsoft’s launch of its new operating system, Vista, in the first half of 2007,” said Daniel Chang, computer industry analyst at Macquarie Research Equities, in a report on Thursday.

Acer’s shares were also boosted this week after it reported a better-than-expected 36 percent increase in second quarter net profit to NT$3.08 billion (US$93.59 million). It’s shares ended up 25 percent for the week, at NT$53.5, on the Taiwan Stock Exchange.

Acer’s main rival in Asia, Lenovo Group Ltd., also saw its stock rise. The company’s U.S.-listed shares increased 11.2 percent to US$8.45 for this week, as of its close on Thursday.

By comparison, Dell Inc. and Hewlett-Packard Co. have been laggards. Dell shares are up 3.9 percent so far this week to end at US$22.60 on Thursday, while HP had gained 3.8 percent to US$36.56 over the same time.

One reason for the difference in share performance is that Acer and Lenovo stock fell further this year than their U.S. rivals due to PC market concerns and company specific issues, analysts say, so it’s no surprise the rebound has lifted them higher. Another reason Dell and HP have underperformed their Asian peers recently is because U.S. investors are concerned about the economy, including consumer demand and the likelihood of further interest rate increases.

Although very little conclusive data is out for U.S. PC sales right now, analysts say demand in Asia is strong, and Europe is heating up.

Henry King, executive director of technology research for Goldman Sachs (Asia) LLC, noted in a report on Wednesday that strong PC component demand in Europe over the past few weeks should help allay concerns over possible U.S. weakness.

“Besides, we expect more Europeans to come back from summer vacations in the next few weeks, so sell thru data is likely to continue to trend up in September,” King said.

Another factor hurting shares of PC makers this year has been cutthroat price competition. But stronger market demand should ease price competition, analysts say, as should lower costs for microprocessors.

In short, the seasonal demand from back-to-school and back-from-vacation sales going on now should extend for quite a while as users continue buying when Vista launches. The strong, steady demand should allow PC makers to charge reasonable prices, increasing their profit margins and making investors happy.

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