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Contract makers hit by Nokia woes

TAIPEI -- A plan by Finland's mobile phone supplier Nokia to cut its workforce and a downgrade of its second quarter earnings outlook put heavy pressure on its Taiwanese contract makers in the local bourse yesterday, dealers said.

The market is worried that the lackluster shipments of Nokia's Lumia smartphone will deal a serious blow to the bottom line of Taiwanese contract makers, dealers said.

Shares of Compal Communications Inc., which churns out Lumia phones for Nokia, fell 3.27 percent to close at NT$37.00 (US$1.24), with 28.63 million shares changing hands. Meanwhile, shares of earphone supplier Merry Electronics Co. dropped 2.97 percent to end at NT$39.20 on trading volume of 4.05 million shares.

The benchmark weighted index closed up 1.14 percent at 7,155.83 points.

“I am particularly worried about the bottom line of Compal Communications as Nokia accounts for almost 90 percent of its total sales,” Grand Cathay Securities analyst Mars Hsu said.

Nokia announced Thursday a plan to cut about 10,000 employees from its global workforce by the end of 2013 in an effort to reduce costs amid worse-than-expected losses in its cell phone division.

In addition, Nokia said heavy competition will continue to affect its smartphone sector in the second quarter, but to a “somewhat greater extent than previously expected.”

“To my knowledge, shipments of Nokia's Lumia phones were about 2.2 million units in the first quarter, which is a stunningly low figure,” Hsu said. During that period, Apple shipped more than 35 million iPhones.

“Nokia is in a transition period, shifting from its own operating system to Windows phones and it remains to be seen when the company will make a turnaround,” Hsu said. “Its woes have had a great impact on local contract makers.”

He said that judging from the declines suffered by Compal Communications, the anxiety among local investors is very obvious.

Hsu cut his forecast for Compal Communications' earnings per share for 2012 from NT$5 to NT$3, in view of the Nokia factors.

“Due to uncertainty over Nokia's earnings outlook, investors had better keep a distance from these Nokia contract makers for the moment,” he said.

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