05.17.2001
Delta denies rumours of major order cuts from Cisco

• Rumour has it that Cisco has cut orders to Delta (2308 'Ta Da Dian') for power supply products to US$1.5b from US$2.5b in 2Q01. These are very large figures for a quarter, leading us to doubt the veracity of the story. Delta has also denied the rumours. Notwithstanding, the company admits that orders from major US clients have been on the wane this year and are significantly lower than previous expectations.

• While it has lost orders for power supply products, the company has picked up new orders for MP3. We believe this is indicative of poor product mix synergy. Delta's weak 1Q01 performance, aside from ailing global demand, can be attributed to its unfocused business model and diversification plans. Another example is the company's plan to move into the high-end server market despite the fact that it is likely to face intense price competition from established rivals in the PC and motherboard industries. We are not confident on Delta's new business initiatives.

• VB Primasia Investment Opinion: Despite its unspectacular prospects for this year, Delta is a well-established company and we continue to view it as a future leader in Taiwan's optical components sector. We are also attracted by its improving market valuation. The stock is currently trading at 16.4x our 2001 EPS forecast of NT$5.04 (recurrent earnings of around NT$4.00 per share). We recommend ACCUMULATE this counter below NT$90 on a long-term horizon.

VincentChen@Primasia.com +886-[0]2-2547-8868