05.25.2001
D-Link up beat on outlook for 2Q01, looking to outsource more

• In its shareholders' meeting yesterday, networking equipment maker D-Link (2332 'You Xun') said revenues in May will be around NT$1.4b, not NT$1.1b as market rumours suggested. D-Link indicated it is confident revenues will reach NT$3.7-3.8b in 2Q01, in line with our expectations of NT$3.7b.

• We also see D-Link as moving back into the outsourcing business. The company claims it is likely to secure another long-term client in 2Q01. It expects the ODM/OEM business to increase to 35% of total revenues in 2001 from 30% last year.

• VB Primasia Investment Opinion: We feel that the outsourcing business is good move for D-Link as equipment giants like Cisco, 3Com and Lucent aggressively cut product prices on networking equipment to clear out inventory. D-Link's OBM business will be unavoidably affected by the price cuts, despite the fact that it has diversified into other market segments.

• D-Link closed at NT$51 yesterday, at a P/E of around 19x 2001 forecast EPS. We believe the share price has upside potential on the back of sound future growth prospects in wireless products and the joint venture with Legend (China), which has an extensive distribution network in China. We recommend ACCUMULATE.

BennyLo@Primasia.com +886-[0]2-2547-8869