05.28.2001
Chunghwa Telecom weighing up its ADSL options again

• Chunghwa Telecom (2412 'Zhong Hua Dian') is expecting demand for ADSL modems to increase on the back of stronger demand for broadband services. Chunghwa's evaluation of ADSL demand is expected to be completed in June when it may decide to open bidding for as much as 1m ADSL units in 2001.

• Chunghwa Telecom's last outsourcing contract for 1.26m ADSL units was awarded to the Ambit (2386 'Guo Dian')-Alcatel bid in March this year.

• Competition in the global ADSL market is very keen. In April, Samsung (Korea) secured a 600k unit ADSL contract for the Korean market at a record low price of US$125 for head-end (DSLAM) and client-end (ADSL modem) equipment. As ADSL modems usually account for 30-40% of the total price of ADSL-DSLAM equipment, we estimate the ADSL modem price in the Samsung deal at lower than US$50.

• We expect any large-size ADSL deal with Chunghwa Telecom to bring the unit price for ADSL down to record lows. Unless the cost of ADSL components falls sharply from the 1Q01 range of US$65-70, it may not even be possible to make a profit on such an order.

• VB Primasia Investment Opinion: Taiwan's strongest ADSL players are Ambit and Askey (2366 'Ya Xu'). Both companies have already secured sizeable ADSL contracts from telecom operators this year, Ambit from Chunghwa and Askey from Japanese clients. If production costs for ADSL modems fall as expected, these companies will benefit. We are NEUTRAL on both Ambit (P/E of 20.6x 2001 forecast EPS) and Askey.

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