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Contract Manufacturer Pegatron Garners Benefits from Diversification

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In November of 2012 Supply Chain Matters made note that Apple had begun to actively pursue its own supply chain risk mitigation plan. Apple elected to dual source some of its contract manufacturing needs with the use of Pegatron, one of Taiwan’s largest contract manufacturers, as a second assembler of the iPad Mini, along with the iPhone 4 product. As is often the case when suppliers get to leverage the massive scale of the Apple supply chain, some positive financial results can accrue.  A strategic decision to diversify beyond the manufacture and assembly of laptops and PC’s can also prove to be very timely.

Pegatron’s net revenues in 2012 have grown over 53 percent to roughly $26 billion.  Net income jumped to roughly $111 million with a demonstration of record earnings per share in the final quarter of 2012. That is quite a contrast to August 2012 after Pegatron forecast a 15- to 20-percent quarterly drop in its notebook computer shipments for the third quarter. The company shares were rising at the time because of the rumors of being selected by Apple as a second source contract manufacturer. Monthly revenues have increased 53 percent since September.

In its reporting of Pegatron results on Monday, The Financial Times quotes Pegatron’s CEO refusing to comment on any specific customers, but forecasting that shipments of tablets would double to 20 million.  FT further quotes sources at investment firm Nomura as estimating that half of Pegatron’s revenues in 2013 will come from Apple. There is also continued speculation that this contract manufacturer may garner additional Apple business in the months to come. Rumors and speculation continue to note that the iPad Mini is outselling its larger cousin.

Timely diversification and being selected by Apple is turning out so far to be a wise decision for this contract manufacturer.

Bob Ferrari

Disclosure: This author is a recent current stockholder of Apple.

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