Nam Tai Electronics, Inc. (NTE)

Nam Tai Electronics provides manufacturing and design services to telecommunication and consumer electronic original equipment manufacturers. The company generates its revenues from three segments namely Consumer Electronics and Communication Products (CECP) Telecommunication Components Assembly (TCA) and LCD panels (LCDP). Company sells its products primarily in China, Europe, Japan, United States and Korea. The TCA segment that primarily manufactures color and monochrome LCD modules to display information in cellular phones, telephone systems, and RF modules for integration into cellular phones constitutes 72% of the revenues.

The electronic manufacturing services industry in which the company operates is intensely competitive and a drive to offer products at cheaper rates is putting immense pricing pressure on the manufacturers. The company had posted revenue growth of over 30% in 2003-05 owing to the fast growing mobile phone market. Since then, Nam Tai has taken a huge beating in its TCA segment, which has hampered the top-line performance. Financial results of Fiscal 2006 have been fairly disappointing for the company with only over 9% rise in the total revenues. Cut-throat competition has forced Nam Tai to sell the products at lower prices eroding the bottom-lines. Management expects pricing pressure to continue in future and has charted vertical integration plans in the major manufacturing facilties in China to control the costs. However, the benefits are likely to materialize only after two years.

Mobile phone market in countries like Japan and China is reaching the maturity stage and would not experience the same rate of growth in the coming years. As Nam Tai is heavily exposed to the mobile phone market, this could paralyze its growth prospects. As environment looks challenging ahead, management has lowered its previous revenue forecast for fiscal ’07 and ’08. With declining profits and no solid initiatives to drive revenues ahead, Nam Tai is expected to receive some hammering in the near future.