Acer Reduced to Junk by Fitch After Cutting Sales Forecast

Acer Inc. (2353), the world’s third-largest computer maker, had its credit rating cut one level by Fitch Ratings to junk grade less than a week after lowering its growth forecast for the year.

Fitch changed Acer’s long-term foreign and local currency rating to BB+ from BBB-, with a negative outlook, meaning a further downgrade is possible, it said in a statement today.

“This is a structural issue, because the company is quite concentrated in the PC market but does not have strong performance in terms of the non-PC area such as handsets, media tablets or services generated from enterprise customers,” Kevin Chang, a Taipei-based credit analyst at Fitch, said by phone today.

A weakening economy and a more cautious view toward Microsoft Corp.’s new operating system prompted the maker of Timeline and TravelMate computers to more than halve its growth forecast for the year last week. Intel Corp. (INTC), the world’s biggest chipmaker, scaled back its annual sales estimate yesterday as personal-computer demand fails to rebound among consumers in the U.S. and Europe.

Henry Wang, a spokesman for Taipei-based Acer, declined to immediately comment on the report.

Yield Narrows

The yield on Acer’s August 2015 convertible bond narrowed to 1.21 percent today before the announcement from a high of 4.29 percent on Oct. 6, which was two weeks before posting its second consecutive quarterly loss, according to Barclays Plc prices. Its third-quarter net loss of NT$1.1 billion ($37 million) followed a second-quarter loss of NT$6.79 billion.

Acer posted its first annual loss on record last year after writing off about $300 million in inventories in Europe following faltering sales amid the increased popularity of Apple Inc.’s iPad.

“They are facing additional challenges this year such as Microsoft and Google also launching tablets that will get attention from consumers and maybe competing for the small budget that customers have,” Chang said. “While the PC is not that popular in front of general consumers, the company could be struggling in terms of recovering the profitability it had before.”

Acer’s shares fell 2.5 percent to NT$27.50 in Taipei trading today before the announcement, the lowest level since June 2003. The stock has declined 22 percent this year compared with a 0.3 percent drop in the benchmark Taiex Index. (TWSE)

Acer had a cash balance of NT$60 billion at the end of March, “comfortably covering” its total debt of NT$23 billion, Fitch said in the statement.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.

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