Nam Tai Says "Thanks, but No Thanks"

By Anders Bylund (TMF Zahrim)
May 11, 2009 | Comments (2)

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I like to see management with some intestinal fortitude. Global Gains recommendation Nam Tai Electronics (NYSE: NTE) fits the bill this quarter, because the company refuses to throw good money after bad.

The electronics manufacturer saw sales dwindling by 30.6% year-over-year to $102.2 million. In that situation, many a company would take any revenue it could get by running deep-discount sales, conducting slightly softer negotiations, and so forth. Indeed, Nam Tai's gross margin shrank from 13.3% a year ago to just 7% last quarter, which could make you think that there were low-margin sales going on.

Were Leapfrog (NYSE: LF) and Sony (NYSE: SNE) getting a break on their manufacturing bills in order to pump up their order volumes? Maybe Qualcomm (Nasdaq: QCOM) and Texas Instruments (NYSE: TXN) got sweetheart assembly contracts to make sure they wouldn't move to rivals like Celestica (NYSE: CLS) or Flextronics (Nasdaq: FLEX)? Stranger things have certainly happened.

But the company rejected thin-margin orders large enough to have a material effect on its LCD panel assembly sales. Weak demand for cell phones, consumer electronics, and LCD screens may damage Nam Tai's sales, but management will not paint itself into an unprofitable corner by signing bad deals.

It's easy to maintain fiscal discipline with a strong balance sheet like Nam Tai's, of course. The company lost $3.9 million in the first quarter, but that's a rare loss in Nam Tai's two-decade history -- and $230 million of cash on hand should easily keep the company afloat through these hard times.

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Nam Tai Electronics is a Motley Fool Global Gains selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

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  • Report this Comment On May 12, 2009, at 12:08 PM, xjohnqx wrote:

    How out of touch are you? THE COMPANY IS EVAPORATING. It is poorly managed in a very tough industry. A DISASTER!!!!!

    In the past year most of the management has resigned - CEO (Japanese), CFO and acting CFO. The founder Mr. Koo is back and he is so old he will drop dead any day now.

    Rev / Workforce is near half of what it was - Ave Quarterly Rev for 2007 was around $200m; 2008 Ave was down to $150m but Q4 was $169M; now Q1 2009 down to $102 which is y-t-y down 31% and sequentially down close to 40%. TCA segment is hit but CECP seems to be evaporating down to $35M revenue which looks to be about half of what it was last quarter. Even the GP% which had gotten to over 14% is now down to 7% and the company is running at a loss. The company has to be hit further on margin when their expansion project - Wuxi comes on and I think the GP% will further deteriorate by 1-2% just for the additional depreciation. Looks like gone are the days of leading the industry in profitability.

    WHAT A DISASTER!!!!!

    They can't even execute a simple privatization of their HK listing at a significant price premium. It seems that not only did the company pick the wrong process (Tendor Offer (90% acceptance required) versus Scheme of Arrangements (only 75% acceptance required but not more than 10% negative)) but they designed / executed the tendor offer process very poorly. How embarrassing that the company announced that they "do not intend to extend the offer" signed by the chairman and reviewed thoroughly by the board (SFC states that this a clear reason why they did not allow the extension of time to get to the 90%) and now they continue to try to get an extension as per the Q1 '09 announcement.

    THIS COMPANY IS DOOMED!!!!!

  • Report this Comment On May 13, 2009, at 11:41 AM, xjohnqx wrote:

    Also, the company is attempting to hide in the face of extremely poor business results. There is total lack of transparency. At the end of 2008 the company stopped its quarterly conference calls. It is moving its Annual General Meeting from NY, USA to Vancouver, Canada. There is only one analyst that seems to cover the company. There is no place to ask questions outside of taking a trip to China and demanding an audience with management. The Board should be ashamed. I hope someone launches a class action lawsuit against the company to get some answers.

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