The fortunes of mainland China’s largest information technology companies could take some odd turns as the impact of Britain’s vote to exit the European Union will differ for internet services firms and hardware suppliers, according to analysts.
While uncertainties remain on how “Brexit” will be implemented, a weakening euro and British pound may see products from major suppliers of personal computers, smartphones, tablets, television sets and other consumer electronics become more expensive in European markets.
Bernstein senior analyst Alberto Moel said in a report that such a scenario “could lead to demand destruction, and reduced sales and profits”.
Moel said hardware suppliers that would be more vulnerable to Brexit include those that meet one of the following characteristics: a high portion of components are priced in [now stronger] yen and US dollars; these parts account for a high portion of their product’s total bill of materials; low operating margins; and the product is of a discretionary spending nature, which means consumers are more likely to defer purchases.
“Most affected from a foreign exchange translation exposure are the personal computer manufacturers from high EU revenue exposure,” he said. “Least affected are the display panel makers as they have no direct exposure to the affected currencies.”
Data from Bernstein showed that Lenovo Group, the world’s largest supplier of personal computers, generated 25 per cent of its revenue from Britain and the EU.
Ken Hui, a Jefferies equity analyst, estimated that Britain and the EU accounted for a combined 24 per cent of Lenovo’s personal computer shipments and 7 per cent of its smartphone volume during the company’s fiscal year ended March 31.