Monday, December 7, 2009

Why your netbook is so cheap (FLEX, HPQ)

Wow. Either a typo on HP's e-bidding system, or some serious "price discovery" in the computer component industry.

Singapore-based Flextronics(FLEX) looks to have landed a 2million netbook order from HP, but at a huge discount to industry prices. They bid $45 per unit versus the industry average near $70.

"Flextronics has recently landed orders for two million netbooks from Hewlett-Packard (HP) for 2010 through the vendor's e-bidding system with a manufacturing quote of US$45 for each unit, according to a Chinese-languageCommercial Times report citing market watchers. Flextronics' quote is rather low compared to the industry's average price of more than US$70 per unit and if first-tier makers follow suit, it could put pressure on related component makers to reduce prices by 20%, the paper cited the market watchers as saying."

With such an enormous discount on price, one might expect Flextronics shares to suffer today, but the stock is up 1%. This is likely due to this $90million order accounting for about one third of one percent of Flextronic's expected $24billion in total revenue this year.

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