Venture sharp fall off - two possiblities

Venture’s share price fell 7.7% or $0.37 yesterday to $4.43, pulling back sharply from its post-results rally that had taken it to slightly over $5.

There are two possibilities for the sharp sell-off.

(1) Speculation that Ho Hai / Foxconn is threatening Venture, Calcomp, Flextronics and Jabil’s share of HP’s printer business. HP recently reported a 33% yoy plunge in printer unit shipments in its Jan 2009 quarter. While Venture has increased ODM business with HP(group-wide, ODM business was last reported to be 35% of sales, up from 25% in FY07), its non-ODM business (described as “non-enterprise” printers) with HP could be subject to allocation shifts.

(2) Whichever the case, we reckon the market is also realising that 1H09 will be a very poor period for Venture, as we pointed out in our post-results note, especially 1Q09. We understand that HP orders to Venture have fallen sharply in Jan-Feb, in the region of 20-50% across product lines, in a knee jerk reaction to the fall-off in demand and the build-up of inventory in the channels.

We are in the process of reviewing our forecasts but is likely to retain a Hold recommendation as Venture is already trading close to NTA of $4.07, which we consider to be a reasonably solid support given that it has been stripped of goodwill and the company has already written down almost all of its CDO exposure (balance of only $18.8m).

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