Taiwan's Asustek is pinning its recovery hopes on emerging markets such as China as the pioneer of netbooks struggles to compete with bigger rivals such as Hewlett-Packard and Acer.

Asustek expects a slew of product launches, set for the second half of the year, to help it stem the decline in revenue and profit margins, as it takes a beating due to the increasing popularity of low-cost netbook PCs.

We're seeing a lot of growth momentum from China, and expect to grow our market share there for the rest of the year, Chief Executive Jerry Shen told investors on Tuesday. Eastern Europe is also growing quite well, so things should improve from now on.

Pioneered by Asustek in 2007, netbooks have since been rolled out by other brands such as Hewlett-Packard, Acer and Dell, dealing a blow to Asustek.

On Monday, Nokia, the world's top cellphone maker, said it would start to make netbooks, entering a fiercely competitive but fast-growing market.

Asustek swung to an operating profit in April-June after two straight quarters of losses, having laid off staff and slashed products to emerge leaner.

The global PC sector has picked up in recent months, with Intel declaring the worst over and research firms such as IDC raising their forecasts for the year.

Analysts, however, remained cautious on Asustek's prospects.

It's the traditional peak season anyway, so it's not spectacular, said Alex Huang, research director at Mega Securities.

Asustek expects to ship about 1.8 million notebooks and 1.5 million netbooks in the current quarter, up as much as 50 percent from the preceding three months.

The higher shipments are mainly due to an increase in demand from students returning to school and ahead of the year-end peak holiday shopping season, the company said.

Asustek is making a foray into the fast-growing smartphone market with location device maker Garmin, but it has set modest targets for itself that underscore its vulnerability as a new player in the highly competitive sector.

We're going up against some very big players in the smartphone sector, and we know how difficult it is, Shen said. This is a sector that we intend to cultivate slowly, especially from next year onwards.

Many analysts are skeptical at the rising number of PC brands crowding into smartphones, and highlight the difference in how the two products are sold and marketed.

Asustek reported a bigger-than-expected net loss of T$131 million ($3.9 million) for April-June, hit by a massive T$953 million foreign exchange loss as the Taiwan dollar appreciated by more than 3 percent against the U.S. dollar.

The overall loss was way below market expectations for T$1 billion net profit, and worse than the T$5.64 billion reported a year ago.

Asustek shares have risen 43 percent so far this year, versus a 48 percent gain on the broader market.

(Editing by Ken Wills; Editing by Anshuman Daga)

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