Defying the slowdown
PC demand looks healthy in 2008
Initiate notebook sector with an OVERWEIGHT recommendation but
have a neutral view on NB ODMs given increased competition. We
expect global PC unit shipment to grow 11% in 2008 with notebooks
(NB) increasing 33% to 146m units and desktops declining 5% y-y. We
also expect NB to account for 50% of shipments in the overall PC
market – the first time NB volumes have exceeded those of desktops.
NB ODM shipment to increase 34% in 2008E
Driven by demand from emerging markets, consumer NB, low-priced NB
and some advanced features such as LED backlight and SSD drive, we
expect Taiwan NB original design manufacture shipment to grow 34% in
2008. Among the key players, we expect Wistron to post the biggest
shipment growth of 65-70% y-y reaching 19m units. Our shipment
forecast for Quanta and Compal are 3% below the companies’ guidance
to reflect macro economic uncertainties in 2H08 given a moderate 1Q08
Incremental positive data points
We see few signs of NB demand slowing down from the Asian supply
chain and expect 2Q08E NB shipment in line with seasonality (+8% q-q)
if adjusting for a better 1Q08E (-7.6% in 1Q08 vs -12.7% in 03-07)
despite battery tightness. Recently, Intel, HP, Dell, Apple and electronics
retailers expressed confidence in NB strength.
NB ODM competition to intensify
With Hon Hai and Pegatron eyeing this growth market, we believe
pricing and margin for NB ODMs will continue to trend down in addition
to rising raw material and labor costs. We believe Hon Hai still start NB
ODM in 2H08, and Pegatron will become a more visible threat in 2009.
Wistron deserves to trade at premium to peers
We initiate Wistron with a BUY and target price of TWD68 (12-13x
2008E P/E) as we believe Wistron’s growth prospects and product
diversification to non-NB segments deserve a premium over peers at 10-
11x. We also initiate Compal with a BUY and target price of TWD38, and
Quanta with a HOLD and target price of TWD 52.

Contents
PC demand looks healthy; notebook shipment to exceed desktop in 2008 .................. 3
Emerging markets becoming more important with increasing broadband and PC penetration 4
Low-price NB expands addressable NB market 5
Expect NB ODM shipment to expand 34% in 2008E..................................................... 6
1Q08 shipment slightly better than seasonal 7
Expect 2Q08 shipment to expand 8% q-q 7
Incremental positive data points for a solid 2Q08 7
Competition to intensify; margin under pressure 7
Inexpensive sector valuation 8
Devil’s advocate: Risks to our investment case........................................................... 10
Company updates........................................................................................................ 11
Compal Electronics, Quanta Computer, Wistron