Asia Taiwan
Technology Hardware & Equipment
13 April 2009
TW tech hardware
Little sparkles at the end of the
tunnel; ratings/TP/est changes
Kc Kao, MBA
Research Analyst
(886) 2 2192 2831
kc.kao@db.com
Ivy Lee
Research Associate
(886) 2 2192 2834
ivy.lee@db.com
Start taking positions on select names to ride the potential recovery
We are becoming incrementally more positive on tech hardware (vs. our previous
neutral stance) due to stabilization of industry fundamentals and growing positive
macro leading indicators. We advise investors to start buying selected names that
are well positioned for the potential recovery. Our top picks are Hon Hai, Delta and
Acer. With PC end demand being more resilient than expected and a higher
probability that these stocks may start pricing in a potential recovery, we see
improving risk/reward profiles of 10-25% downside risks vs. 15-62% upside risks.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
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may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast Change
This report changes ratings, price targets,
and/or estimates for several companies
under coverage (shown in Figure 2). For a
detailed discussion of these changes, see
pages 22-31
Top picks
Hon Hai Precision (2317.TW),TWD81.50 Buy
Delta Electronics (2308.TW),TWD63.80 Buy
Acer Inc (2353.TW),TWD59.70 Buy
Companies featured
Hon Hai Precision (2317.TW),TWD81.50 Buy
2008A 2009E 2010E
P/E (x) 18.7 11.7 9.3
EV/EBITDA (x) 9.2 2.8 2.1
Price/book (x) 1.3 1.6 1.4
Delta Electronics (2308.TW),TWD63.80 Buy
2008A 2009E 2010E
P/E (x) 17.1 19.6 15.0
EV/EBITDA (x) 8.5 8.7 6.7
Price/book (x) 1.9 1.9 1.9
Acer Inc (2353.TW),TWD59.70 Buy
2007A 2008E 2009E
P/E (x) 13.6 12.5 13.3
EV/EBITDA (x) 10.9 8.9 8.4
Price/book (x) 1.9 2.0 1.9
Asustek (2357.TW),TWD39.00 Hold
2008A 2009E 2010E
P/E (x) 17.0 32.2 9.4
EV/EBITDA (x) 15.5 12.8 2.6
Price/book (x) 0.9 1.0 0.9
Compal Electronics (2324.TW),TWD26.00 Hold
2008A 2009E 2010E
P/E (x) 8.4 9.3 8.7
EV/EBITDA (x) 8.2 6.4 6.5
Price/book (x) 0.9 1.2 1.1
Quanta (2382.TW),TWD43.60 Hold
2007A 2008E 2009E
P/E (x) 12.0 8.1 10.1
EV/EBITDA (x) 10.5 7.7 8.1
Price/book (x) 1.8 1.6 1.5
Global Markets Research Company
Positive signals lead to our incrementally positive stance
Recent improved PC demand among China/US consumers likely suggests PC
demand is more resilient than we expected. We see the bottoming of some
macro leading indicators have positive implications on the stocks’ future valuation
trends. We also sense the recent out-performance of the SOX and the Nasdaq will
have positive impact on the potential recovery of industry fundamentals in 2010.
Inventory over-build risks should be muted for hardware
Our survey leads us to believe inventory risk should be manageable due to OEMs’
conservative demand expectations and the supply chain’s shorter order lead time.
In our exercise, we estimate industry NB inventory will likely remain at a
comfortable level of 22-26m (55-60 days) for 1Q-4Q09.
Improving risk/reward of 15-62% upside risks vs. 10-25% downside risks
We estimate downside risks of 15-62% vs. upside risks of 10-25% for our
hardware coverage. Key drivers behind the improving risk/reward profiles are more
resilient PC demand (which lift stock valuation from over-sold level) and higher
probability that the stocks may price in a recovery in 2010.
CULV NB will likely alleviate the industry pricing concerns
Intel’s CULV (consumer ultra low voltage) NB platform offers good value
proposition of an eight hour battery life, lighter weight, and affordable US$600-800
price points. Our survey suggests that the supply chain is very supportive of this
platform as it could alleviate the pricing pressure created by netbooks and could
modestly boost the end demand. We believe CULV will benefit from being fast
movers more than Acer and Asustek. We are now less concerned about negative
netbook pricing implications for OEMs.
Rating and estimates revisions; risks
We upgrade Acer to Buy and raise our PT to NT$65 as we expect it to enjoy an
early mover advantage in the CULV NB space, which should largely offset our
competition-related concerns. We upgrade Asustek to Hold and raise the PT to
NT$35 as our checks suggest it will likely turn around to profitability in 2Q-3Q. We
downgrade Compal to Hold (and raise our PT to NT$26 from NT$23) as we think it
has largely priced in our outperformance thesis (Compal has outperformed the
TAIEX by 2,908bps YTD). We maintain Buy on Hon Hai and Delta and Hold on
Quanta, and raise PTs to NT$93 (from NT$85), NT$72 (from NT$62) and NT$45
(from NT$36), respectively, to factor in a gradual industry recovery. Key risks:
worse-than-expected end demand growth outlook and irrational price competition.

Table of Contents
Start positioning for a potential recovery ....................................... 3
We are incrementally more positive on tech hardware.............................................................3
Improving risk/reward scenarios ...............................................................................................5
Growing number of positive signals................................................ 7
Chinese and US consumer demand appears more resilient .....................................................7
The bottoming out of leading indicators should have positive implications for the P/E multiple
trend.........................................................................................................................................8
Nasdaq’s and SOX’s recent outperformances will likely have positive implications for a
fundamental recovery .............................................................................................................10
Inventory risk should be muted ..................................................... 11
CULV NB should alleviate industry pricing concerns................... 13
CULV will likely enhance price/performance perceptions of NB.............................................13
CULV will likely capture 20% of NB volume by 10E; we expect positive implications for Acer
and Asustek ............................................................................................................................14
Raising our PC assumptions........................................................... 16
Factoring NB demand upside into our estimates....................................................................16
We maintain our double-dip PC cycle view.............................................................................16
Global PC assumptions...........................................................................................................17
ODM shipment trends..................................................................... 20
NB/MB ODM shipment trend .................................................................................................20
NB ODM analysis....................................................................................................................21
Earnings and PT revisions............................................................... 23
Hon Hai: Raise PT to NT$93 (from NT$85); maintain Buy .......................................................23
Delta: Raise PT to NT$72 (from NT$62); maintain Buy ...........................................................24
Acer: Upgrade to Buy and raise PT to NT$65 (from NT$45) ...................................................25
Asustek: Upgrade to Hold and raise PT to NT$35 (from NT$27).............................................28
Compal: Fairly valued; we downgrade to Hold with PT NT$26...............................................30
Quanta: Raise PT to NT$45 (from NT$36); maintain Hold .......................................................31