Hardware Technology: Hon Hai, HTC, & Networking

Quick Comment – DigiTimes reported Hon Hai hasprepared a new production line for Asustek inKunshan, but the outsourcing order allocationmight not reach Asustek’s 30% target till2H09. Separately, DigiTimes also reported over theweekend that Hon Hai has shut down part of its PCBoperations in China by two weeks to four months. HonHai declined to comment. For NB OEM outsourcingorders, we understand Hon Hai has been targeting towin more new NB OEM orders from PC OEMs includingAsustek. We think Hon Hai is well positioned to winorders from Asustek long-term, given the latter’spressure to speed up outsourcing in order to separatefrom its spin-off Pegatron. However, we are concernedthat end demand slowdown would cause further delay toAsustek’s outsourcing or it might jeopardize Pegatronimmediately. As for Hon Hai’s PCB plants, we think thenews report could be overstated to a certain extent.However, it is not unreasonable to think Hon Hai’s PCBplants are running at below industry average utilizationrates (sub 50% for the time being) given its weakercompetitive position in PCB (both handset HDI) andconventional PC used PCB (for in-house use) thanleading players. We stay EW on Hon Hai.HTC might launch the G2 model in January 2009,said Economic Daily. According to HTC, it will onlysupply T-Mobile with another German Android platformmodel, albeit based on the existing G1 form factor,instead of Touch HD (3.8-inch display and 5MP camera)as reported. The company will introduce a brand newAndroid-platform model (different hardware design) fornon T-Mobile carriers with small shipments in late 1Q atthe earliest; and the coverage likely to be Europe initially,said the company. Overall we gauge Android platformmodels will contribute less than 50% of HTC’s totalshipments in 2009e and we maintain our view that theproduct proposition holds the key to success or it mightpotentially cannibalize into the existing WM OS basedmodels in the fight for operator’s subsidies.