Greater China Technology Hardware:Implications from Intel Call & IDC 1Q PC Shipment Results

Quick Comment: IDC posted preliminary 1Q global PC shipments on Apr. 10, and Intel released 1Q14 earnings results on Apr. 16. 1Q PC shipments were in line with MS in-house projection but marginally better than IDC’s forecast. Both Intel and IDC commented that consumer PC remains challenging, while commercial PC showed continued improvement in 1Q, likely helped by the last push from the termination of Windows XP support on April 8. The YoY decline in PC shipments has been stabilizing from 4Q. For data center sales, Intel continued to report robust YoY growth in 1Q (+11% YoY) vs. +5-6% YoY in 2012 and 2013, boosted by cloud segment. In PC space, we prefer Asustek on its NB share gain story amid industry consolidation and its rich cash yield support (~6%). In ODMs, we like Quanta on robust server growth propelled by accelerating cloud adoption and Pegatron for iPhone 6 story in 2H14.

    1Q14 results – roughly in line: IDC said 1Q global PC shipments were 73.4mn units, down 11.3% QoQ and -4.4% YoY, roughly in line with MS in-house projection and IDC’s forecast at down 4-5% YoY. IDC stated that the Windows XP migration and commercial spending helped offset consumer PC and emerging market weakness. Intel’s PC client group sales dropped 8% QoQ (-1% YoY) in 1Q. The sequential decline for top 5 NB ODM shipments in 1Q (down 18% QoQ/-4% YoY) was greater than PC shipment decline, likely because DT performed better on corporate refresh cycle and Lenovo’s increase in NB in-house production.

    2Q14 outlook – expect mild seasonal uptick: Intel guided for 2Q sales of US$12.5-13.5bn (up 2% QoQ and +2% YoY based on the midpoint target), in line with the Street’s expectation of US$13bn. This is in line with the historical norm of 1-5% QoQ growth for 2Q in 2010-2013.This is also similar to what we model for top 5 ODMs’ 2Q NB shipments of up 3% QoQ and down 5% YoY.