Macquarie Research:: Intel results – good for SPE, bad for consumer NB

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MacqTech Express
Intel results – good for SPE, bad for consumer NB

Event
 Intel (INTC US, US$21.30, OP, Shawn Webster) posted 4Q10 results with
1Q11 guidance ahead of street expectation due to commercial line, stock is
+2% in after-market. Intel’s results reinforce our view that commercial PCs will
continue to outperform consumer PCs, which is negative for Taiwan NB plays,
who are more consumer-geared. For substrates, Intel’s 1Q is generally inline
with expectations and a slight positive. On the other hand, 2011 capex
guidance of US$9bn (70%+ YoY) should benefit equipment plays and
reinforces our positive view on the SPE sector.

Impact
 4Q10 inline, 1Q guidance above. 4Q10 sales of US$11.5bn (+3%QoQ) and
67.5% GPM beat Macq (US$11.4bn, 67%) was slightly above and 4Q10 EPS
also beat at US$0.59 (Macq US$0.53). 1Q11 guidance was better due mainly
to commercial lines, with sales flat QoQ at US$11.4bn and GPM slightly lower
at 64%. Intel indicated that consumer demand remains weak but stronger
corporate spending/servers are helping to offset and drive overall business.
 4Q inventory days a flag. Intel's 4Q10 inventories rose +12% QoQ and days
rose to 94 days (83 days in 3Q), near record high of 95-98 days. While this
could be partly attributable to new CPU (Sandybridge) launch and our checks
show Taiwan fabless has already started inventory adjustment since 3Q, we
think this is also something to watch given our recent checks show that
Europe NB demand also slows in addition to continuous sluggish US demand.
Outlook
 Cautious on TWN NB. We believe NB demand from US/Europe will not
recover any time soon as we see evidence that consumers are shifting
spending away from NBs to other portable devices (MacqTech Express: IDC's
4Q10 tells some story - http://macq.wir.jp/l.ut?t=1Ch9tkjrl). We maintain our
1Q11 forecast of -5% QoQ NB units, which is merely 1% YoY growth. Given
various launch of tablets by multiple vendors worldwide, we believe
consumers' interest of purchasing NB may be paused in 1H11 and result in
slower NB demand. Remain Neutral on Acer and Quanta, cautious on overall
Taiwan NB sector.
 Positive for SPE. On other hand, Intel's 2011 capex of ~US$9bn was above
our estimate of US$5.5bn. Apart from spending on technology migration (to
2Xnm), Intel's product strategy may be toward increasing the core count and
average die size, which would entail the need for greater wafer capacity. We
see this as positive for semiconductor production equipment including Tokyo
Electron and Dainippon Screen, and supports our view that the SPE market
could grow by >15% YoY in 2011. This also indicates solid demand prospects
for semi materials suppliers such as SUMCO (wafers) and JSR (photoresists).
 Slightly positive for substrates. Intel's 1Q guidance for flattish QoQ is in line
with outlook from flip chip suppliers (flattish to slightly up QoQ) as Intel builds
up inventory for Sandybridge launch. Our checks indicate the MPU substrateto-
MPU shipment is likely slightly below 1.0x in 4Q10 and likely to rise above
1.0x in 1Q11. Nanya PCB is likely to have strongest QoQ momentum as it
continues to gain market share and remains our top pick in the flip chip
substrate sector.