Macquarie Research: The year of the Tablet: iPad 2 is here

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MacqTech Thematic
The year of the Tablet: iPad 2 is here
Event
 Apple unveiled its iPad 2 overnight with new features (generally in line) and a
slight surprise in the slightly earlier than expected timing of the launch –
March 11 in US and March 25 globally. Feature-wise, iPad 2 is thinner and
lighter and boasts a front and rear camera and faster processor speed.
Supply chain beneficiaries include touch panel players TPK (3673 TT, OP)
and Wintek (2384 TT, OP), lens module maker Largan (3008 TW, N),
backlight players Coretronic (5371 TT, OP) and Radiant (6176 TT, OP),
crystal maker TXC ( 3042 TT, OP), and Hon Hai (2317 TT, OP) in assembly.
TPK and Hon Hai are on the MarQuee list of top Buy ideas across the region.

Impact
 iPad 2’s new features. Generally in line with expectations, iPad 2 is one-third
thinner, lighter (1.6 lbs) and has faster processing (dual core A5 chip). It also
features a front (VGA)/rear (1.3 MP) facing camera, gyroscope (for better
gaming) and likely more DRAM (up to 1GB versus 256MB for iPad 1). What
has not changed is it still has no flash support and the resolution stays at
720p. iPad 2 will start at US$499 for the basic model (no change) and go up
to US$829 (3G version with 64GB).
 Touch panel plays benefit. As our analyst Kylie Huang highlights, TPK and
Wintek are the major beneficiaries of iPad 2. We expect TPK to remain as
Apple's first source for iPad 2 with a 40-50% share while Wintek is the second
source with 40%+ allocation. We expect tablet PCs to be the key driver for the
touch panel market this year thanks to their higher ASP/larger size while iPad
2 should still dominate the market with total shipments exceeding 30-40m
units this year. Backlight makers such as Radiant (existing) and Coretronic
(new supplier), crystal maker TXC and lens maker Largan also benefit from
iPad 2’s new features.
 Memory rising. Damian Thong and Michael Liu highlight the improved
features of tablets/smartphones are rapidly driving up the memory content
and demand for NAND flash and DRAM. We estimate a 57-fold increase in
NAND flash demand here and by CY2015, the tablet market could account for
22% of total NAND flash demand, from just 4.5% in 2010. Our top picks are
Samsung and Toshiba. We are also positive on Elpida and Powertech on the
former's aggressive push into mobile DRAM and the latter's increasing
exposure to mobile DRAM and NAND flash.
 More challenges for PC. Hon Hai (2317 TT, OP) and Foxconn Tech (2354
TT, OP) should be major beneficiaries as they are the only metal casing and
assembly suppliers for iPad 2. For PC brands, given their lack of a popular
user interface, software integration capability and good relationship with
telecom carriers versus the smartphone camp, we expect the entry barriers
for developing tablets to remain high and believe they will continue to suffer
from consumer spending shifting away from NBs to tablets.
Outlook
 Advances in mobile devices in terms of features and user interface are far
outpacing those of PCs in our view. A result is that consumers are diverting
spending thereby driving strong growth in demand for smartphones and
tablets. We expect ~55-60m tablet PC shipments in 2011, with Apple
continuing to be the dominant tablet PC supplier. The implication is negative
for the traditional PC (Wintel platform) space and benefits the touch panel
sector the most in our view. Our Apple iPad 2 supply chain top picks include
TPK and Wintek in touch panels, Largan in camera lens, Radiant and
Coretronic in LCD backlights and Hon Hai in system assembly.