UBS:: Tech Strategy -Sticking with O/W Semis

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UBS Investment Research
Asia Tech Strategy
S ticking with O/W Semis
􀂄 Positive view on Asia Tech remains in spite of recent outperformance
We move up a notch in Semis by adding OSAT to Foundries and Memory in O/W,
Fabless Semis to N/W from U/W whilst moving down Telecom Equipment to
N/W. Out of 6 Most Preferred stocks in Asia Tech, 5 are now semis-related.
􀂄 2011 is not 2008 – the bar is low already
2011 will end up not being a great year for Asia Tech due to several sector-specific
factors: DRAM/LCD and then non-memory semis overcapacity, sluggish
consumer PC and TV sales (due in part to replacement cycles) and several
company-specific execution issues. Altogether, Asia Tech net earnings are
therefore down 22.1% already YoY in ‘11E. 2008, in contrast, saw decent PC and
TV end demand til 4Q08. Put simply, the bar is low.
􀂄 Channel inventory control likely a key them for 3Q11 results
We believe semis de-stocking will likely occur faster than expected in 4Q11,
which could lead to under-shipment vs. OEM consumption rates. This will likely
be helped by diligent downstream inventory management throughout 3Q.
􀂄 Adding ASE to Most Preferred, LGE to Least Preferred
We add ASE (Buy) to Most Pref. on back of Q4 revenue momentum (according to
Jonah’s checks) of -5% to -10% QoQ revenue growth not worse than expectations,
whilst longer term fundamentals are sound. We add LGE (Neutral) to Least Pref.
post recent stock performance in spite of consensus downside (according to our
estimates). Kinsus, TPK, Samsung, Hynix & TSMC remains in Most preferred;
Acer, HCL Tech, Wintel, Hon Hai & Nanya PCB in Least Preferred.