Asia tech takeaway from Intel results ::Macquarie Research

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Asia tech takeaway from Intel results
Event
 Intel posted 2Q results ahead of expectations and guided for +7% QoQ in 3Q,
in line with seasonality. Emerging Market and corporate demand are strong,
while the developed market consumer is weak. Similar to Intel, we see
opportunity for PC brands with Ultrabook NBs in 2012 representing a new
segment of growth. Overall, the numbers were good, but no huge surprise.
For Asia, we are Neutral on substrate names and prefer PC brands with high
EM exposure such as Asustek and Lenovo, and Synnex for its aggressive
positioning in the China market. SPE names such as Tokyo Electron could
also benefit from Intel’s slight capex increase to prepare for 14nm.
Impact
 2Q11 results beat: Intel reported 2Q11 sales of US$13bn (up +1% QoQ,
21% YoY) and EPS of US$0.54, both better than Macq's expectation. 2Q11
ASP was flat (processor unit shipment fell ~3% QoQ, in line with expectation).
Inventory days fell from 75 days in 1Q11 to 72 days in 2Q11, below normal.
 Commercial and Emerging Market PC are strong. 50%+ Intel’s sales come
from EM now. Turkey and India units are +70%; India +17%; Russia +15%;
China +14%; and LatAm +12% in 2Q11; Brazil is the key driver and could be
the third largest PC market by 2012. Weakness persists in developed markets’
consumer demand, particularly Europe. This underscores our view that EM
will be a key driver of PC growth and sustain +6% world chip sales in the
coming years, and we see Asustek, Lenovo and Synnex as best leveraged to
this play. Strength in server processor demand is also a positive indicator for
tech-related demand, and is underscored also by strong indications from IBM.
 3Q normal seasonality. 3Q11 guidance of sales +7% QoQ, GM ~64%, flat
ASP and strength coming from enterprise segment and emerging market and
softer demand in consumer segment and Europe. This is consistent with our
view of +6% QoQ in NB unit in 3Q. Intel still sees +8-10% YoY PC unit growth
this year (lowered from double digit growth) due to weak netbook while PC/NB
should remain strong (double digit growth). We think its downward revision is
directionally right but could still be too high (more like low/mid single digit).
 Flip chip – expect weak set of numbers. While Intel's 2Q beat, our checks
with JPN flip chip substrate suppliers indicate that 1Q FY3/12 volume is
weaker than expected, and total volume is likely to decline 10-15% QoQ due
to correction in MPU orders. Following the order correction in 2Q, we estimate
flip chip volume is likely to rise by high-single digit QoQ in September quarter.
We maintain a Neutral rating on Ibiden and Shinko Electric. We are relatively
more positive on Ibiden due to growth potentials in PCB and FC-CSP and
think a better buying opportunity would arise following a set of weaker 1Q
FY3/12E results.
 Capex raised. Capex was raised by +3% from US$10.2bn to US$10.5bn vs
US$5.2bn in 2010. Given market concerns of a capex cut, we believe this
should be positive for the shares of SPE vendors such as Tokyo Electron.
 Ultrabooks worth watching. Intel will continue to support Ultrabooks, and we
see this as a potential opportunity for PC brands to derive a new segment of
growth and value up instead of cost down in 2012. Apple just launched
refreshed Macbook Air models this week and we expect Asustek will roll out
its UX-21 model in Sept, and expect other brands such as Dell and Acer to
have "Macbook Air like" models by year-end.