Tech Hardware Supply Chain - Gazhoo

Bhavin Shah
(852) 2800-8538
bhavin.a.shah@jpmorgan.com
Asia Pacific Equity Research
20 April 2009
very aggressive in taking market share. If this indeed plays out, then ASUS and Acer
should benefit significantly in the netbook space. Japanese PC brands are likely to be
the worst hit from this phenomenon. In 4Q08, we saw proliferation of netbooks
starting to adversely affect the profitability of these brands. We expect incremental
unit upside to benefit notebook ODMs and component vendors.
Challenges for the netbook segment
Low-priced models: Open price point schemes
OEMs, such as HPQ and Acer, have dedicated product development teams (open
price point teams), which design customized products for emerging markets. These
teams often utilize low-priced components (in some cases, shifting to the Taiwan
food chain), with limited warranty and no bundling of software or OS to reduce price
points. Open price point schemes at several PC OEMs are more suited to address the
emerging market need, in our view. Our checks suggest that HP is extending the
offer of OPP (open price point) models from the emerging market to a global launch.
Netbooks could be a temporary fad or a longer-term deflationary force
We believe there will be interest for netbooks as the second-generation products start
shipping, but we are not sure that this emerging segment has staying power. If
anything, netbooks could pressure ASPs for more traditional notebooks, but even this
risk could be minor, as we think netbooks could eventually lose to smartphones. Our
current PC forecast incorporates a higher level of ASP erosion in notebook PCs due
to the netbook.
Netbooks could give way to the smartphones over time
The biggest advantage of netbooks is that it is a mobility device with easy internet
access but it may have to face some competition from iPhone and similar devices,
which are simplifying internet access in mobile phones. A certain segment of
consumers might prefer using a handset device, instead of a sub-notebook, as their
mobility device. Acer’s and ASUS’s move to co-operate with operators and bundle
3.5G data cards in low-cost PCs is an indication of this potential convergence. Over
time, we think there is risk that the netbook could cede whatever market presence it
captures to smartphones. The netbook is intended to be an ultra-portable device that
provides the end-user some software applications with the focus more on email and
internet browsing—and in our view, this is the problem. For now, the netbook does
not pack enough processor and software capabilities to have the look and feel of a
PC. Instead, it feels more like a smartphone, but with a more expensive price point
and without the telephone calling capabilities.
How Apple could introduce a netbook-like device
The following section up to ‘All-in-one PCs’ has been excerpted from our US IT
hardware and imaging analyst Mark Moskowitz's report, “Our Vision of How Apple
Could Introduce a Netbooklike Device,” originally published on 13 March 2009.
Please see MorganMarkets for the full report.
We believe 2009 is the right time for Apple to enter the netbook PC market.
Speculation about a netbook-like device from Apple has picked up in recent weeks.
We think such an entry makes sense as the company could further cement its
leadership in consumer electronics products. Here, we do not expect Apple to
diminish its high-end stature, and we estimate a netbook-like device would be
accretive to Apple’s gross margins.
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