With computer demand likely to take off following the launch of Microsoft Corp's new Vista operating system for consumers in January, Citigroup Global Markets Inc yesterday said investors should start positioning themselves for PC and motherboard stocks.
"From a sector perspective, we prefer PC and related components and peripherals and are cautious on handset and related components," the company said in a report on next year's outlook for Asian technology hardware.
Although there might be a small demand bump in the current quarter ahead of the launch of Vista's consumer version in January, the company suggested investors start building up positions ahead of the expected growth in PC demand during the second half of next year.
Citigroup expects global PC growth to hit the bottom in the current quarter as consumers hold out for Vista's launch. However, demand is forecast to improve in the first half of next year and accelerate in the second half when the corporate upgrade cycle begins, it said.
It might take three to four quarters before the growth acceleration in global PC sales during the second half of next year will be fully appreciated by the market, with the principal beneficiaries being the stocks of branded PC companies, it said.
"Margins [of computer makers] bottomed in the second quarter this year, with improvements in the third," the report said.
The company forecast that global PC shipments would grow 12 percent next year, up from an estimated 9 percent this year.
Citigroup's estimates were largely in line with those of Taipei-based researcher Market Intelligence Center (市場情報中心), which forecast that the PC market would expand 11.7 percent next year, and Merrill Lynch & Co, which projected a rise of 12.5 percent.
Citigroup also expected PC mainboard stocks to benefit most in the next one to two quarters on improving margins and a new product cycle.
Domestic motherboard makers reported disappointing sales last month, with shipments dropping 13 percent from September owing to a weak clone market, according to Citigroup's statistics.
With fourth-quarter shipments expected to rise only 1 percent over the previous quarter, Citigroup recommended that investors take advantage of potential share price weakness.
"We continue to suggest investors buy PC or motherboard stocks on weakness," it said.
The company's top picks were Acer Inc, Asustek Computer Inc (