Given sluggish demand in developed markets and soaring inflation in emerging markets, Citigroup forecast cautious consumer discretionary spending, with notebook computer makers faring better than those in the handset supply chain.
In a report released on Thursday, Citigroup Global Markets’ equity research team wrote that margin risk was much lower for notebooks than that for handset-related companies.
“Notebook demand is more stable given low penetration in emerging markets and continuing cannibalization of the desktop market,” analyst Eve Jung said.
Compiling recent Intel guidance on notebook growth and Citi’s internal research, Jung said she “expects the notebook shipments in the third quarter from the top five notebook original design manufacturers [ODMs] to grow by 23 percent.”
The five firms are Quanta (廣達), Compal Electronics (仁寶), and Wistron (緯創資通), Inventec (英華達) and Asustek (華碩).
She also expected sales in the “second half to resume momentum after Intel’s official launch of the Centrino 2 platform.”
On the other hand, Citigroup handset analyst, Kevin Chang and Wei-chun Liu said that handset margins were at risk because of component cost concerns and the impact of soaring inflation in emerging markets.
Hopes that outsourcing from South Korean handset vendors Samsung and LG would come through seems highly unlikely, they wrote.
Nokia estimates that replacement demand would account for about 41 percent of global handset sales this year, while new subscriber demand would make up a smaller 21 percent. But with inflation surging, handset replacement has become difficult to assess, Citigroup said.
The report advised selective investment in Taiwanese handset stocks that offer high technological barriers, market share gains and a good product mix.
Citigroup reiterated its “buy” rating on notebook ODMs Quanta and Compal Electronics and cellphone lens maker Largan (大立光). It also maintained its “sell” rating on handset supply chain makers Merry (美律), Silitech (閎暉) and Compal Communications.
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