Wednesday, July 17, 2013

Technology Sector: PC slump continues (OCBC)

Technology Sector:
PC slump continues

The worldwide shipment of PCs remained sluggish, falling 10.9% YoY to 76.0m units in 2Q13, according to research firm Gartner Inc. This was the fifth consecutive quarter of YoY decline. Besides the cannibalisation of PCs by mobile devices, we believe that the still uncertain macroeconomic backdrop has also played an inherent role in causing the sluggish demand for PCs. Just last week, the IMF trimmed its global economic growth forecasts for both 2013 and 2014. Although Singapore’s 2Q13 GDP growth managed to exceed the street’s expectations, we remain cautious on the downside risks on the tech sector given heightened concerns over China’s economy and persistent weakness in the eurozone area. Hence, we maintain NEUTRAL on the sector. We replace Venture Corp [HOLD; FV: S$7.37] with ECS [BUY; FV: S$0.57] as our top pick in the sector following our downgrade of the former after its weak 1Q13 results.


PC sales dip 11% YoY in 2Q13; Lenovo rises to summit
According to research firm Gartner Inc., worldwide shipment of PCs continued its sluggish momentum, slipping 10.9% YoY to 76.0m units in 2Q13. This represented the fifth consecutive quarter of YoY decline. In terms of PC vendors, Lenovo continued its market share gains, contributing 16.7% of total shipments (1Q13: 14.7%), thus catapulting it to the number one position. We see ECS Holdings as a likely beneficiary of this trend, as it counts on Lenovo as one of its major IT principals, distributing a wide spectrum of the latter’s product lines. As an example, ECS recently signed an agreement with Lenovo to distribute its smartphones in Malaysia and Thailand.

Lingering concerns over macro environment
Besides the cannibalisation of PCs by mobile devices, we believe that the still uncertain macroeconomic backdrop has also played an inherent role in causing the sluggish demand for PCs. Just last week, the IMF trimmed its global economic growth forecasts by 0.2ppt for both 2013 and 2014 to 3.1% and 3.8%, respectively.

But Singapore’s 2Q13 GDP surprises on the upside
Notwithstanding the weaker global macro outlook, Singapore’s GDP still grew 15.2% on a QoQ seasonally adjusted annualised basis (advance estimate) in 2Q13, compared to 1.8% in 1Q13, and also beat the street’s 8.1% median estimate (based on a Bloomberg survey). This growth was partly attributed to a recovery in output of the electronics cluster. However, we remain cautious on the downside risks on the tech sector given heightened concerns over China’s economy and persistent weakness in the eurozone area.

Replace Venture with ECS as our top pick
In light of the uncertain and volatile macro outlook, we prefer to retain our NEUTRAL rating on the cyclical tech sector. Although some of the tech companies we track have new programmes which are expected to be ramped up in 2H13, we believe the possibility of delays or reduction in orders places a dampener to the earnings visibility of these companies. We replace Venture Corp [HOLD; FV: S$7.37] with ECS [BUY; FV: S$0.57] as our top pick in the sector following our downgrade of the former after its weak 1Q13 results. For ECS, we like its cheap valuations, with the stock trading at FY13F 5.1x PER and 0.5x P/NTA.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 15/07/13

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