(BC) Asia Ex-Japan IT Hardware Initiating Coverage Ultra Books and Tablets Creating Op

EQUITY RESEARCH
6 October 2011
ASIA EX-JAPAN IT HARDWARE Initiating coverage: Ultrabooks and tablets creating opportunities for some suppliers
We initiate on three IT hardware suppliers Foxconn Tech (FTC), Shin Zu Shing (SZS) and Ju Teng all No. 1 in their sub-segments of notebook casings and hinges: We expect FTC (2354 TT, 1-OW, PT NT$120) to benefit from a 3-year upcycle for metal casings and SZS (3376 TT, 2-EW, PT NT$58) to profit on the likely adoption of hollowtype hinges in ultra-thin NBs. However, we believe Ju Teng (3336 HK, 3-UW, PT HK$1.20) will suffer near term from the cannibalization of NBs with plastic casings until it can fully offer metal casings. We maintain our 2-Neutral view on the Asia ex-Japan IT Hardware sector with FTC, Simplo, Cheng Uei, Acer and Lenovo our top picks. Tablets/ultrabooks appear the way forward: Most importantly, we view FTC, SZS and Ju Teng as important winners and losers along with polymer battery makers Simplo (1-OW, PT NT$290) and Dynapack (2-EW, NT$130) in the current migration from conventional NBs with plastic casings to tablet/ultrabooks with metal casings. Sleek and stylish but with an acceptable ASP of US$699: The ultrabooks are poised for launch in 2H11 and 2012 priced similarly to NBs, yet even more stylish and more affordable than Apples MacBook Air/Pro will likely not create a new NB segment, but rather help to sustain and improve the market for conventional NBs by enhancing the products differentiation from tablets and smartphones. For our detailed proprietary analysis of the cost breakdown and margins for ultrabooks with various configurations see p9, Fig 5). Metal casings are becoming the norm for three reasons: 1) durability thinner products require a stronger shell; 2) style consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness metal casings are recyclable and their production low polluting. FTC should remain the leader in metal casings in 2012: In terms of capacity and appealing prices, FTC should remain the preferred metal casing provider for tablets/ultrabooks in the near term. Moreover, we believe FTC still has ample opportunity to expand its sales further given its first-mover advantage, position as the sole supplier for iPads/iPhones and the robust market for ultrabooks that we forecast. SZSs thin and higher-end (hollow type) hinges for the MacBook Air/Pro and possibly for ultrabooks should ease any impact from tablet cannibalization of NBs. Ju Teng is working to catch up in the metal casings, but will likely not be competitive until 2013.
Price Company Foxconn Tech Shin Zu Shing Ju Teng Ticker 2354.TT 3376.TT 3336.HK Rating 1-OW 2-EW 3-UW PT Pot. up/ EPS CAGR P/E (x) 2011E 13.6 16.0 6.0 2012E 10.7 12.8 5.9
INITIATING COVERAGE Asia ex-Japan IT Hardware 2-NEUTRAL Unchanged For a full list of our ratings, price targets and earnings in this report, please see table on page 2 Asia ex-Japan IT Hardware Allen Chang +8862 663 84695 allen.chang@barcap.com BCSTW, Taiwan Kirk Yang +852 290 34635 kirk.yang@barcap.com Barclays Bank, Hong Kong
(NT/HK$) (NT/HK$) down to PT 2010-13E 96.8 60.4 1.40 120 58 1.2 24% -4% -14% 20% 1% -12%
Source: Company data, Barclays Capital estimates
Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 65.
Barclays Capital | Asia ex-Japan IT Hardware
Summary of our Ratings, Price Targets and Earnings Estimates in this Report
Company Rating Price Price Target Old EPS FY1 (E) EPS FY2 (E)
Old New 04-Oct-11

Asia ex-Japan IT Hardware Acer Inc. (2353 TT / 2353.TW) Asustek Computer Inc. (2357 TT / 2357.TW) Cheng Uei Precision Industry Co., Ltd. (2392 TT / 2392.TW) Chicony Electronics (2385 TT / 2385.TW) Compal Electronics Inc. (2324 TT / 2324.TW) Darfon Electronics (8163 TT / 8163.TW) Digital China Holdings Ltd. (861 HK / 0861.HK) Dynapack International Technology Corp. (3211 TT / 3211.TW) Foxconn Technology Co., Ltd. (2354 TT / 2354.TW) Hon Hai Precision Industry Co., Ltd. (2317 TT / 2317.TW) Inventec Inc. (2356 TT / 2356.TW) Ju Teng International Co., Ltd. (3336 HK / 3336.HK) Lenovo Group Ltd. (992 HK / 0992.HK) Pegatron Corp. (4938 TT / 4938.TW) Quanta Computer Inc. (2382 TT / 2382.TW) Shin Zu Shing Co., Ltd. (3376 TT / 3376.TW) Simplo Technology Co., Ltd. (6121 TT / 6121.TW) Skyworth Digital Holdings Ltd. (751 HK / 0751.HK) Sunrex Technology (2387 TT / 2387.TW) Synnex Technology International Corp. (2347 TT / 2347.TW) TPV Technology Ltd. (903 HK / 0903.HK) Wistron Corporation (3231 TT / 3231.TW) 2-Neu 2-Neu 1-OW 1-OW 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 3-UW 3-UW 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW N/A 1-OW 1-OW 1-OW 3-UW 3-UW N/A 3-UW 1-OW 1-OW 2-EW 2-EW 3-UW 3-UW N/A 2-EW 34.00 203.00 65.50 50.00 26.60 18.75 8.14 102.00 104.00 68.90 11.50 1.40 4.66 28.35 58.80 61.00 184.00 2.36 20.30 67.20 2.20 34.50
New %Chg Old New %Chg Old New %Chg
45.00
45.00
-2.01 -2.01 20.93 20.93 5.91 7.40 3.13 0.46 1.14 9.84 N/A 7.64 1.46 N/A 0.04 0.03 5.71 N/A 5.91 7.40 3.13 0.46 1.14 9.84 7.26 7.64 1.46 0.20 0.04 0.03 5.71 3.87
4.47
4.47
290.00 290.00 100.00 100.00 52.00 26.00 28.00 18.30 52.00 26.00 28.00 18.30
24.16 24.16 9.07 5.84 3.72 1.31 1.41 9.07 5.84 3.72 1.31 1.41
130.00 130.00 N/A 120.00
11.84 11.84 N/A 9.23 9.98 1.43 9.98 1.43
100.00 100.00 10.00 N/A 6.50 27.00 49.00 N/A 10.00 1.20 6.50 27.00 49.00 58.00
N/A 0.20 0.05 3.39 6.16 0.05 3.39 6.16
N/A 4.85 20.71 20.71 0.71 2.06 5.26 0.08 5.01 0.71 2.06 5.26 0.08 5.01
1-OW 1-OW 1-OW 1-OW 3-UW 3-UW 2-EW 2-EW 2-EW 2-EW 2-EW 2-EW
290.00 290.00 6.10 19.00 83.00 3.60 40.00 6.10 19.00 83.00 3.60 40.00
14.12 14.12 0.61 1.64 4.53 0.06 5.04 0.61 1.64 4.53 0.06 5.04
Source: Barclays Capital Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency. FY1(E): Current fiscal year estimates by Barclays Capital. FY2(E): Next fiscal year estimates by Barclays Capital. Stock Rating: 1-OW: 1-Overweight 2-EW: 2-Equal Weight 3-UW: 3-Underweight RS: RS-Rating Suspended Sector View: 1-Pos: 1-Positive 2-Neu: 2-Neutral 3-Neg: 3-Negative
6 October 2011
INVESTMENT SUMMARY
Until this year, metal casings had been a niche segment within the supply chain, requiring both sufficient capacity and a high yield rates for suppliers to be profitable; however, we see 2011 as the beginning of a 3-year upcycle for metal casings as they become the mainstream packaging material
We initiate coverage of three IT hardware suppliers Foxconn Tech (1-OW, PT NT$120), Shin Zu Shing (2-EW, PT NT$58) and Ju Teng (3-UW, PT HK$1.20). All three companies are important players in the notebook supply chain, each ranked No. 1 in their respective subsegments. However, we also see them as key players in the current migration from conventional NBs with plastic casings to tablet/ultrabooks with metal casings. Other key companies with exposure to the strong growth expected in tablets/ultrabooks are the polymer battery makers Simplo(1-OW, PT NT$290) and Dynapack (2-EW, NT$130). We maintain our 2-Neutral stance on the Asia ex-Japan IT Hardware sector. Our top 1-OW picks among the 22 stocks we cover are FTC (2354.TT), Simplo (6121.TT), Cheng Uei (2392.TT), Acer (2353.TT) and Lenovo (0992.HK) for EPS growth in 2012E.
Thin-and-light concept to drive product evolution

We expect FTC to benefit most from the expected upsurge in metal casings, as it should remain the leader in the segment for 2012 and have ample opportunity to expand because of the following: 1) its first-mover advantage; 2) its position as the sole supplier for the iPad and iPhone; and 3) its potential to gain from the expected boom in ultrabooks overall
We reiterate our view that the thin-and-light concept will drive product design trends such as that for tablets (the iPad in particular), ultra-thin type NBs (MacBook Air/Pro), ultrabooks (for most of the other top-tier brand PC makers) and mid- to high-end smartphones (iPhone in particular). For these devices, the product must satisfy three requirements: 1) durability thinner products require a stronger shell; 2) style consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness metal casings are recyclable and their production low polluting.
Implications of tablet PCs and ultrabooks the component winners reshuffle

With the maturing concepts of thin-and-light like products and cloud computing (lower dependency on hardware specifications and a higher reliance on applications/software), the winners among the component suppliers are being reshuffled. We believe there are three key tablet/ultrabook components that determine the winners: Metal casings: These make the device both more stylish and durable for thin-type NBs. FTC (2354.TT) has the most to benefit, in our view. Polymer batteries: This is the must-have component to avoid thickness issues; Simplo (6121.TT) and Dynapack (3211.TT) appear well positioned. Hollow-type hinges: These are the best-to-use component to significantly reduce thickness; SZS (3376.TT) should be the main beneficiary.
Figure 1: The likely winners and losers of the tablet PC and ultrabook boom
Company Winners Ticker Situation in 2011-12E Foxconn Tech 2354.TT First mover, sole metal casings supplier for iPad/iPhone and a major supplier for ultrabooks Simplo Dynapack Losers Juteng 6121.TT Major polymer battery supplier for iPad, MacbookAir/Pro and most other top-tier brand tablets and ultrabooks 3211.TT Major polymer battery supplier for iPad, MacbookAir/Pro 3336.HK Major plastic casings supplier for most brand NBs, but suffers from cannibalization of NBs (with plastic casings)
Source: Barclays Capital
6 October 2011
Strong sales of iPhone and iPad driving demand for metal casings
Apple (1-OW; PT US$555) Covered by Ben Reitzes Ben believes Apple will continue to extract more profit from competitors in key growth categories
For 2011-12E, we prefer stocks strongly associated with Apple products, tablets and thin-andlight NBs. According to our US IT hardware analyst, Ben Reitzes, Apple will ship 39mn iPad units in 2011 and 49mn in 2012. Including non-Apple tablets, Ben estimates total shipment volumes for tables at 63mn for 2011E and 79mn for 2012E. Bens y/y growth rate forecasts of 26% for 2012 and 20% for 2013E are far above the forecasts of single-digit growth rates for the PC industry overall near term. We believe FTC, as the main supplier of metal casings for Apple products (including iPhones/iPads/iMacs) is set to benefit from this expected growth. Ben rates Apple as 1-OW with a 12-month PT of US$555 amid his 1-Positive view on the US IT Hardware sector. He believes Apple will continue to extract more profit from competitors in key growth categories.
Figure 2: iPhone forecasts, 2010-13E

140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2010 2011E 2012E 2013E 47,487 80,361 Units in (000) 110,785 129,950
Figure 3: iPad and total tablet forecasts, 2010-13E

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Units in (000) 78,661 62,669 48,736 38,904 18,000 14,789 59,765 94,065
2010
2011E
2012E
2013E
Apple iPhone Forecast

Source: Barclays Capital estimates
Apple iPad Forecast

Total Tablet Forecast
Valuations
We base our 12-month price targets for FTC, SZA and Ju Teng on P/E. The P/E multiples we use are in line with historical average forward P/Es for each company (see the 12-month forward P/E charts in each company section of this report). For FTC, we use 13x (historical P/E for 2007-11E was 10-40x with an average of 13.5x for 2009-11E) applied to our 2012E EPS of NT$9.23 for a price target of NT$120. For SZS, we use 12x (normal trading cycle (1024x) of 12x) applied to our 2012E EPS of NT$4.85 for a price target of NT$58. For Ju Teng, we use 5x applied to our 2012E EPS of HK$0.24 (normal trading cycle (2-10x) of 6x) for a price target of HK$1.20.
Risks
The key risks on an industry and macro level that could prevent our price targets from being achieved, in our view, include: 1) lower-than-expected demand for tablets, Apple products and ultrabooks; 2) any unexpected change in the material cycle; and 3) a new impactful competitor coming along and taking significant market share. All three scenarios would cause major concerns for us regarding our valuations and assumptions for growth momentum in 2012. However, we believe that all three are highly unlikely to occur.
6 October 2011
Figure 4: Asia ex-Japan IT Hardware and Wireless Equipment & Products sectors valuation comparison
Price Company Notebook makers Hon Hai Lenovo Asustek Acer Wistron Pegatron Compal Electronics Inventec Quanta Computer PC component suppliers Catcher Largan Simplo Cheng Uei Precision Lite-on Tech Dynapack Foxconn Tech Shin Zu Shing Ju Teng Delta Electronics Celxpert Jarllytec Senao Aurora Pan International Coxon 2474 TT 3008 TT 6121 TT 2392 TT 2301 TT 3211 TT 2354 TT 3376 TT 3336 HK 2308 TT 3323 TT 3548 TT 2450 TT 2373 TT 2328 TT 3607 TT 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 1-OW 2-EW 3-UW NR NR NR NR NR NR NR 300.0 1,080.0 290.0 100.0 39.0 130.0 120.0 58.0 1.2 NA NA NA NA NA NA NA 171.0 652.0 180.5 63.0 26.9 102.5 96.8 60.4 1.4 69.0 20.2 17.8 86.2 43.0 29.2 38.0 75.4% 65.6% 60.7% 58.7% 45.0% 26.8% 24.0% -4.0% -14.3% NA NA NA NA NA NA NA 4,044 2,858 1,653 979 2,030 435 3,709 313 204 5,413 70 29 713 474 485 143 25.7 21.6 15.2 16.9 6.8 11.5 14.8 12.8 4.7 10.3 7.9 9.7 17.9 17.8 44.6 13.0 10.7 14.5 12.8 10.9 6.4 10.4 13.3 15.7 10.5 12.9 8.2 NA 14.2 12.6 NA NA 9.0 10.3 8.7 6.9 5.9 8.7 10.5 12.6 6.2 NA NA NA NA NA NA NA 3.5 6.1 3.8 1.5 0.7 2.8 2.1 1.3 0.4 2.2 0.7 0.4 4.7 2.1 1.2 0.8 2.6 5.2 3.2 1.4 0.7 2.5 2.0 1.4 0.4 2.0 NA NA NA 2.3 NA NA 2.2 4.3 2.5 1.2 0.7 2.2 1.7 1.5 0.3 NA NA NA NA NA NA NA 13.5% 28.0% 25.0% 8.8% 10.7% 24.1% 14.4% 10.0% 7.5% 21.1% 9.5% 4.5% 26.0% 11.9% 2.7% 6.0% 24.5% 36.0% 25.0% 13.2% 11.2% 23.9% 15.3% 9.2% 3.4% 15.3% NA NA NA 18.5% NA NA 24.0% 41.5% 29.1% 17.7% 11.7% 25.7% 16.4% 11.7% 5.3% NA NA NA NA NA NA NA 2317 TT 0992 HK 2357 TT 2353 TT 3231 TT 4938 TT 2324 TT 2356 TT 2382 TT 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 3-UW 3-UW 3-UW 100.0 6.5 290.0 45.0 40.0 27.0 26.0 10.0 49.0 67.6 4.7 208.0 33.7 35.2 27.3 27.3 11.8 58.5 47.9% 39.5% 39.4% 33.7% 13.6% -1.1% -4.6% -14.9% -16.2% 23,610 6,179 5,116 2,973 2,398 2,013 3,947 1,137 7,339 9.3 42.2 9.7 5.9 5.7 10.0 5.0 10.0 11.9 8.8 21.1 9.9 NA 7.0 NA 8.7 8.2 10.2 6.8 14.8 8.6 7.5 7.0 8.1 7.3 8.1 9.5 1.5 3.6 1.5 1.0 1.2 0.7 1.0 0.9 2.0 1.3 3.2 1.4 1.1 1.2 0.6 1.0 0.8 1.8 1.1 2.8 1.3 1.0 1.1 0.6 1.0 0.8 1.7 16.1% 8.7% 15.5% 16.1% 21.2% 6.8% 20.6% 8.6% 16.7% 14.9% 15.1% 14.1% -6.8% 17.2% 0.1% 11.9% 9.9% 17.9% 16.8% 18.9% 15.4% 13.1% 15.9% 7.7% 13.1% 9.6% 17.9% Ticker Rating target Price local Pot. up /downside Mkt cap US$mn 10A P/E (x) 11E 12E 10A P/B (x) 11E 12E 10A ROE (%) 11E 12E
Notes: Prices at close of trading on 5 October 2011. NR = not rated; 1-OW = 1-Overweight; 2-EW = 2-Equal Weight; 3-UW = 3-Underweight For full disclosures on each rated company, including details of company-specific valuation methodology and risks, please refer to: http://publicresearch.barcap.com. Source: Bloomberg, Bloomberg consensus estimates for non-rated stocks, Barclays Capital estimates for rated stocks
6 October 2011
CONTENTS
INVESTMENT SUMMARY..................................................................................................................3 ULTRABOOKS AND THIN-TYPE NOTEBOOKS: DRIVING GROWTH IN NOTEBOOK PCS........7 METAL CASINGS: THE LATEST 3-YEAR CYCYLE TREND FOR PACKAGING MATERIALS....10 POLYMER BATTERIES: MUST-HAVE COMPONENT TO AVOID THICKNESS ISSUES ............11 HOLLOW-TYPE HINGS: BEST-TO-USE COMPONENT TO REDUCE THE THINKNESS ISSUE FOR ULTRABOOKS...........................................................................................................................12
COMPANIES
FOXCONN TECH (1-OW; PT NT$120; 24% POTENTIAL UPSIDE): ULTRA-THIN NBS TO SUSTAIN GROWTH ..........................................................................................................................13 SHIN ZU SHING (2-EW; PT NT$58; 4% POTENTIAL DOWNSIDE): EXPECTING ULTRA-THIN NBS TO TURN CANNIBALIZATION AROUND ..............................................................................27 JU TENG (3-UW; PT HK$1.20; 14% POTENTIAL DOWNSIDE): SUFFERING FROM THE MATERIAL MIGRATION ..................................................................................................................40
APPENDIX
APPENDIX I: WOA! (WINDOWS ON ARM) AN OPPORTUNITY FOR NON-APPLE TABLETS/ULTRABOOKS WITH WIN8/ARM................................................................................50 APPENDIX II: NOTEBOOK, DESKTOP AND TABLET PCS............................................................51 APPENDIX II: INTEL MICROPROCESSOR ROADMAP .................................................................61 APPENDIX III: APPLE BUYER/SUPPLIER MATRIX .......................................................................62 APPENDIX IV: BILLS OF MATERIALS ............................................................................................63
6 October 2011
ULTRABOOKS AND THIN-TYPE NOTEBOOKS: DRIVING GROWTH IN NOTEBOOK PCS

We reiterate our forecast for sales growth of 48% y/y for tablet PCs and 180% for thintype notebooks (from 14mn in 2011E to 40mn units in 2012E), which we expect to account for 10-20% of total NB shipments in 2012, up from 6% for 2011E (please refer to our 19 July report Initiate coverage of Simplo and Dynapack: leaders of the pack [click here]). We believe ultrabooks and thin-type NBs the MacBook Air/Pro and the up-andcoming thin-type NBs of 17-21mm will be the key trend in the coming years in the fastgrowing NB product segment.
Key components for tablet PCs and ultrabooks

Metal casings: These make devices both more stylish and durable for thin-type NBs. Polymer batteries: This is the must-have component to avoid thickness issues. Hollow-type hinges: These are the best-to-use component to significantly reduce thickness.
Just what is a thin-and-light NB?

We see thin-and-light NBs as not a new segment to compete with standard NBs but an improved version of standard NBs given their similar pricing range
When we refer to thin-and-light NBs, we mean: 1) ultrabooks the term originally coined by Intel to describe NBs with a thickness of 18mm or less; 2) products such as Apples MacBook Air and MacBook Pro; and 3) other extremely thin NBs that usually use polymer batteries for their thin-and-light form factor. (Please see Appendix II, p55 for our matrix on NB, desktop and tablet PCs.) Most top-tier brand PC makers appear to be developing thin-and-light NBs (eg, ultrabooks) for shipment starting from September 2011 and early 2012E (as Acer did in September). These thin-and-light NBs are gaining popularity through innovation and development, mainly because of the following: 1) durability thinner products require a stronger shell; 2) style consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness metal casings are recyclable and their production low polluting.
Our proprietary analysis indicates an ASP of US$699 is achievable.
Is this just another netbook-like story a new segment that was created, yet failed to keep growing? We believe this isnt the case. Ultrabooks and thin-and-light NBs are not at all like netbooks (low-end, low quality and low ASPs) or CULV (consumer ultra low voltage) laptops, which had disappointing hardware performances. In fact, we believe they represent not a low-end product but an improved segment, which we expect to help sustain NB demand. We see thin-and-light NBs as not a new segment to compete with standard NBs but an improved version of standard NBs given their similar pricing range. What impact/concept do tablet PCs (iPad in particular) bring us? 1) A lower dependency on hardware specs as a result of maturing applications and various cloud-concept applications; 2) portability tablets enlighten consumers how thin and light a computing device can be, thus, the thin-and-light trend will likely be a key attribute to ensure sales; 3) stylish design the computing device is no longer just a PC, but more like an accessory we use in our daily work and life; and 4) more affordable ASPs. Our proprietary analysis indicates an ASP of US$699 is achievable (Figure 5). Hardware specs are being simplified but still allow for normal usage. Near term, we do not expect any additional increases in the bill of materials (BOM). Please refer to Figure 5 for details of our BOM analysis for ultrabooks.
6 October 2011
Figure 5: Ultrabooks bill of materials (BOM)

1000 850
Modules (CMOS, T/P, K/B, W/L, B/T, Speaker, Mic) Others (Connectors, cables, Antenna, Hinge, Thermal, Fan, PCB, RLC, Audio chip, LAN chip)
Local tax, distribution, retailer, and others 800 Local tax, distribution, retailer, and others Local tax, distribution, retailer, and others
750 Local tax, distribution, retailer, and others Local tax, distribution, retailer, and others
Local tax, distribution, retailer, and others
ASP US$ 699

650
650 Metal casing (unibody): $50 600
650
BOM Cost Local tax, distribution, retailer, and others
## BOM Cost Local tax, distribution, retailer, and others
600 Local tax, distribution, retailer, and others
600
## Local tax, distribution, retailer, and others ##
550
550
550
550 MVA, packings, overhead, opex: $59 500 Adaptor: $5
BOM Cost
600 Metal casing (die-casting) $25 MVA, packings, overhead, opex: $59 500 Adaptor: $5 BOM Cost Batteries (Polymer): $35 450
600 Metal casing (unibody): $50
BOM Cost
600
550
MVA, packings, overhead, opex: $59 Adaptor: $5
Metal casing (unibody)+laser etch: $100
550 MVA, packings, overhead, opex: $68 Adaptor: $5
500 Metal casing (die-casting): $25 450 MVA, packings, overhead,opex: $59
500
Metal casing (unibody): $50
Batteries 500 (Polymer): $35
500
##
plastic casing: $10
BOM Cost
Batteries (Polymer): $35 450 450
OS: $50 450 Batteries (Polymer): $30
##
MVA, packings, overhead, opex: $59 Adaptor: $5 Batteries (cylindrical): $18
450 MVA, packings, overhead,opex: $59
OS: $50 400 Adaptor: $5 Batteries (Polymer): $35 350 350 OS: $50 OS: $50 400 Adaptor: $5 Batteries (Polymer): $35 350 400 Others: $28.7 Modules: $16.8 400
OS: $50 400 Others: $28.7 Modules: $16.8
Others: $28.7 Others: $28.7 Modules: $16.8 400 Modules: $16.8
## OS: $50
350
350 Hinge-up LCM: $82
350 Hinge-up LCM: $82
LCD: 43 300 300
LCD: 43 300 300
## Others: $28.7 Modules: $16.8 ## LCD: 43
300 Others: $28.7 Modules: $16.8 250 LCD: 43
300 Others: $28.7 Modules: $16.8 250 LCD: 43
250 SSD: $134
250 SSD: $134
250 SSD: $134
250 SSD: $115
##
HDD: $35
200
HDD: $35
200
HDD: $35
200
200
200
200
Memory: $20 ## 150
Memory: $20 150
Memory: $20 150
Memory: $20 150
Memory: $20 150
Memory: $20 150
Memory: $20
## CPU +C/S: $150
100 CPU +C/S: $150
100 CPU +C/S: $150
100 CPU +C/S: $150
100 CPU +C/S: $150
100 CPU +C/S: $150
100 CPU +C/S: $150
50
50
50
50
50
50
50
10
10 #1 Ultrabook (HDD) + Metal casings (diecasting) 11%, with ASP of $699
10 #2 Ultrabook (HDD) + Metal casings (Unibody) 5%, with ASP of $699
10 #3 Ultrabook (SSD) + Metal casings (diecasting) 6%, with ASP of $799
10 #4 Ultrabook (SSD) + Metal casings (Unibody) 9%, with ASP of $899
10 #5 Ultrabook (SSD) + Metal casings (Unibody)+Hing e-up LCM 6%, with ASP of $899
10 Apple MacbookAir
Configuration
Conventional NBs
Blended margin
6 October 2011
Figure 6: Key product differentiation hinge-up LCM vs die casting vs unibody

Terms Hinge-up LCM Key concept: Key advantage: Key concern: Die-casting Key concept: Key advantage: Key concern: Traditional process of metal casing Most popular, due to its cycle time is faster than Unibody's, with more affordable pricing Good enough but not as great as unibody in terms of appearance, in comparison Ultrabook (Acer S3 and some other upcoming top-tier brand makers this year end) Unibody Key concept: Key advantage: Key concern: Shape the metal materials (the whole bulk of metal) through computer numerical control (CNC) machines and laser application. More solid and lighter due to less structural materials needed More expensive than Die-casting, due to the longer cycle production time and high cost of CNC machines Apple MacbookAir/Pro, Mac mini, ultrabooks (Asus UX series and some other upcoming top-tier brand makers this year end)
Key messages Directly integrating all components (Antenna, CMOS, backlight, TFT open-cell, and B(LCD Bezel) cover) into A(LCD front cover) Thickness reduction, weight reduction High price tag
6 October 2011
METAL CASINGS: THE LATEST 3-YEAR CYCLE TREND FOR PACKAGING MATERIALS
The advantages of metal casings
Every 3-5 years, there has been a migration of notebook casing material. We see 2011 as the beginning of the three-year metal-casing wave. The adoption rate of metal casings has risen significantly since 2010, as Figure 6 demonstrates, driven by the shift to tablets and ultrabooks. We expect demand for metal casings to continue to grow until at least 2013 because of the advantages they provide durability, style and eco-friendliness. We believe that FTC will continue to benefit the most from the metal casings boom in the next few years.
Metal casings offer three key advantages: 1) durability for thinner products; 2) stylish design; and, 3) eco-friendliness
Metal casings are becoming the norm for three reasons: 1) durability thinner products require a strong material to house their hardware, especially for larger products such as NBs and tablets; 2) style consumer electronics are now viewed more as accessories rather than simply portable computing devices; and 3) eco-friendliness metal casing are recyclable and their production lower polluting.
FTC beneficiary of the metal casings trend and still the leader in 2012
We expect FTC to benefit most from shift to metal casings as it should remain the leader in the segment for 2012 and have ample opportunity to expand further because of the following: 1) its first-mover advantage; 2) its position as the sole supplier for the iPad and iPhone; and 3) the potential to gain from the expected boom in ultrabooks.
but Ju Teng is catching up

Ju Teng is the leader in plastic casings, but it is working to catch up with its comprehensive peers in terms of metal casing capacity. However, we do not expect it to catch up until 2013 at the earliest. Until then, it will likely continue to suffer from the cannibalization of plastic casings by metal casings.
What lies ahead for casings?

The preferred material of the next 3-year material cycle is anyones guess. Possibilities include carbon, bamboo, glass, ceramics or even a return to plastic with a special surface treatment. Each material has its own specific advantages and disadvantages. However, we expect metal casings to hold their own for awhile. Figure 7: Notebook casings trends is casing materials for notebooks, tables, ultrabooks and Apple NBs
The golden age of metal casings
Plastic + paint 2003
Most products are a single colour grey, blue, white, or black
Plastic +UV paint 2005

Some products use higher-end paint ultraviolet, looks shiny
Plastic + IMR/IMF 2008

New technology boom, In-mold rolling/forming (IMR/IMF), a variety of designs & colours, customized, shorter production cycle time, widely adopted
Plastic vs metal 2010

Apple iPad introduces metal casings, while NBs stick with plastic
Metal 2012E
Tablets, ultrabooks, MacbookAir/Pro, smartphones expected to bring meaningful growth to metal casings
Metal 2013E
Metal still the mainstream, while the industry looks for further enhanced surface-treatment technology for metal casings or other new materials
Possibilities include: metal, plastic bamboo, carbon, glass, ceramics
6 October 2011
10
POLYMER BATTERIES: MUST-HAVE COMPONENT TO AVOID THICKNESS ISSUES

Polymer batteries are the must-have component to avoid thickness issues. Within this segment, Simplo (6121.TT) and Dynapack (3211.TT) appear well positioned. The new hero when it comes to spurring PC demand the tablet will, in our opinion, be the key driver of PC growth beginning in 2011. It will also be the key growth catalyst for both Simplo (with the largest share globally) and Dynapack. We expect Simplo, which holds the major share in the Apple battery supply chain, as well as relationships with other tablet makers, to benefit most from this trend.
Polymer batteries the trend for ultrabook (thin-and-light) products

Most NBs use cylindrical battery packs; however, with the shift to the thin-and-light form factor for NBs, such as for ultrabooks and the MacBook Air and Pro, the trend is to use Lipolymer batteries instead of Li-ion batteries. The size of the Li-polymer battery is customisable based on specific product requirements, and as such, can be made thinner than the cylindrical type (fixed shape/standardized size). Figure 8: Z-stack in NB cylindrical vs polymer batter
A cover (LCD cover) LCD B cover (LCD bezel) C cover (top case) D cover (bottom case) A cover (LCD cover) LCD B cover (LCD bezel) C cover (top case) D cover (bottom case) Polymer battery
Cylindrical battery
Cylindrical battery
6 October 2011
11
HOLLOW-TYPE HINGS: BEST-TO-USE COMPONENT TO REDUCE THE THINKNESS ISSUE FOR ULTRABOOKS
Hollow-type hinges are the best-to-use component to significantly reduce the thickness issue. We view SZS (3376.TT) as the most likely winner in this space. Its hollow-type hinges can help NB products to be even thinner because the antenna can be put through the hinge, saving the space vs. other hinges that require the antenna to run outside along with the hinge. SZS has the highest yield rate and best quality for hollow-type hinges, which is proven by its position as the only supplier for Apples MacBook Air/Pro. We discuss SZSs competitive advantages more fully in the company specific section of this report. Figure 9: Hollow-type hinges Figure 10: Other key parts of hollow-type hinge modules
Source: SZS, Barclays Capital
Source: SZS, Barclays Capital
Figure 11: Working/business models of hinge suppliers, ODMs/OEMs and PC brands
SZS, Sin Her, Jarlly, Lian Hong,
Hinge providers
The ODM/EMS directly assign (in most cases) the hinge components The hinges are assigned by the PC brands and then shipped to the ODM/EMS for finished goods assembly
Quanta, Compal, Wistron, Hon Hai, Inventec, Pegatron, Flextronics
ODM/EMS
Acer, Dell, Toshiba, ASUS, Samsung, Apple, Sony, Fujitsu,
PC brands
Source: Company data, Barclays Capital
6 October 2011
12
FOXCONN TECH (1-OW; PT NT$120; 24% POTENTIAL UPSIDE): ULTRA-THIN NBS TO SUSTAIN GROWTH
2354 TT / 2354.TW Stock Rating
1-OVERWEIGHT
Sector View
2-NEUTRAL
Price Target
TWD 120.00
Price (05-Oct-2011)
We initiate coverage of metal-casing maker FTC with a 1-Overweight rating and 12-month price target of NT$120. For 2011-12E, we prefer stocks strongly associated with Apple products, tablets and ultrabooks (or any thin-and-light NBs). For FTC, in 2012, we forecast EPS growth of 27% y/y and expect the sales contribution from light metal casings to help the company maintain its overall gross margin and offset the downward trend for ASPs and gross margins we forecast for game consoles and thermal modules for 2012. We expect sales of light metal casings to continue to trend upward as metal casings become a must-have packaging for any ultra-thin product.
TWD 96.80
Potential Upside/Downside
iPhones/iPads and ultra-thin NBs drive growth of metal casings

We reiterate our forecast for 48% y/y sales growth for tablet PCs and triple-digit growth for ultrabooks (180%), which we expect to reach 10-20% of total NB shipments in 2012, up from 6% in 2011E (please refer to our 19 July 2011 report, Initiate coverage of Simplo and Dynapack: leaders of the pack). We believe ultrabooks and thin-type NBs (thin-and-light NBs, such as MacBook Air/Pro) of 17-21mm thickness will definitely be the trend to watch in the NB product segment in the coming years.
+24%
Light metal casings: a trend and key factor for ultra-thin products
The light metal casing has become a must-have in terms of product design, no matter whether the brand maker decides to use unibody or simpler stamping or die-casting. The metal is the key material in building a durable package to house the product structure as well as creating a keen sense of style and design. Given the boom of the iPhone, iPad and other Apple products and the potential from ultrabooks (including MacBook Air/Pro and other brands ultra-thin NBs) as well as the higher gross margin (resulting from the complicated process) and the higher entry barriers in terms of capacity scale (key manufacturing equipment: die-casting, stamping and CNC (computer numerical controls a type of highend drilling machine for producing unibodies), yield rates and technology, we believe metal casings are the product segment to sustain sales and earnings growth in 2012.
Potential to grow just the beginning of profit improvement

We like FTC, not only because it is a major metal-casing provider but also because we believe it still has significant ability to grow and expand. We expect the sales contribution of metal casings to grow to 30% in 2012E from 22% in 2011E, and its profit contribution to rise to 46% in 2012E from 30% in 2011E. Thus, FTCs overall gross margin has the potential to either improve or maintain steady vs the usual trend of contracting margins in the hardware segment (refer to Figures 16-19). Figure 12: FTC statistical abstract
Year to 31-Dec 2009A 2010A 2011E 2012E 2013E Net profit (NT$mn) 6,263 7,610 8,498 10,806 13,190 EPS (NT$) 5.40 6.53 7.26 9.23 11.27 EPS growth (%) -0.4% 20.9% 11.2% 27.2% 22.1% P/E (x) 18.3 15.2 13.6 10.7 8.8 P/B (x) 2.0 2.2 2.1 1.8 1.5 ROE (%) 14.8 15.5 16.5 18.7 19.2 Div. yield (%) 2.53 3.03 3.03 4.55 5.15
Source: TEJ, Company data, Barclays Capital estimates
6 October 2011
13
COMPANY SNAPSHOT 2354 TT Foxconn Tech Income statement (NT$mn) Revenue EBITDA EBIT Pre-tax income Net income EPS (NT$) Diluted EPS (NT$) Diluted shares (mn) Dividend per share (NT$) Margin and return data (%) Gross margin EBITDA margin EBIT margin Pre-tax margin Net margin ROIC ROA ROE 2010A 136,724 13,451 9,468 9,614 7,610 6.53 6.53 1,160 3.00 2011E 129,088 14,831 10,060 10,854 8,498 7.26 7.26 1,165 3.00 2012E 149,201 17,875 13,399 13,854 10,806 9.23 9.23 1,170 4.50 2013E 159,915 20,414 15,830 16,284 13,190 11.27 11.27 1,170 5.10 CAGR 5.4% 14.9% 18.7% 19.2% 20.1% 20.0% 20.0% 0.3% 19.3% Average 12.2 11.5 8.4 8.7 6.9 11.5 9.3 17.5 Asia ex-Japan IT Hardware
Stock Rating Sector View Price (05-Oct-2011) Price Target Ticker Investment case
1-OVERWEIGHT 2-NEUTRAL NT$96.8 NT$120 2354 TT/2354.TW
10.8 9.8 6.9 7.0 5.6 11.8 8.1 15.5
11.3 11.5 7.8 8.4 6.6 9.8 8.7 16.5
13.0 12.0 9.0 9.3 7.2 11.7 9.9 18.7
13.6 12.8 9.9 10.2 8.2 12.6 10.7 19.2
Why 1-OW? FTC's position as Apple's major supplier of metal casings should drive sales and earnings growth momentum in 2012E. This would also offset the downward trend of game consoles and the low margins of thermal modules in 2012.
Upside case NT$135 If sales are 10% higher than we model, on betterthan-expected ultrabook and tablet demand in 2012, this could drive the price to NT$135, on a P/E of 13x 2012E higher EPS of NT$10.38.
Balance sheet and cash flow statement (NT$mn) Tangible fixed assets 21,770 18,747 Intangible fixed assets Cash and equivalents 18,266 25,003 Total assets 92,552 102,711 Short- and long-term debt 5,973 10,861 Net debt/(funds) (11,121) (13,567) Other long-term liabilities 2,058 1,324 Total liabilities 42,193 49,962 Shareholders' equity 50,359 52,749 Change in working capital (800) (5,452) Cash from operations 10,831 7,914 Capital expenditure (2,713) (1,748) Free cash flow 9,681 9,288 Valuation and leverage metrics P/E (x) EV/EBITDA (x) FCF yield (%) P/B (x) Dividend yield (%) Total debt/capital (%) Net debt/equity (%) Selected operating metrics Inventory days Accounts receivable days Accounts payable days Cash-conversion cycle
15,178 36,912 115,673 13,307 (23,030) 1,324 53,041 62,632 (823) 14,588 (907) 10,385
CAGR 11,500 -19.2% NA 50,328 40.2% 130,981 12.3% 15,754 38.2% (33,999) NA 1,324 -13.7% 56,080 9.9% 74,901 14.1% (609) NA 17,295 16.9% (907) NA 11,892 7.1% Average 8.8 12.1 4.3 6.3 10.8 9.4 1.5 1.9 5.2 3.9 17.9 16.6 (45.4) (32.5)
Downside case NT$90 Downside could come from a 20% decline in sales on lower-than-expected ultrabook and tablet demand in 2012 driving the price to NT$90, on P/E of 13x 2012E lower EPS of NT$6.92 .
Upside/downside scenarios
174 124 74 24 29-Sep-10 9-Sep-11 NT$120 NT$105 (21.1%) NT$90 (24.0%) (-6.74%) (6.1%)
Downside Case Price Target
NT$135 (39.3%) (36.2%)
15.2 8.2 8.8 2.2 3.0 12.4 (22.1)
13.6 7.3 8.4 2.1 3.0 17.8 (25.7)
10.7 5.5 9.4 1.8 4.5 18.1 (36.8)
Upside Case
Source: Thomson Reuters Datastream, Barclays Capital est.
Revenue and EPS, 2010-13E

200 NT$bn
Revenue EPS (NT$)
15 75 54 37
41 79 73 47
58 69 78 50
56 67 75 48
150 100 50 0 2010A 2011E 2012E
NT$ 12 10 8 6 4 2 0
2013E
Note: FY end Dec.
6 October 2011
14
Valuation and risks

Valuation
Our 12-month price target for FTC is NT$120. We use P/E to value FTC, setting our target multiple at 13x and applying it to our 2012 EPS forecast of NT$9.23. FTCs historical P/E for 2007-11E was 10-40x, with an average of 13.5x for 2009-11E. We prefer to value the stock conservatively at this moment due to the volatile sales contribution from game consoles as well as the downward trend of thermal sales and their gross margin, and so view a P/E multiple of 13x as justified. Going forward, however, we believe FTC may deserve a premium because of its promising metal casing business for iPad, iPhone and ultrabooks. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue. Our price target represents potential upside of 24%, which we estimate is at the upper end of its peer group; therefore, we assign a 1-Overweight rating.
Risks
The key risks that could prevent our price target from being achieved, in our view, are the following: 1) demand for Apple products, such as the iPad and iPhone, proving to be lower than we expect; 2) demand for ultrabooks also lower than expected; and 3) FTCs capacity proves insufficient to meet demand for metal casings (for unibody types, in particular, which require FTC to operate numerous CNC machines).
Earnings outlook for 2011-12E

Apple expected to drive FTC sales
Growth from metal casings for Apple products
According to our US IT hardware analyst, Ben Reitzes, 39mn iPad units will be shipped in 2011 and 49mn in 2012E. Including non-Apple tablets, Ben estimates total shipment volumes at 63mn for 2011E and 79mn for 2012E. The y/y growth rates of 26% forecast for 2012E and 20% for 2013E are far above the PC industrys average growth forecast of single digits for the near term. We believe FTC, as the main supplier of metal casings for Apple products (including iPhones/iPads/iMacs), is set to benefit from this expected growth. Figure 13: FTC product applications
Products Metal casings Thermal modules Game consoles Major applications NBs, mobile phones, projectors, e-readers, digital cameras NBs, DTs, servers, work stations Assembly for major game console providers
Metal casings sales to be driven by iPhones and iPads

We like FTC as it is the major metal casings source for iPads and iPhones, which are Apples high-growth product lines. These two product segments also bring meaningful revenue to the supply chain. With this growth trend expected to continue and FTCs position as a major source, we believe its earnings growth momentum over the coming years will continue to be high.
6 October 2011
15
Figure 14: iPhone forecasts, 2010-13E

140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2010 2011E 2012E 2013E 47,487 80,361 Units in (000) 110,785 129,950

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Units in (000) 78,661 62,669 48,736 38,904 18,000 14,789 59,765 94,065
2010
2011E
2012E
2013E

Source: Estimates of Barclays Capitals US IT hardware analyst, Ben Reitzes
Apple iPad Forecast
Source: Estimates of Barclays Capitals US IT hardware analyst, Ben Reitzes
Potential to grow metal casing momentum appears just the beginning in 2011E
We like FTC, not only because it is a major metal casing provider, but because we believe it still has ample ability to grow and expand We expect the sales contribution of metal casings will grow to 30% for 2012E (from 22% for 2011E), and the profit contribution will increase to 46% for 2012E (from 30% for 2011E). Thus, the companys overall gross margin has the potential to either improve or be maintained amid the usual trend of margin contractions. Figure 16: FTC sales contributions, 2011E
Metal casings 22%
Figure 17: FTC sales contributions, 2012E

Metal casings 30%
Game consoles 63%
Thermal 15%
Game consoles 56% Thermal 14%

Figure 18: FTC gross profit contributions, 2011E

Metal casings 30%
Figure 19: FTC gross profit contributions, 2012E
Game consoles 43% Game consoles 57% Thermal 13%

Metal casings 46%
Thermal 11%
6 October 2011
16
Figure 20: FTC sales revenue, 2006-13E

180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2006 2007 2008 2009 2010 2011E 2012E 2013E 78,964 NT$ mn 135,102 159,903 155,059 136,724 129,088 159,915
149,201
sales revenue
Figure 21: FTC ROE, 2010-13E

25 20 15.51 15 10 5 0 2010 2011E 2012E 2013E 18.73 16.48 19.18
Figure 22: FTC EPS, 2010-13E

12 10 8 6 4 2 0 2010 2011E 2012E 2013E 6.53 7.26 NT$ 9.23 11.27
ROE 2010-13E, %
EPS 2010-13E, NT$

Figure 23: FTC 12M forward P/E (x)

45 40 35 30 25 20 15 10 5 0 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
Figure 24: FTC 12M forward P/B (x)

6.0 5.0 4.0 3.0 2.0 1.0 0.0 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Rolling 1y PB Mean +1 SD -1 SD
Rolling 1y PE
Mean
+1 SD
-1 SD
6 October 2011
17
Figure 25: FTC share price performance

300 250 200 150 100 50 0 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 NT$ y/y % 300 250 200 150 100 50 0 -50 -100
Sales, % ch YoY, 3MMA (RHS)

Source: TEJ, Barclays Capital
Share price (NT$) (LHS)
Sensitivity analysis for sales and the operating margin

We analyze the sensitivity of our 2012 EPS forecast to examine and support our view that FTCs risk-reward profile is positive under various scenarios. We conclude that two major factors affect EPS: 1) sales and 2) the operating margin. Our base-case scenario calls for sales of NT$149bn for 2012E (15.6% y/y) and an operating margin of 9% (up from 7.8% for 2011E), representing EPS of NT$9.23. We conclude the following: Worst-case scenario: Quarterly volumes were to remain flat and its operating margin lower than our forecast. Best-case scenario: EPS would be higher than our forecast with a significant improvement in cost efficiency. Base-case scenario: On our earnings forecasts, FTC would still follow the pattern of the Apple products, tablet and ultrabook boom going forward. We could see further upside to earnings revisions after that. Figure 26: FTC sensitivity analysis for Barclays Capitals EPS forecast for 2012 based on sales and operating margin
Revenue of NT$149bn, 2012E -10% +1.5%-pts Operating margin +1.0%-pts +0.5%-pts Base case -0.5%-pts -1.0%-pts -1.5%-pts 9.81 9.24 8.66 8.09 7.52 6.94 6.37 -5% 10.48 9.87 9.27 8.66 8.06 7.45 6.84 0% 11.15 10.51 9.87 9.23 8.60 7.96 7.32 5% 13.82 13.05 12.29 11.52 10.76 9.99 9.23 10% 12.48 11.78 11.08 10.38 9.68 8.98 8.28
Note: 0represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates
6 October 2011
18
Figure 27: FTC sensitivity analysis for Barclays Capitals price target for 2012 on sales and operating margin
Revenue of NT$149bn, 2012E -10% +1.5%-pts Operating margin +1.0%-pts +0.5%-pts Base case -0.5%-pts -1.0%-pts -1.5%-pts 128 120 113 105 98 90 83 -5% 136 128 120 113 105 97 89 0% 145 137 128 120 112 103 95 5% 180 170 160 150 140 130 120 10% 162 153 144 135 126 117 108
Catalysts
Near-term catalysts
High exposure to Apple for 2011-12E: We expect the gross profit contribution from metal casings to expand to 46% in 2012 (from 30% in 2011), along with the dual Apple-related catalysts the launch of iPhone 5 and iPad3, We expect FTC to continue to deliver strong absolute growth, both in terms of revenue/profits and share price performance despite the recent weakness in the PC industry. In terms of volumes for metal casings for Apple iPhones, iPads and ultrabooks, we believe FTC will be able to maintain its position as the largest metal casing supplier for iPads, iPhones and ultrabooks.
Long-term catalysts
Metal casings the 3-year material cycle trend: We expect earnings growth of 27% y/y, on the back of the ultrabook boom (we forecast 180% y/y shipment unit growth, from 14mn units in 2011 to 40mn units in 2012, the long-term product/material trend).
The competitive situation

Light metal casings (30% of total sales in 2012E, around 20% GM)
Metal casings have been a trend in product design of NBs, mobile phones, consumer electronics and tablets for some time now, owing to the advantage of lightness, better heatreduction, better hardness, recyclability and stylish appearance, especially for tablets and ultra-thin NBs.
The competition one of two major suppliers

FTC is one of two major metal casing suppliers in the supply chain, and we believe it will continue to hold its lead through at least 2012. The other supplier is catcher (2474.TT) which covered by our analyst, Dale Gai. The entry barriers to this segment are capacity scale, which depends on how many CNC the metal casing suppliers have. Although other component suppliers have placed aggressive orders for CNC machines to catch up with FTCs production capacity for unibody designs (some ultrabooks implement this higher-end metal casing instead of mainstream designs that use die-casting and stamping), the larger
6 October 2011 19
the order a supplier places, the faster the supplier gets the end product. The lead time for CNC machines currently ranges from 1.5 months to 6 months depending on the bargaining power of the supplier pacing the order. Thus, we expect FTC, which already has the machines to continue to benefit from Apples iPad 2 and iPad 3 as well as its iPhone 4 and 5 in 2012. Figure 28: iPhone forecasts, 2010-13E
140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2010 2011E 2012E 2013E 47,487 80,361 Units in (000) 110,785 129,950

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Units in (000) 78,661 62,669 48,736 38,904 18,000 14,789 59,765 94,065
2010
2011E
2012E
2013E

Source: US IT hardware analyst, Ben Reitzes, Barclays Capital estimates
Apple iPad Forecast
Source: US IT hardware analyst, Ben Reitzes, Barclays Capital estimates
Light metal casings life cycle

Thermal ASP & GM declining (14% of total sales in 2012E, around 10% GM)
Although thermal modules are vital for heat reduction for PC/handset products, we are quite conservative for thermals future growth owing to the following: 1) low barriers to entry there are countless suppliers, fierce competition exists in pricing and it operates more like a traditional manufacturing business; and 2) alternatives there are various substitutes for heat reduction, such as GTS (thermal flexible graphite sheets), which is thinner and easier to implement and can also reduce heat but are currently more expensive.
Usage of thermal modules

Thermal modules are normally used to reduce the heat from the CPU and graphic chips, without thermal modules, the heat might cause poor user experiences of overheating, or even OS crashes. Several key factors form a total solution: 1) a thermal module made from metal that absorbs and disperses the heat from CPUs or graphics chips; 2) a fan this blows the heat out of the product casing; and 3) heat pipe this links the heat between the heat pad on the CPU or graphics chip and the thermal module and then is used to channel the heat out via a fan.
Game consoles the sales contribution is declining (56% of total sales in 2012E, 10% GM)
Since 2010, game console sales have been in a downtrend, due to lack of new eye-catching applications. Given the lower gross margin of the assembly business and concern about the downward demand, we are conservative on the future growth of its sales and earnings contribution.
6 October 2011
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Company profile
COMPANY FACTS 2010 revenue: US$4.7bn Employees: 80,448 worldwide (June 2011) Headquarters: Taipei, Taiwan Business field: Designs and manufactures thermal modules, Mag/Al casing, mechanic parts, and assembly for NBs, servers and other 3C products.; has more than 15 design, manufacturing and sales sites worldwide Chairman and president: Lee Hang Ming
Since 1990, Foxconn Technology Co. Ltd. has been engaged in the manufacture, research, development and distribution of computer, communication and consumer electronics products. The company mainly provides magnesium and aluminium alloy casings and structures as well as heat sinks for desktops, servers, NB computers and other 3C products and consumer electronics. Its products are used in the manufacture of NBs, phones, projectors, e-readers, digital cameras, servers, workstation heat sinks and household game consoles, among others.
Figure 30: FTC foreign investment (%)

32 32 31 31 30 30 29 29 28 Aug-10 Oct-10 Jan-11 Mar-11 Jun-11 Aug-11
Figure 31: FTC shareholding structure

Shareholder 1 2 3 4 5 6 7 8 9 10 Hon Hai Precision Ind. Co., Ltd Pao-Hsin Int'l. Investment Hung Yang Venture Investment Co., Ltd Hsin-Sheng Investment Samoya Shih-Sung Hung-Yuan International Investment Hung-Ch'i Int'l Hsien-Chin International Investment Samoya Shang-Chia Investment BVISheng-Feng Development Holding % 10.1% 8.7% 6.1% 5.7% 2.9% 2.4% 2.2% 1.5% 1.4% 1.3%
Foreign Invest.%-TSE
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Figure 32: FTC key historical events

Year 1990 1992 1993 1994 1995 1996 1998 1999 2000 2004 2005 2006 Event Established Q-RUN Technology Co., Ltd. Burrard Investment Pte Ltd. Singapore and Mr Lin Chung-Dian joined the company as shareholders. Signed a contract with NCD, US and the company (then Q-Run) was commissioned to develop a 15 high-resolution B/W terminal (SRT-1501). 1) Bought the factory buildings and established Tucheng mill in No. 3, ChungShan, Rd, Tucheng city, Taipei county; 2) became a public company with the approval of the Securities and Futures Commission, Ministry of Finance. 1) Finished developing MONIPUTER(PM1550), the first multimedia computer of its kind, which integrated rotation mount, fax machine, modem, telephone answering, video decompression (MPEG) card, sound card and TV function into one; 2) WIN, one of the top three magazines in Germany, chose SRC-1502 as the winner for its excellent quality in 15 models after a careful evaluation. Listed on the Taiwan Stock Exchange. Obtained ISO-14001 Environmental Management System certification from TUV Rheinland Taiwan. 1) Established R&D department to carry out the R&D of desktop computers and video products; 2) signed a supply agreement with Compaq Computer Corp. FTC began to supply desktop computers for Compaq. RD department succeeded in developing analog board, down converter board and video board and Foxconn Tech started manufacturing PCBA for iMAC computers. Merged Foxconn Precision Components Co., Ltd; renamed Q-RUN Technology Co., Ltd. To Foxconn Technology Co., Ltd. Increased capital to NT$5,621,350,000 through retained earnings. Increased capital to NT$6,537,870,000 through retained earnings. Increased capital increase to NT$5,065,000,000 through retained earnings.
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Figure 33: FTC quarterly income statement, 1Q10-4Q13E

(NT$mn) Sales COGS Gross profit Operating expenses Operating income Non-op income Pre-tax income Tax or credits Net income EPS (NT$) Margin analysis (%) Gross profit Operating profit Net profit y/y (%) Sales Gross profit Operating income Net income EPS (NT$) q/q (%) Sales Gross profit Operating income Net income EPS (NT$) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2009 2010 2011E 2012E 2013E
32,964 30,113 33,251 40,396 35,643 24,034 31,936 37,475 35,499 36,797 38,110 38,795 39,420 40,864 39,815 39,815 155,059 136,724 129,088 149,201 159,915 -29,951 -27,140 -29,559 -35,245 -32,412 -21,215 -27,950 -32,908 -30,971 -32,067 -33,118 -33,666 -34,166 -35,321 -34,377 -34,377 3,013 -1,167 1,846 -109 1,737 -299 1,438 1.23 9.1% 5.6% 4.4% -16.8% 60.2% 2,973 2,042 -62 1,980 -657 1,323 1.14 3,692 2,348 170 2,518 -401 2,117 1.82 5,150 3,232 147 3,379 -648 2,732 2.34 3,231 2,015 527 2,541 -264 2,277 1.95 2,819 1,946 114 2,060 -717 1,343 1.15 3,986 2,859 4 2,863 -630 2,233 1.91 4,567 3,240 150 3,390 -746 2,644 2.26 4,528 3,101 114 3,214 -707 2,507 2.14 4,730 3,243 114 3,356 -738 2,618 2.24 4,992 3,459 114 3,573 -786 2,787 2.38 5,130 3,596 114 3,710 -816 2,894 2.47 5,255 3,793 114 3,907 -742 3,165 2.70 5,543 4,082 114 4,196 -797 3,399 2.90 5,438 3,977 114 4,091 -777 3,314 2.83 142,239 121,896 114,484 129,821 138,240
5,438 12,820 14,828 14,604 19,380 21,675 3,977 114 4,091 3,314 2.83 7,959 35 7,993 6,263 5.40 9,468 10,060 13,399 15,830 146 794 455 455 9,614 10,854 13,854 16,284 7,610 6.53 8,498 10,806 13,190 7.26 9.23 11.27
-930 -1,344 -1,918 -1,217
-873 -1,127 -1,327 -1,427 -1,487 -1,533 -1,533 -1,461 -1,461 -1,461 -1,461 -4,861 -5,360 -4,544 -5,981 -5,845
-777 -1,731 -2,004 -2,356 -3,048 -3,094
9.9% 11.1% 12.7% 6.8% 4.4% -7.2% -5.7% 7.1% 6.4% 8.0% 6.8%
9.1% 11.7% 12.5% 12.2% 12.8% 12.9% 13.1% 13.2% 13.3% 13.6% 13.7% 13.7% 5.7% 6.4% 8.1% 5.6% 9.0% 7.0% -4.0% 8.6% 7.1% -7.2% 8.7% 7.1% 8.8% 7.1% 9.1% 7.3% 9.3% 7.5% 9.6% 10.0% 10.0% 10.0% 8.0% 8.3% 8.3% 4.5% 8.9% 8.3% 2.6% 6.0%
8.3% 10.8% 11.3% 13.0% 13.6% 5.1% 4.0% 6.9% 5.6% 7.8% 6.6% 9.0% 7.2% 9.9% 8.2% 7.2%
-3.9% -16.6% 8.7% 17.3% -5.9% 14.8% 6.9% 6.4%
8.1% -20.2% 7.3% 9.1% -5.2% 1.5% 1.1%
-0.4% 53.1% 19.3%
3.5% 11.0% 11.1%
-3.0% -11.8% -3.8% 15.7% -3.8% 19.0%
-5.6% 15.6%
8.0% -11.3% 40.1% 67.8% 25.2% 12.3% 16.0% 17.2% 5.5% 5.0% -3.2% 10.1% 94.9% 24.8% -3.6% 10.1% 94.9% 24.8% -5.3% -0.9% -4.3% -5.2% -5.2% 3.7% 4.5% 4.6% 4.4% 4.4% 3.6% 5.6% 6.7% 6.5% 6.5%
-1.5% 32.7% 11.8% 6.3% 33.2% 18.1%
98.1% 19.1% 58.0% 49.7% 57.3% 49.0% -31.9% -31.4% -42.2% -42.5%
-4.7% 21.8%
0.3% 53.9% 66.6% 21.0% 11.0% 22.3% 25.9% 15.0% 10.6% 9.4% 26.2% 29.8% 18.9% 14.5% 9.4% 26.2% 29.8% 18.9% 14.5% 1.8% 2.7% 4.0% 3.8% 3.8% 1.6% 2.4% 5.5% 9.4% 9.4% 3.7% 5.5% 7.6% 7.4% 7.4% -2.6% -1.9% -2.6% -2.5% -2.5% 0.0% 0.0% 0.0% 0.0% 0.0%
9.8% 58.4% 9.3% 57.7%
1.0% 21.5% 11.7% 27.2% 22.1% -0.4% 20.9% 11.2% 27.2% 22.1%
-8.6% 10.4% 21.5% -11.8% -32.6% 32.9% 17.3% -1.3% 24.2% 39.5% -37.3% -12.8% 41.4% 14.6% -3.4% 46.9% 13.3% -8.0% 60.0% 29.0% -16.6% -41.0% 66.3% 18.4% -8.0% 60.0% 29.0% -17.0% -41.0% 66.3% 18.4%
-34.5% 10.6% 14.9% 37.7% -37.7%
6 October 2011
23
Figure 34: FTC income statement, 2009-13E

Year-end 31 Dec (NT$mn) Total revenue COGS Gross profit Operating expenses EBITDA Depreciation Amortisation EBIT Interest income Interest expense Net Interest income/expense Gains on disposals Net associated profits Profit before tax Tax Profit after tax Minority interest Net profit Average weighted ordinary shares EPS (NT$) Fully diluted EPS (NT$)
2009
2010
2011E
2012E
2013E
155,059 136,724 129,088 149,201 159,915 (142,239) (121,896) (114,484) (129,821) (138,240) 12,820 14,828 14,604 19,380 21,675 (4,861) (5,360) (4,544) (5,981) (5,845) 11,979 13,451 14,831 17,875 20,414 (4,021) (3,983) (4,771) (4,476) (4,584) 7,959 9,468 10,060 13,399 15,830 138 189 260 341 341 (533) (326) (193) (176) (176) (395) (137) 67 164 164 746 447 (43) (185) (185) 75 (38) (97) (130) (130) 7,993 9,614 10,854 13,854 16,284 (1,731) (2,004) (2,356) (3,048) (3,094) 6,263 7,610 8,498 10,806 13,190 6,263 7,610 8,498 10,806 13,190 972 1,113 1,113 1,113 1,113 5.40 6.53 7.26 9.23 11.27 5.40 6.53 7.26 9.23 11.27
Figure 35: FTC balance sheet, 2009-13E

Year-end 31 Dec (NT$mn) Cash and equivalent Short-term investments Receivables Inventory Other current assets Total current assets Net fixed assets Intangible assets Other assets Associates & other LT investments Total other assets Total assets Short term debt Payables Current portion of LT liabilities Other current liabilities Total current liabilities Long-term debt Other liabilities Total other liabilities Total liabilities Share capital Share premium and other reserves Minority Interest Others Total equity Total liabilities and equity
2009 22,508 53 28,593 4,882 5,196 61,232 23,039 778 11,205 35,022 96,254 4,168 17,418 12,351 12,961 46,898 1,280 337 1,617 48,515 9,720 36,672 1,347 47,740 96,254
2010
2011E
2012E
2013E 50,328 0 29,640 21,390 3,425 104,784 11,500 8,556 6,140 26,196 130,981 13,365 28,647 575 9,779 52,366 2,389 1,324 3,714 56,080 11,130 65,077 (1,307) 74,901 130,981
18,266 25,003 36,912 26 0 0 27,861 27,898 28,881 5,447 20,476 20,948 8,803 3,425 3,425 60,402 76,802 90,166 21,770 18,747 15,178 756 1,756 4,556 9,625 5,406 5,773 32,151 25,909 25,507 92,552 102,711 115,673 3,911 8,710 11,037 18,436 27,423 28,055 1,171 575 575 14,555 9,779 9,779 38,074 46,487 49,446 2,062 2,151 2,270 2,058 1,324 1,324 4,120 3,475 3,594 42,193 49,962 53,041 11,130 11,130 11,130 40,839 43,281 52,987 (1,610) (1,662) (1,485) 50,359 52,749 62,632 92,552 102,711 115,673
6 October 2011
24
Figure 36: FTC cash flow statement, 2009-13E

Year-end 31 Dec (NT$mn) Net profit Depreciation Amortisation Associate share of (profits)/loss Total gross cash flow Change in total working capital Total operating cash flow Capex less disposals Change in other assets Change in associates Total investment cash flow Change in gross debt Change in other long-term liabilities Change in equity Total financing cash flow Total cash flow Cash balance at beginning of the year Cash balance at end of the year
2009 6,263 4,021 (75) 10,208 7,024 17,232 (631) 154 (5,691) (6,169) (7,573) 37 4,365 (3,171) 7,892 14,615 22,508
2010 7,610 3,983 38 11,630 (800) 10,831 (2,713) 22 1,542 (1,149) (10,654) 1,721 (4,990) (13,923) (4,242) 22,508 18,266
2011E 8,498 4,771 97 13,366 (5,452) 7,914 (1,748) (1,000) 4,122 1,374 4,291 (733) (6,108) (2,550) 6,737 18,266 25,003
2012E 10,806 4,476 130 15,411 (823) 14,588 (907) (2,800) (497) (4,203) 2,447 (922) 1,525 11,909 25,003 36,912
2013E 13,190 4,584 130 17,904 (609) 17,295 (907) (4,000) (497) (5,403) 2,447 (922) 1,525 13,416 36,912 50,328
6 October 2011
25
Figure 37: FTC key financial metrics (2009-13E) Year-end 31 Dec (NT$mn) Profitability Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) Financial Cash (NT$mn) ST debt (NT$mn) LT debt (NT$mn) Net debt (NT$mn) Net debt/equity (%) Debt/equity (%) Current ratio (x) Quick ratio (x) Economic value NOPAT (NT$mn) Total capital (NT$mn) Gross debt/capital (%) Equity/capital (%) Valuation P/E (x) P/B (x) P/CFPS (x) EV/sales (x) EV/EBITDA (x) EV/EBIT (x) Performance ROA (%) ROE (%) ROIC (%) Asset turnover (x) Working capital/sales (%) Inventory processing days A/R collection days A/P payment days Coverage Interest coverage Value per share (NT$) Earnings per share Book value per share Sales per share Cash flow per share Gross cash per share Net cash per share
2009
2010
2011E
2012E
2013E
8.27 5.13 5.16 4.04 22,508 4,168 13,631 (4,709) (9.9) 37.3 1.3 1.1 6,228 65,539 27.2 72.8 18.3 2.0 5.6 0.8 9.7 14.7 6.7 14.8 11.2 1.7 9.2 19.2 71.4 49.0 22.5 5.40 49.11 159.52 17.73 23.16 4.84
10.85 6.92 7.03 5.57 18,266 3,911 3,233 (11,121) (22.1) 14.2 1.6 1.2 7,464 57,504 12.4 87.6 15.2 2.2 10.2 0.8 8.2 11.6 8.1 15.5 11.8 1.4 16.3 15.5 75.4 53.7 41.3 6.53 45.25 122.84 9.73 16.41 9.99
11.31 7.79 8.41 6.58 25,003 8,710 2,726 (13,567) (25.7) 21.7 1.7 1.1 7,704 64,185 17.8 82.2 13.6 2.1 13.9 0.8 7.3 10.7 8.7 16.5 9.8 1.3 23.5 41.3 78.8 73.1 77.0 7.26 47.39 115.98 7.11 22.46 12.19
12.99 8.98 9.29 7.24 36,912 11,037 2,845 (23,030) (36.8) 22.2 1.8 1.3 10,351 76,515 18.1 81.9 10.7 1.8 7.6 0.7 5.5 7.3 9.9 18.7 11.7 1.4 27.3 58.2 69.5 78.0 101.5 9.23 56.27 134.05 13.11 33.16 20.69
13.55 9.90 10.18 8.25 50,328 13,365 2,964 (33,999) (45.4) 21.8 2.0 1.5 12,736 91,230 17.9 82.1 8.8 1.5 6.4 0.5 4.3 5.5 10.7 19.2 12.6 1.3 32.8 55.9 66.8 74.9 115.9 11.27 67.30 143.68 15.54 45.22 30.55
6 October 2011
26
SHIN ZU SHING (2-EW; PT NT$58; 4% POTENTIAL DOWNSIDE): EXPECTING ULTRATHIN NBS TO TURN CANNIBALIZATION AROUND
3376 TT / 3376.TW Stock Rating
2-EQUAL WEIGHT
Sector View
2-NEUTRAL
Price Target
TWD 58.00
Price (05-Oct-2011)
TWD 60.40
We initiate coverage of hinge manufacturer SZS with a 2-Equal Weight rating and 12month price target of NT$58. We expect 2011 to be a tough year for the hinge providers due to the following: 1) cannibalization brought on by the tablet boom and 2) price-erosion from competition for conventional NBs. We see the MacBook Air/Pro and the potential from ultrabooks as helping to sustain and slightly ease this cannibalization impact. In our view, the significant potential from ultrabooks and ultra-thin NBs (such as Apples MacBook Air/Pro) will be the lifesaver for the hinge manufacturers in 2012, and we expect SZS with its advanced experience and technology in hollow-type hinges (which have a higher entry barrier) for Apple products to maintain its lead on the back of this boom. Ultrabooks and ultra-thin (MacBook Air/Pro) NBs appear the lifesavers for higher-end hollow-type hinges for three reasons: 1) SZS holds the lead in terms of market share of hinges (45-50% of total NBs), yield rate and technology; 2) it is also the major hinge supplier to Apples MacBook Air/Pro (90%+ share) due to its higher yield rate and reliability; and 3) the hollow-type hinge is also one of the keys to making NBs thinner (saving more space by allowing the antenna to be put inside the hinge. For 2012, we forecast EPS growth of 25% y/y, based on the following: 1) inventory writeoffs by year-end 2011; 2) adoption of hollow-type hinges for ultrabooks; and 3) its high dominant market share of hinges for Apples MacBook Air/Pro should help SZS maintain its sales and earnings growth momentum.
-4%
Potential inventory write-off significant to 2012 outlook

Because of weak NB demand in 2011, SZS may be suffering from inventory overbuild. We would welcome any move by the company to write off inventory, which would improve its 2012 outlook. Should this take place, we would expect the share price to strength by 12% by end-2011. Figure 38: SZS statistical abstract
Year to 31-Dec 2009A 2010A 2011E 2012E 2013E Net profit (NT$mn) 1,443 743 613 768 769 EPS (NT$) 9.70 4.71 3.87 4.85 4.85 EPS growth (%) 15.9% -51.4% -17.4% 25.2% 0.1% P/E (x) 6.4 13.1 16.0 12.8 12.8 P/B (x) 1.2 1.3 1.5 1.5 1.5 ROE (%) 21.6 9.8 8.7 11.7 12.0 Div. yield (%) 8.88 4.85 4.04 4.85 4.85
6 October 2011
27
COMPANY SNAPSHOT 3376 TT Shin Zu Shing Income statement (NT$mn) Revenue EBITDA EBIT Pre-tax income Net income EPS (NT$) Diluted EPS (NT$) Diluted shares (mn) Dividend per share (NT$) Margin and return data (%) Gross margin EBITDA margin EBIT margin Pre-tax margin Net margin ROIC ROA ROE 2010A 6,673 1,295 957 903 743 4.71 4.69 149 3.00 2011E 8,301 1,141 741 831 613 3.87 3.87 158 2.50 2012E 9,391 1,343 918 1,012 768 4.85 4.85 158 3.00 2013E 9,774 1,373 919 1,013 769 4.85 4.85 158 3.00 CAGR 13.6% 2.0% -1.4% 3.9% 1.1% 1.0% 1.1% 2.0% 0.0% Average 19.8 15.4 10.6 11.2 8.6 6.9 5.9 10.5 CAGR -8.1% -0.4% 3.8% 3.4% 24.2% NA 0.0% 16.8% -5.2% NA 22.1% NA 83.9% Upside/downside scenarios
104 84 NT$58 NT$51 (-3.68%) (-6.85%) (-15.1%) (-18.0%)
Downside Case Price Target
Asia ex-Japan IT Hardware
2-EQUAL WEIGHT 2-NEUTRAL NT$60.4 NT$58 3376 TT/3376.T W
23.7 19.4 14.3 13.5 11.1 8.7 6.5 9.8
18.6 13.7 8.9 10.0 7.4 5.3 5.1 8.7
18.8 14.3 9.8 10.8 8.2 6.8 6.0 11.7
18.3 14.0 9.4 10.4 7.9 6.9 6.1 12.0
Why a 2-Equal Weight? Although we believe 2011 will be the toughest year for the hinge providers, because of tablet cannabilzation, we expect the potential adoption rate of higher-end hinges on thintype NBs to help sustain both sales and earnings growth momentum for SZS in 2012E.
Upside case NT$65 The shares could rise above our PT if ultrabook demand in 2012 impacts sales +10% more, driving the price to NT$65, on a P/E of 12x 2012E higher EPS of NT$5.41
Balance sheet and cash flow statement (NT$mn) Tangible fixed assets 2,350 2,222 Intangible fixed assets 67 66 Cash and equivalents 4,256 4,828 Total assets 11,342 12,739 Short- and long-term debt 1,615 3,097 Net debt/(funds) (2,640) (1,731) Other long-term liabilities 360 360 Total liabilities Shareholders' equity Change in working capital Cash from operations Capital expenditure Free cash flow Valuation and leverage metrics P/E (x) EV/EBITDA (x) FCF yield (% ) P/B (x) Dividend yield (%) Total debt/capital (% ) Net debt/equity (%) Selected operating metrics Inventory days Accounts receivable days Accounts payable days Cash-conversion cycle 3,880 7,462 (420) 660 (273) 155 6,082 6,657 (88) 925 (271) 508
2,037 66 4,721 12,660 3,097 (1,623) 360 6,157 6,503 (139) 1,054 (240) 815
1,823 66 4,760 12,535 3,097 (1,662) 360 6,186 6,349 (21) 1,201 (240) 961
Downside case
NT$51 If ultrabook demand is lower than expected, sales could decline 10% more than we model in 2012, driving the price to NT$51, on a P/E of 12x 2012E lower EPS of NT$4.25
13.1 4.9 1.6 1.3 4.8 17.8 (35.4)
16.0 6.4 5.2 1.5 4.0 31.8 (26.0)
12.8 5.5 8.3 1.5 4.8 32.3 (25.0)
Average 12.8 13.7 5.4 5.6 9.8 6.2 1.5 4.8 32.8 (26.2) 1.5 4.6 28.7 (28.1)
NT$65 (7.8%) (4.3%)

Upside Case
64 44 24 29-Sep-10
9-Sep-11
Revenue and EPS, 2010- 13E

12 NT$bn 10 8 6 4 2 0 2010A
Revenue EPS (NT$)
51 151 83 119
53 136 78 111
57 133 77 114
56 131 76 112
NT$ 6 5 4 3 2 1 0
2011E
2012E
2013E
Note: FY end Dec.
6 October 2011
28
Valuation
Our 12-month price target for SZS is NT$58. We value SZS by using a P/E multiple of 12x (with normal trading cycle (10-24x) of 12x, We apply our target multiple for our EPS forecast of NT$4.85 for 2012. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks. Although tablet cannibalization could negatively impact growth of NB hinge sales, we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E. Our price target represents potential downside of 4%, which we estimate is in line with SZSs peer group; therefore, we assign a 2-Equal Weight rating.
Risks
Upside risks: The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum. Downside risks: The key risks to the downside that could prevent our price target from being achieved, in our view, are the following: 1) lower-than-expected demand for ultrabooks and MacBook Air/Pro could negatively impact the expected sales growth momentum in 2012 and 2) a lower-than-expected ultra-thin (hollow) hinge adaption rate for NBs due to limited budgets for implementation of higher-end specs.
Price-erosion competition never-ending, but the yield rate makes the difference
With increasingly more participants in the conventional NB hinge supply chain, APSs and GMs have been declining. However, due to its higher yield rate and reliability, SZS continues to be the market share leader with 45-50% of total NBs and 90%-plus of MacBook Air/Pro. SZS was not the sole supplier to Apple at first; however, as the other suppliers are no longer able to afford the low yield rate, it is now increasing its market share.
Figure 39: SZS sales contributions, 2012E
Figure 40: SZS hinge sales contributions, 2012E

Consumer Others electronics 5% 9%
Others 18%
Hinges 82%
TV/ monitors/ AIOs 26%
NBs 60%
6 October 2011
29
Earnings outlook for 2011E-12E

Apple MacBook Air/Pro and ultrabooks to drive SZS sales
We believe SZS is set to benefit from the forecast growth in ultrabook sales. SZS is the main supplier of hinges for MacBook Air/Pro, and most top-tier brand makers are launching ultrabooks using SZSs solution. Indeed, the company is in the development stage for new models for 2012E. Figure 41: SZS sales revenue, 2006-13E
12,000 10,000 8,000 6,000 4,038 4,000 2,000 0 2006 2007 2008 2009 2010 2011E 2012E 2013E 5,140 6,406 7,029 6,673 NT$ mn 9,391 8,301 9,774
sales revenue
Figure 42: SZS ROE, 2010-13E

14 12 10 8 9.80 8.69 11.67 11.96
Figure 43: SZS EPS, 2010-13E

6 5 4 3 NT$ 4.71 3.87 4.85 4.85
6 4 2 0 2010 2011E 2012E 2013E 2 1 0 2010 2011E 2012E 2013E
%, ROE 2010-13E
EPS 2010-13E
6 October 2011
30
Figure 44: SZS 12M forward P/E

30 25 20 15 10 5 0 Dec-06 Mar-07 Sep-06 Dec-07 Sep-07 Dec-08 Mar-09 Jun-07 Mar-08 Sep-08 Dec-09 Mar-10 Jun-08 Sep-09 Dec-10 Mar-11 Jun-09 Sep-10 Jun-10 Jun-11
Figure 45: SZS 12M forward P/B

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Sep-06 Sep-07 Sep-08 Sep-09 Dec-06 Mar-07 Mar-08 Dec-08 Mar-09 Mar-10 Sep-10 Dec-10 Mar-11 Jun-07 Jun-08 Jun-09 Jun-10 Dec-07 Dec-09 Jun-11
Rolling 1y PE
Mean
+1 SD
-1 SD
Rolling 1y PB
Mean
+1 SD
-1 SD
Figure 46: SZS share price performance

180 160 140 120 100 80 60 40 20 0 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 NT$ y/y % 80 60 40 20 0 -20 -40 -60
Sales, % ch YoY, 3MMA (RHS)

Share price (NT$) (LHS)
Sensitivity analysis sales and operating margins

We analyze the sensitivity of our forecast for SZSs EPS 2012 to examine and support our view that its risk-reward profile is positive under various scenarios. We conclude that two major factors affecting EPS are 1) sales and 2) operating margins. Our base-case scenario calls for sales of NT$9.4bn for 2012 (up 13% y/y) and an operating margin of 9.8% (up from 8.9% for 2011E), representing EPS of NT$4.85. We conclude the following: Worst-case scenario: Quarterly volumes would remain flat and the operating margin would turn out to be lower than we forecast. Base-case scenario: On our earnings forecasts, SZS still follows the pattern of the Apple products and ultrabook boom going forward. We could see further upside to earnings revisions after that. Best-case scenario: EPS would be higher than our forecast with a significant improvement in cost efficiency.
6 October 2011 31
Figure 47: SZS sensitivity analysis to Barclays Capitals EPS forecast for 2012 based on sales and operating margin
Revenue of NT$9.4bn, 2012E -10% +1.5%-pts Operating margin +1.0%-pts +0.5%-pts Base case -0.5%-pts -1.0%-pts -1.5%-pts 5.07 4.80 4.54 4.27 4.00 3.73 3.47 -5% 5.40 5.12 4.84 4.56 4.28 4.00 3.71 0% 5.74 5.44 5.14 4.85 4.55 4.26 3.96 5% 6.07 5.76 5.45 5.14 4.83 4.52 4.20 10% 6.41 6.08 5.75 5.43 5.10 4.78 4.45
Figure 48: SZS sensitivity analysis to Barclays Capital price target for 2012 based on sales and operating margin
Revenue of NT$9.4bn, 2012E -10% +1.5%-pts Operating margin +1.0%-pts +0.5%-pts Base case -0.5%-pts -1.0%-pts -1.5%-pts 61 58 54 51 48 45 42 -5% 65 61 58 55 51 48 45 0% 69 65 62 58 55 51 48 5% 73 69 65 62 58 54 50 10% 77 73 69 65 61 57 53
Catalysts
Near-term catalysts
High exposure to Apple (MacBook Air/Pro) in 2011-12E: We expect SZS to continue to deliver strong absolute growth, both in terms of revenue/profit and share price performance, despite recent weakness in the PC industry and tablet cannibalization. In terms of volume, SZS should benefit from being the major hinge components supplier for Apples MacBook Air/Pro.
Long-term catalysts higher-end hinges for ultra-thin NBs

We expect ultrabooks and ultra-thin NBs to be the lifesavers for higher-end hinge makers: SZS is the hinge leader in terms of market share (45-50% of total NBs), yield rates and technology. And, because of its higher yield rates and reliability, it is the major hinge supplier for Apples MacBook Air/Pro (90%+ share). In addition, the hollow-type hinge is also one of the keys to thinner NBs (saves space by allowing the antenna to be put inside the hinge).
6 October 2011
32
Potential inventory write-off significant for outlook for 2012: We believe SZS suffers from inventory overbuild in 2011 due to weak NB demand so any potential move to write off inventory this year would help our outlook for 2012. Should this take place, 2011 could turn out to be a tough year for SZS and could result in some short-term weakness for its stock price at year-end.
The competitive situation

Hinges (82% of total sales for 2012E, 18% GM)
With the dramatic trend of declining ASPs since 2010 due to price competition, SZSs gross margin shrank from 32% for 2009 to 18% currently. We believe it will be difficult for the company to return its gross margin to the previous level with new entrants cutting prices to gain share in the NB market. Figure 49: SZSs competition market share of NBs in 2012E, %
others 5%
Lian Hong 15%
SZS 45% Jarlly 15%
Sin Her 20%

Price-erosion competition never-ending, but the yield rate makes the difference
With increasingly more participants in the conventional NB hinge supply chain, ASPs and GMs have been declining. SZS, however, with its high yield rates and reliability, continues to be the market share leader 45-50% of total NBs and 90%+ of Apples MacBook Air/Pro (SZS was not the sole supplier to Apple in the beginning, but since the other suppliers can no longer afford the low yield rates, SZSs share is increasing).
Figure 50: SZS hinges expected to account for 82% of total sales in 2012 Notebook & tablet PCs LCD monitors 3C MIM hinges
6 October 2011
33
Others (18% of total sales for 2012E, 20% GM)

SZS also manufactures key parts for hinge modules springs, stampings, lathes and plastics rather than fully rely on outsourcing. Figure 51: SZA others expect to account for 18% of total sales for 2012 Springs Stampings Lathes Plastics
Company profile
COMPANY FACTS 2010 revenue: NT$6.6bn Employees: 6,185 worldwide (June 2011) Headquarters: Taipei, Taiwan Worldwide service: Taiwan, Singapore, Suzhou, Shenzeng, Guangdong Chairman and president: Lu Sheng Nan
SZS was founded in 1965 by Ming Wen Lu and Sheng Nan Lu in San Chung City, Taiwan, to manufacture a variety of springs. Then, in 1981, it began manufacturing progressive dies, moulds and stamping-related tooling. In 1990, SZS foresaw the growing importance of hinges. Given its ample knowledge of precision mould development and production, it launched new hinge research and development. In effect, the company realigned itself toward the production of hinges and related products. SZS provides 1) hinge products, which include commercial NB PC hinges, industrial hinges, military NB PC hinges, liquid crystal display (LCD) monitor hinges, personal digital assistant (PDA) hinges, LCD television hinges and electronic dictionary hinges, among others; 2) spring products, which are applied primarily in computers, electronic products, optical products, household electric appliances, information products, communication products, instruments, automobiles and bicycles; and 3) stamping products, which include stamping components and profiled products, as well as related components and accessories. By 1999, SZS had positioned itself as a preferred hinge supplier to ODM/EMS/brand PCs. Figure 53: SZS shareholding structure
Shareholder 1 2 Lu Sheng Nan Lu Min Wen Lu Yu Ch'eng Lu P'ei Fang Lu Tsun Hung--a Lu Yu Shu Lu Wen Ying Juan Ming Hui Lu You Lin-(a) Shin Kong Life Insurance Co., Ltd Holding % 10.0% 5.8% 3.0% 2.9% 2.7% 2.0% 1.9% 1.8% 1.6% 1.3%
Figure 52: SZS foreign investment (%)

6 5 4 3 2 1 0 Aug-10 Oct-10 Jan-11 Mar-11 Jun-11 Aug-11
3 4 5 6 7 8 9 10
Foreign Invest.%-TSE
6 October 2011
34
Figure 54: SZS key historical events

Year 1965 1968 1973 1981 1990 1993 1995 1997 1999 2001 2004 2004 2004 2005 2007 2009 Event Min-Wen Lu and Sheng-Nan Lu co-founded Shin Shing Springs Factory in San Chung city, Taiwan. The company adopted the name: Shin Zu Shing Spring and Mechanical Co., Ltd. when it entered into a technical cooperation agreement with with Riken Co., Japan. Expansion led to the relocation of SZS to Su Lin city, Taiwan. Launched progressive die and mold manufacturing, and tool manufacturing that was related to stampings. Established a department focused on the research and development of hinges. Designed and received the first international patent for notebook PC hinges. Launched a hinge-assembly line and established itself as an OEM and ODM for notebook PCs. Granted an "AA" grade Award company from Matsushita company, Taiwan. Awarded ISO 9002 status. Adopted the name: Shin Zu Shing Co., Ltd. Established itself as the largest hinge provider for notebook PCs in Taiwan . Awarded ISO 9001 status. (2000 rev) SZS Financial Supervisory Commission approved the request for a public offering. Investment Commission approved the establishment of a subsidiary firm: SZS Precision Electronic Co., Ltd was located in Su Zhou , China . Awarded ISO 14001 status. OTC approved initial public offering of SZS. Awarded IECQ QC080000 status Selected for Asia's Fastest-Growing Small Companies: The Top 10 in 2008 by BusinessWeek
6 October 2011
35
Figure 55: SZS quarterly income statement, 1Q10-4Q13E

(NT$mn) Sales COGS Gross profit Operating expenses Operating income Non-op income Pre-tax income Tax or credits Net income EPS (NT$) Margin analysis (%) Gross profit Operating profit Net profit y/y (%) Sales Gross profit Operating income Net income EPS (NT$) q/q (%) Sales Gross profit Operating income Net income EPS (NT$) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2009 2010 2011E 2012E 2013E
1,534 425 -125 301 -10 291 -67 224 1.42
1,554 398 -132 266 18 284 -38 246 1.56
1,539 289 -159 131 -6 124 -7 117 0.74
2,045 468 -208 261 -56 204 -49 156 0.99
1,860 335 -182 153 27 180 -77 104 0.66
2,019 369 -187 182 -38 145 -69 75 0.48
2,108 404 -202 203 52 255 -36 219 1.38
2,314 435 -232 203 47 250 -35 215 1.36
2,120 399 -202 197 30 227 -55 172 1.08
2,424 455 -210 245 -36 209 -49 160 1.01
2,424 455 -217 238 52 291 -71 220 1.39
2,424 455 -217 238 47 285 -69 216 1.36
2,444 448 -217 232 30 262 -63 198 1.25
2,444 448 -217 232 -36 196 -46 150 0.95
2,444 448 -217 232 52 284 -69 215 1.36
2,444 440 -217 223 47 270 -66 205 1.29
7,029 2,284 -581 1,703 68 1,771 -328 1,443 9.66
6,673 1,580 -623 957 -54 903 -160 743 4.69
8,301 1,543 -802 741 89 831 -217 613 3.87
9,391 1,763 -845 918 94 1,012 -244 768 4.85
9,774 1,785 -866 919 94 1,013 -244 769 4.85
-1,109 -1,157 -1,250 -1,576 -1,525 -1,651 -1,704 -1,879 -1,721 -1,969 -1,969 -1,969 -1,995 -1,995 -1,995 -2,004 -4,745 -5,092 -6,759 -7,628 -7,989
27.7% 25.6% 18.8% 22.9% 18.0% 18.3% 19.2% 18.8% 18.8% 18.8% 18.8% 18.8% 18.4% 18.4% 18.4% 18.0% 32.5% 23.7% 18.6% 18.8% 18.3% 19.6% 17.1% 14.6% 15.8% 8.5% 12.7% 7.6% 7.6% 8.2% 5.6% 9.0% 9.6% 8.8% 9.3% 9.3% 10.1% 8.1% 6.6% 9.8% 9.1% 9.8% 8.9% 9.5% 8.1% 9.5% 6.1% 0.8% -1.4% -5.3% -6.2% -6.2% 0.0% 0.0% 0.0% 9.5% 8.8% 0.8% -1.4% -2.7% -2.2% -2.2% 0.0% 0.0% 0.0% 9.1% 24.2% 14.3% 8.4% 20.5% 11.1% 0.8% -3.3% 9.7% 8.9% 7.4% 9.8% 8.2% 9.4% 7.9% 4.1% 1.3% 0.1% 0.1% 0.1% 3.7% 10.4%
4.2% -18.8% -20.7% 20.2% 21.2% 29.9% 36.9% 13.2% 14.0% 20.0% 15.0% -14.4% -41.2% -55.2% 0.7% -21.3% -7.3% 39.7% -7.1% 19.1% 23.3% 12.5% 0.5% 0.5% 0.0% 0.0% -2.7%
4.7% 15.3% 4.5% 12.5% 0.6% 15.4% 0.6% 15.4% 0.0% 0.0% 0.0% -1.8% -1.8% 0.8% -1.4% -2.7%
-5.1% 24.4% 13.1% -2.4% 14.3%
7.9% -30.8%
-19.8% -51.2% -72.7% -14.8% -49.1% -31.4% 55.3% -22.0% 28.6% 34.4% 17.5% 17.2% 17.7% -35.3% -37.6% -73.4% -40.2% -53.7% -69.3% 86.7% 38.0% 65.3% 112.0% -38.9% -41.2% -74.9% -43.6% -53.9% -69.4% 85.9% 37.4% 65.3% 112.0% -9.8% -8.5% -14.0% -18.8% 1.3% -1.0% 32.8% -9.1% 8.6% 4.4% 9.6% 9.8% 7.6% 0.3% -8.4% 14.3% -8.4% 14.1% -3.1% 24.3%
-6.3% 11.4% -43.8% -22.6% 23.9% -5.2% 21.7% -48.5% -17.4% 25.2% -5.2% 15.9% -51.4% -17.4% 25.2% 0.0% -1.9% -3.7% -4.9% -4.9%
-6.5% -27.2% 61.8% -28.5% 10.2%
-1.7% -11.7% -50.9% 99.7% -41.2% 18.9% 11.3% 9.6% -52.3% 32.7% -33.3% -27.3% 190.2% 9.6% -52.3% 32.7% -33.6% -27.3% 190.2%
-1.9% -20.1% -1.9% -20.1%
-6.8% 37.6% -6.8% 37.6%
-8.4% -24.2% 43.4% -8.4% -24.2% 43.4%
6 October 2011
36
Figure 56: SZS income statement, 2009-13E

Year-end 31 Dec (NT$mn) Total revenue COGS Gross profit Operating expenses EBITDA Depreciation Amortisation EBIT Interest income Interest expense Net Interest income/expense Gains on disposals Net associated profits Profit before tax Tax Profit after tax Minority interest Net profit Average weighted ordinary shares EPS (NT$) Fully diluted EPS (NT$)
2009 7,029 (4,745) 2,284 (581) 1,998 (295) 1,703 35 (60) (26) 124 1,771 (328) 1,443 1,443 149 9.70 9.66
2010 6,673 (5,092) 1,580 (623) 1,295 (338) 957 40 (27) 13 (5) 903 (160) 743 743 158 4.71 4.69
2011E 8,301 (6,759) 1,543 (802) 1,141 (400) 741 62 (33) 28 (3) (0) 831 (222) 609 4 613 158 3.87 3.87
2012E 9,391 (7,628) 1,763 (845) 1,343 (425) 918 62 (33) 28 1 (0) 1,012 (253) 759 9 768 158 4.85 4.85
2013E 9,774 (7,989) 1,785 (866) 1,373 (454) 919 62 (33) 28 1 (0) 1,013 (253) 759 9 769 158 4.85 4.85
Figure 57: SZS balance sheet, 2009-13E

Year-end 31 Dec (NT$mn) Cash and equivalent Short-term investments Receivables Inventory Other current assets Total current assets Net fixed assets Intangible assets Other assets Associates & other LT investments Total other assets Total assets Short term debt Payables Current portion of LT liabilities Other current liabilities Total current liabilities Long-term debt Other liabilities Total other liabilities Total liabilities Share capital Share premium and other reserves Minority Interest Others Total equity Total liabilities and equity
2009 5,213 3 2,688 634 398 8,937 2,415 72 147 2,634 11,570 1,713 993 22 771 3,499 370 370 3,868 1,493 6,080 129 7,702 11,570
2010 4,256 85 2,823 802 574 8,540 2,350 67 384 2,802 11,342 1,614 1,328 1 576 3,518 1 360 361 3,880 1,584 6,019 (141) 7,462 11,342
2011E 4,828 51 3,343 1,169 529 9,921 2,222 66 382 149 2,819 12,739 1,658 1,566 1,058 4,283 1,439 360 1,800 6,082 1,584 5,111 (38) 6,657 12,739
2012E 4,721 51 3,501 1,225 529 10,027 2,037 66 382 148 2,633 12,660 1,658 1,641 1,058 4,357 1,439 360 1,800 6,157 1,584 4,779 140 6,503 12,660
2013E 4,760 51 3,530 1,247 529 10,116 1,823 66 382 148 2,419 12,535 1,658 1,670 1,058 4,386 1,439 360 1,800 6,186 1,584 4,448 317 6,349 12,535
6 October 2011
Figure 58: SZS cash flow statement, 2009-13E

Year-end 31 Dec (NT$mn) Net profit Depreciation Amortisation Associate share of (profits)/loss Total gross cash flow Change in total working capital Total operating cash flow Capex less disposals Change in other assets Change in associates Total investment cash flow Change in gross debt Change in other long-term liabilities Change in equity Total financing cash flow Total cash flow Cash balance at beginning of the year Cash balance at end of the year
2009 1,443 295 1,738 158 1,896 (307) (44) (350) (678) 11 578 (89) 1,457 3,757 5,213
2010 743 338 1,081 (420) 660 (273) (233) (506) (120) (9) (983) (1,112) (957) 5,213 4,256
2011E 613 400 0 1,013 (88) 925 (271) 3 (149) (417) 1,482 0 (1,418) 64 572 4,256 4,828
2012E 768 425 0 1,193 (139) 1,054 (240) 0 (240) (922) (922) (108) 4,828 4,721
2013E 769 454 0 1,222 (21) 1,201 (240) 0 (240) (922) (922) 39 4,721 4,760
6 October 2011
Figure 59: SZS key financial metrics, 2009-13E Year-end 31 Dec (NT$mn) Profitability Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) Financial Cash (NT$mn) ST debt (NT$mn) LT debt (NT$mn) Net debt (NT$mn) Net debt/equity (%) Debt/equity (%) Current ratio (x) Quick ratio (x) Economic value NOPAT (NT$mn) Total capital (NT$mn) Gross debt/capital (%) Equity/capital (%) Valuation P/E (x) P/B (x) P/CFPS (x) EV/sales (x) EV/EBITDA (x) EV/EBIT (x) Performance ROA (%) ROE (%) ROIC (%) Asset turnover (x) Working capital/sales (%) Inventory processing days A/R collection days A/P payment days Coverage Interest coverage Value per share (NT$) Earnings per share Book value per share Sales per share Cash flow per share Gross cash per share Net cash per share
2009
2010
2011E
2012E
2013E
32.49 24.23 25.19 20.52 5,213 1,713 22 (3,478) (45.2) 22.5 2.6 2.3 1,375 9,437 18.4 81.6 6.4 1.2 4.9 0.8 2.8 3.3 13.1 21.6 15.2 0.6 77.4 50.2 141.2 86.6 33.1 9.70 51.57 47.07 12.69 34.91 23.29
23.69 14.35 13.54 11.13 4,256 1,614 2 (2,640) (35.4) 21.7 2.4 2.0 797 9,078 17.8 82.2 13.1 1.3 14.8 1.0 4.9 6.7 6.5 9.8 8.7 0.6 75.3 51.5 150.7 83.2 47.8 4.71 47.10 42.12 4.17 26.86 16.67
18.59 8.93 10.01 7.39 4,828 1,658 1,439 (1,731) (26.0) 46.5 2.3 1.9 520 9,754 31.8 68.2 16.0 1.5 10.6 0.9 6.4 9.8 5.1 8.7 5.3 0.7 67.9 53.2 135.6 78.1 34.1 3.87 42.02 52.40 5.84 30.47 10.92
18.77 9.78 10.78 8.18 4,721 1,658 1,439 (1,623) (25.0) 47.6 2.3 1.9 665 9,600 32.3 67.7 12.8 1.5 9.3 0.8 5.5 8.1 6.0 11.7 6.8 0.7 60.4 57.3 133.0 76.7 40.1 4.85 41.05 59.27 6.65 29.80 10.25
18.26 9.40 10.36 7.86 4,760 1,658 1,439 (1,662) (26.2) 48.8 2.3 1.9 666 9,447 32.8 67.2 12.8 1.5 8.2 0.8 5.4 8.0 6.1 12.0 6.9 0.8 58.6 56.5 131.3 75.6 41.0 4.85 40.08 61.70 7.58 30.04 10.49
6 October 2011
JU TENG (3-UW; PT HK$1.20; 14% POTENTIAL DOWNSIDE): SUFFERING FROM THE MATERIAL MIGRATION
3336 HK / 3336.HK Stock Rating
3-UNDERWEIGHT
Sector View
2-NEUTRAL
Price Target
HKD 1.20
Price (05-Oct-2011)
HKD 1.40
We initiate coverage of Ju Teng (3336 HK) with a 3-Underweight rating and 12-month price target of HK$1.20. Our price target is based on 6x our EPS forecast of HK$0.2 for 2012. With a solid global market share in plastic casings for NB products and leadership in technology for injections, moldings and painting, Ju Teng will likely contiue to maintain its leading position for products using plastic casings. However, we expect a significant slowdown in plastic casings given the trend for metal casing is becoming the mainstream for products such as tablets (Apples iPad in particular), thin-type NBs (Apples MacBook Air/Pro), high-end smartphones and potential ultrabooks. Thus, we expec a de-rating during the 3-year trend of a switch to metal casing that we forecast for 2010-12E.
-14%
Long-term investment thesis

The market share for plastic casing clients is close to being saturated. We estimate that Ju Tengs major clients account for more than 70% of its sales for 2011 as Ju Teng has been the first source for plastic casings for major top-tier brand makers. We also estimate that Ju Tengs market share of plastic casings is nearly 40-50% for 2011. Without a strong growth driver, such as tablets and thin-type NBs, upside potential for further share price gains might be limited since the company faces pressure from the boom of metal casing and from competitor such as Foxconn Tech in supplying metal casings for Apples iPads and iPhones as well as for other upcoming ultrabooks. Could Ju Teng catch up with competitors and gain share in the metal casing supply chain? Not likely in 2012, in our view. We believe Ju Teng is the leader of casing design/manufacturing in NB supply chain; however, we expect the major metal casing suppliers like Foxconn Tech and Catcher will take the lead in 2012 due to their 1) existing big scale of production capacity; 2) higher yield rates because of accumulated experience with various clients and products; and 3) their well-recognized market positions in terms of producing quality metal casings. Figure 60: Ju Teng statistical abstract
Year to 31-Dec 2009A 2010A 2011E 2012E 2013E Net profit (HKD mn) 705 331 226 229 230 EPS (HKD) 0.66 0.30 0.20 0.20 0.20 EPS growth (%) 1% -55% -32% 1% 1% P/E (x) 1.8 4.0 6.0 5.9 5.9 P/B (x) 0.3 0.3 0.3 0.3 0.3 ROE (%) 18.7 6.8 4.2 4.1 4.0 Div. yield (%) 6.7 6.7 1.7 1.7 1.7
6 October 2011
COMPANY SNAPSHOT Juteng Income statement (HK$mn) Revenue EBITDA EBIT Pre-tax income Net income EPS (HK$ cents) Diluted EPS (HK$ cents) Shares (mn) Dividend per share (HK$ cents Margin and return data (%) Gross margin EBITDA margin EBIT margin Pre-tax margin Net margin ROIC ROA ROE 2010A 7,166 781 363 420 331 29.6 28.4 1,119 8.0 2011E 7,310 658 219 294 226 20.0 19.8 1,133 2.0 2012E 7,346 681 220 300 229 20.2 20.0 1,133 2.0 2013E 7,346 704 220 305 230 CAGR 0.8% -3.4% -15.3% -10.1% -11.5% Asia ex-Japan IT Hardware
3-UNDERWEIGHT 2-NEUTRAL 1.4 1.2 3336 HK/3336.HK
20.3 -11.8% 20.1 -10.9% 1,133 0.4% 2.0 -36.7% Average 9.1 9.7 3.5 4.5 3.5 2.7 2.5 4.8 CAGR 5.0% 0.0% -6.9% 2.2% 0.0% 4.4%
12.0 10.9 5.1 5.9 4.6 4.1 3.4 6.8
8.5 9.0 3.0 4.0 3.1 2.3 2.2 4.2
8.0 9.3 3.0 4.1 3.1 2.2 2.2 4.1
8.0 9.6 3.0 4.2 3.1 2.1 2.2 4.0
Why a 3-Underweight? Plastic casings leader, Juteng, has been negatively impacted by the 3-year material cycle and the popularity of metal casings caused by the tablet PC boom since about 2010. Juteng's efforts to expand capacity could help it improve its share of metal casings, but not until end2012E, at the earliest. Upside case HK$1.4 If sales are 10% higher than we model on metal casing share gain in 2012, this could drive the share price to HK$1.4, on a P/E of 5x 2012E higher EPS of HK$0.28
Balance sheet and cash flow statement (HK$ mn) Tangible fixed assets 4,742 4,979 Intangible fixed assets 38 38 Cash and equivalents 884 902 Total assets 9,912 10,270 Short- and long-term debt Net debt/(funds) Other long-term liabilities Total liabilities Shareholders' equity Change in working capital Cash from operations Capital expenditure Free cash flow Valuation and leverage metrics P/ E (x) EV/EBITDA (x) FCF yield (%) P/ B (x) Dividend yield (%) Total debt/capital (%) Net debt/equity (%) Selected operating metrics Inventory days Accounts receivable days Accounts payable days Cash-conversion cycle 2,113 1,230 11 4,686 5,225 290 1,039 (1,052) (12) 2,113 1,212 11 4,841 5,429 56 722 (676) 46
5,228 38 796 10,419 2,113 1,317 11 4,784 5,635 (61) 628 (710) (82)
5,490 38 713 10,578 2,113 1,400
11 0.0% 4,736 0.4% 5,842 3.8% (28) NA 685 -13.0% (745) (60) NA NA
HK$1.0 If ultrabook and NB demand in 2012 is lower than we model, sales could decline 10%, driving the price down to HK$1.0, on P/ E of 5x 2012E lower EPS of HK$0.2.
Downside case
Upside/downside scenarios
6 5 4 3 2 1 0 29-Sep-10 27-Sep-11 HK$1.44 HK$1.4 HK$0.96 HK$1.2 HK$1 (-23.8%) (1.4%) (-32.3%) (-36.5%) (-49.2%) (-15.4%) Downside Price Upside
Case Target Case
4.0 3.3 -0.9 0.3 6.7 28.8 23.5
6.0 3.9 3.4 0.3 1.7 28.0 22.3
5.9 3.9 -6.1 0.3 1.7 27.3 23.4
Average 5.9 5.4 3.9 -4.4 0.3 1.7 26.6 24.0 3.8 -2.0 0.3 2.9 27.7 23.3
Revenue and EPS, 2010- 13E

7.4 HK$bn 7.35 7.3 7.25 7.2 7.15 7.1 7.05 2010A 2011E
Revenue EPS (HK$ cents)
54.9 145.9 106.2 94.6
57.8 124.7 88.9 93.7
59.2 125.6 88.7 96.1
59.5 126.0 85.6 99.9
HK$ 0.4 cents 0.3 0.2 0.1 0.0
2012E
2013E
Note: Company data, Barclays Capital
6 October 2011
Near-term prospects
Cost-down pressure from ODM/brands never ends
With the BOM more transparent than ever and the continuous cost-cutting pressure from ODM/brands, Ju Tengs gross margin are significantly exposed. Thanks to its high yield rates (about 95%) on plastic casings, Ju Teng has still been able maintain to its leading position in the plastic casing supply chain.
The customer mix limits Ju Tengs expansion for metal casings

We believe Ju Tengs leading technology leave it will managed to execute on injections, moulding and painting of NB casings. However, Ju Tengs metal casing department is growing relative slower than those of other metal casing suppliers, such as those for Foxconn Tech and Catcher (2474.TT, Catcher is covered by Dale Gai as part of his coverage of Asia ex-Japan Wireless Equipment & products) as Foxconn Tech benefits from order allocations from Hon Hai (the major EMS of Apples iPhones, iPads and other products), while Ju Teng is in the NB supply chain, it is suffering from the slowdown in NB demand since 2010 from the cannibalization of tablets.
Efforts in metal casings

Ju Teng has been making an effort for several years now to catch with its peers on metal casings. However, with the significant increased in demand for metal casings since 2011 contributed by the iPad/iPhone boom Ju Teng has become one of the victims of tablet cannibalization. Apple (iPad and iPhone) has been sourcing from FTC since the beginning, and when it comes to product design such as the unibody (the metal casing MacBook Air/Pro use), which requires a lot of CNC machines for mass production, Ju Teng and other key casing suppliers are disadvantaged by not having the scale of FTC. We believe Ju Teng has the necessary injection/molding/casings experience, but it will still take some time to expand its capacity for higher-end metal casings.
Valuation
Our 12-month price target for Ju Teng is HK$1.20. We value the company using a target P/E multiple of 5x, which we apply to our 2012 EPS forecast of HK$0.2. We set our target multiple at 6x, which in line with the stocks normal trading cycle (2-10x) of 6x because we do not expect Ju Tengs to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years. Our price target represents potential downside of 14%, which we estimate is at the bottom end of Ju Tengs peer group; therefore, we assign a 3-Underweight rating.
Risks
The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1) lower-than-expected demand for metal casings, 2) Ju Tengs capacity for and experience in metal casing (both die-casting and stamping) catching up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Tengs metal casing manufacturing.
6 October 2011 42
Earnings outlook for 2011E-2012

We believe the market/product trend will continue to move toward metal casings for several years. The plastic casing providers will likely suffer from cannibalization and it will also take some time for them to expand capacity. We are conservative on Jutengs earnings potential for 2011E-12E, as it is currently suffering from tablet cannibalization and weak NB demand. Figure 61: Ju Teng sales revenue, 2007-13E
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2007 2008 2009 2010 sales revenue
HK$ (mn)
7,249
7,464
7,166
7,310
7,346
7,346
5,276
2011E
2012E
2013E
Figure 62: Ju Teng ROE, 2010-13E

8 7 6 5 4 3 2 1 2010 2011E 2012E 2013E 4.2 4.1 4.0 6.8
Figure 63: Ju Teng EPS, 2010-13E

0.40 0.30 0.30 0.20 0.20 0.20 0.20
0.10
0.00 2010 2011E 2012E 2013E
ROE, 2010-13E, %
EPS, 2010-13E, NT$

Figure 64: Ju Teng 12M forward P/E (x)

35 30 25 20 15 10 5 0 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11
Figure 65: Ju Teng 12M forward P/B (x)

2.5 2.0 1.5 1.0 0.5 0.0 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Rolling 1y PB Mean +1 SD -1 SD
Rolling 1y PE
Mean
+1 SD
-1 SD
6 October 2011
43
Sensitivity analysis sales and operating margins

We analyze the sensitivity of our forecast for Jutengs 2012 EPS to examine and support our view that its risk-reward profile is positive under various scenarios. We conclude that two major factors affecting EPS are: 1) sales; and 2) operating margins. Our base-case scenario calls for sales of HK$7bn for 2012 (up 0.5% y/y) and an operating margin of 3% (same as 2011E), representing EPS of HK$0.2. We conclude the following: Worst-case scenario: Quarterly volumes would remain flat and the operating margin would turn out to be lower than we forecast. Base-case scenario: On our earnings forecasts, Juteng still follows the pattern of the Apple products and ultrabook boom going forward. We could see further upside to earnings revisions after that. Best-case scenario: EPS would be higher than our forecast with a significant improvement in cost efficiency. Figure 66: Ju Teng sensitivity analysis to Barclays Capitals EPS forecast for 2012 based on sales and operating margin
Revenue of HK$7bn, 2012E -10% +1.5%-pts Operating margin +1.0%-pts +0.5%-pts Base case -0.5%-pts -1.0%-pts -1.5%-pts 0.26 0.23 0.20 0.18 0.15 0.12 0.09 -5% 0.28 0.25 0.22 0.19 0.16 0.13 0.10 0% 0.29 0.26 0.23 0.20 0.16 0.13 0.10 5% 0.35 0.31 0.27 0.23 0.20 0.16 0.12 10% 0.32 0.28 0.25 0.21 0.18 0.15 0.11
Figure 67: Ju Teng Sensitivity analysis to Barclays Capital price target for 2012 based on sales and operating margin
Revenue of HK$7bn, 2012E -10% +1.5%-pts Operating margin +1.0%-pts +0.5%-pts Base case -0.5%-pts -1.0%-pts -1.5%-pts 1.57 1.40 1.23 1.06 0.89 0.72 0.55 -5% 1.65 1.47 1.29 1.12 0.94 0.76 0.58 0% 1.74 1.55 1.36 1.20 0.98 0.79 0.61 5% 2.08 1.85 1.62 1.40 1.17 0.95 0.72 10% 1.91 1.70 1.49 1.28 1.08 0.87 0.66
6 October 2011
44
Catalysts
Long-term catalysts
We believe Ju Teng may have a better chance than other upcoming competitors to gain market share of metal casings due to: 1) the companys proven experience in injections/mouldings/casings; 2) close relationships with top-tier brand makers; and 3) growing capacity/facility of CNC machines (for higher end product design unibody).
Company profile
COMPANY FACTS 2010 revenue: US$922mn Employees: 31,000 worldwide (June 2011) Headquarters: Taipei, Taiwan Business field: Design and manufacturing of various casings and mechanic parts
Ju Teng International Holdings Ltd. was established in 2000 by Li-Yen Cheng, Li-Yu Cheng and Tsai-Chin Horng. As a manufacturer specializing in 3C products, the companys production facilities are spread across eastern and southern China and Taiwan. Its major customers are worldwide famous brand name companies and OEM/ODM companies. Ju Teng has a leading 31% market share in the global notebook casing market and was listed on the Hong Kong main board in 2005. Figure 68: Ju Teng Key historical events
Year Event 2000 Ju Teng International Holdings Ltd was founded by three individuals with extensive industry experience: Li-Yen Cheng, Li-Yu Cheng and Tsai-Chin Horng. 2001 The companys first production plant in Suzhou, China, was established (Everyday Computer). 2002 The second production plant in Suzhou, China, was established (Suzhou Dazhi). 2003 The second production base (Suzhou Dazhi) began mass production. 2004 Ju Teng Electronics (Shanghai) was acquired to expand the groups production capacity. In the same year, the group established its own mould department in the Suzhou Dazhi plant. 2005 The mold department commenced production. 2005 In Nov, Ju Teng International Holdings Ltd was listed on the Main Board of Hong Kong Stock Exchange. 2006 Acquisition of a 70% interest in WIS Precision (Kunshan), a joint venture with Wistron, and acquisition of 36.5% interest in Chengyang Precision Mold (Kunshan). 2007 Increase of equity interest in Chengyang Precision to 74%. 2008 Increase of equity interest in Chengyang Precision to 100% and acquisition of 71% interest in Lian-Yi Precision (Zhongshan). 2009 Acquisition of a 53.44% interest in Compal Precision Module (Jiangsu), a joint venture with Compal. In May, Ju Teng International Holdings Ltd. was listed on the Taiwan Stock Exchange by way of Taiwan depository receipts (TDRs).
6 October 2011
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Figure 69: Ju Teng quarterly income statement, 1Q10-4Q13E

FY2009A (HK$mn) Sales COGS Gross profit Op expenses Op income Int & other inc/(exp) Pretax income Taxes or credits Net income EPS in HK$ cent Shares (mn) Margin analysis Gross margin Op margin Pre-tax margin Net margin YoY change Sales Gross profit Op income Net income HoH change Sales Gross profit Op income Net income 11.5% 41.5% 51.3% 43.4% -6.4% -23.8% -34.1% -27.2% 0.4% -57.0% -99.3% -90.4% 1.8% 19.6% 2360.8% 280.8% 0.0% 21.3% 5621.5% 297.4% -8.0% -3.3% -47.4% -53.1% 18.5% -5.8% 73.1% 221.6% -18.1% 25.2% 4.3% 15.9% -0.2% 4.3% -6.1% -6.2% -99.5% -93.0% -1.1% 3.1% -60.0% -53.0% 2.2% -48.6% -81.7% -63.3% 1.8% 21.3% 5621.5% 297.4% 2.0% -27.6% -39.6% -31.7% -8.0% -1.9% 22.4% -51.1% 9.0% -8.9% -8.9% 50.8% 0.5% -5.4% 0.5% 1.0% -3.0% -11.6% -24.0% -23.5% 2.5% 12.3% 13.9% 8.0% 0.0% 0.0% 0.0% 0.5% 17.8% 11.6% 10.7% 8.4% 18.2% 12.6% 14.8% 10.9% 18.0% 12.2% 12.5% 9.4% 16.8% 10.1% 11.0% 8.4% 7.2% 0.1% 0.8% 0.8% 12.0% 5.1% 5.9% 4.6% 8.4% 1.8% 3.1% 3.0% 8.6% 4.2% 4.9% 3.2% 8.5% 3.0% 4.0% 3.1% 9.0% 2.4% 2.3% 1.6% 7.2% 3.5% 5.6% 4.4% 8.0% 3.0% 4.1% 3.1% 8.2% 1.9% 2.0% 1.3% 7.8% 3.9% 5.9% 4.6% 8.0% 3.0% 4.2% 3.1% 1HA 3,428 (2,568) 557 (195) 361 7 368 (79) 290 27.66 1,047 2HA 3,821 (3,552) 788 (241) 547 19 565 (150) 415 35.47 1,171 FYE '10A 7,249 (6,119) 1,345 (436) 908 26 934 (229) 705 63.13 1,171 1HA 3,577 (2,976) 600 (240) 361 32 393 (91) 302 27.02 1,118 FY2010A 2HA 3,590 (3,332) 258 (255) 3 25 27 2 29 2.57 1,133 FYE '10A 7,166 (6,308) 858 (495) 363 57 420 (89) 331.19 29.59 1,133 1HA 3,655 (3,346) 308 (243) 66 49 115 (4) 111 9.77 1,133 FY2011E 2HE 3,655 (3,342) 313 (160) 153 26 180 (64) 116 10.20 1,133 FYE '11E 7,310 (6,688) 621 (402) 219 75 294 (68) 226 19.98 1,133 1HE 3,362 (3,060) 303 (222) 81 (2) 79 (24) 54 4.78 1,133 FY2012E 2HE 3,984 (3,699) 285 (145) 140 82 222 (47) 174 15.39 1,133 FYE '12E 7,346 (6,758) 588 (367) 220 80 300 (72) 229 20.17 1,133 1HE 3,262 (2,994) 267 (206) 61 3 64 (23) 41 3.66 1,133 FY2013E 2HE 4,085 (3,764) 320 (161) 159 82 241 (53) 188 16.61 1,133 FYE '13E 7,346 (6,758) 588 (367) 220 85 305 (76) 230 20.27 1,133
-6.2% -1180.3% -56.1% -76.2% 159.4% 353.7%
6 October 2011
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Figure 70: Ju Teng income statement, 2009-13E

Year-end 31 Dec (HK$mn) Total revenue COGS Gross profit Operating expenses EBITDA Depreciation and amortization EBIT Interest expense (net) Net interest income/ expense Gains On disposals Net associated profits Other net gains/losses Profit before tax Tax Profit after tax Discontinued operation Minority interest Net profit Average weighted # of ordinary shares Basic EPS (HK$) Diluted EPS (HK$)
2009 7,464 (6,119) 1,345 (436) 1,225 (316) 908 (49) (49) 74 934 (173) 761 (56) 705 1,065 0.66 0.63
2010 7,166 (6,308) 858 (495) 781 (418) 363 (35) (35) 92 420 (65) 355 (24) 331 1,119 0.30 0.28
2011E 7,310 (6,688) 621 (402) 658 (439) 219 (35) (35) 110 294 (44) 250 (24) 226 1,133 0.20 0.20
2012E 7,346 (6,758) 588 (367) 681 (461) 220 (35) (35) 115 300 (48) 252 (24) 229 1,133 0.20 0.20
2013E 7,346 (6,758) 588 (367) 704 (484) 220 (35) (35) 120 305 (52) 253 (24) 230 1,133 0.20 0.20
Figure 71: Ju Teng balance sheet, 2009-13E

Year-end 31 Dec (HK$mn) Cash and equivalent Short-term investments Receivables Inventory Other current assets Total current assets Net fixed assets Intangible assets Other assets Associates & other LT investments Total other assets Total assets Short term debt Payables Current portion of LT liabilities Other current liabilities Total current liabilities Long term debt Other liabilities Total other liabilities Total liabilities Share capital Share premium and other reserves Minority Interest Others Total equity Total liabilities and equity
2009 617 0 3,256 869 420 5,162 4,108 38 158 55 4,360 9,521 883 2,089 772 3,745 1,202 14 1,216 4,961 112 3,854 595 4,561 9,521
2010 884 18 2,473 1,029 436 4,839 4,742 38 251 42 5,073 9,912 761 1,581 980 3,322 1,353 11 1,364 4,686 113 4,276 837 5,225 9,912
2011E 902 18 2,522 1,091 422 4,955 4,979 38 256 42 5,315 10,270 761 1,677 1,039 3,477 1,353 11 1,364 4,841 113 4,479 837 5,429 10,270
2012E 796 18 2,535 1,102 403 4,854 5,228 38 257 42 5,565 10,419 761 1,610 1,050 3,420 1,353 11 1,364 4,784 113 4,685 837 5,635 10,419
2013E 713 18 2,535 1,102 383 4,751 5,490 38 257 42 5,827 10,578 761 1,561 1,050 3,372 1,353 11 1,364 4,736 113 4,892 837 5,842 10,578
6 October 2011
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Figure 72: Ju Teng cash flow statement, 2009-13E

Year-end 31 Dec (HK$mn) Net profit Depreciation Associate share of (profits)/ loss Total gross cash flow Change in total working capital Total operating cash flow Capex less disposals Change in other assets Change in associates Total investment cash flow Change in gross debt Change in other long term liabilities Change in equity Total financing cash flow Total cash flow Cash balance at beginning of the year Cash balance at end of the year
2009 705 316 1,021 39 1,061 (2,145) 76 (22) (2,091) 208 5 874 1,087 57 559 617
2010 331 418 749 290 1,039 (1,052) (93) 14 (1,131) 28 (3) 334 359 267 617 884
2011E 226 439 665 56 722 (676) (5) (681) (23) (23) 18 884 902
2012E 229 461 689 (61) 628 (710) (1) (711) (23) (23) (106) 902 796
2013E 230 484 713 (28) 685 (745) (745) (23) (23) (83) 796 713
6 October 2011
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Figure 73: Ju Teng key financial metrics (2009-13E) Year-end 31 Dec (HK$mn) Profitability Gross margin (%) Operating margin (%) Pre-tax margin (%) Net margin (%) Financial Cash (HK$ mn) ST debt (HK$ mn) LT debt (HK$ mn) Net debt (HK$ mn) Net debt/equity (%) Debt/equity (%) Current ratio (x) Quick ratio (x) Economic value NOPAT (HK$ mn) Total capital (Rmb mn) Gross debt/capital (%) Equity/capital (%) Valuation P/E (x) P/B (x) P/CFPS (x) EV/sales (x) EV/EBITDA (x) EV/EBIT (x) Performance ROA (%) ROE (%) ROIC (%) Asset turnover (x) Working capital/sales (%) Inventory processing days A/R collection days A/P payment days Coverage Interest coverage Value per share (HK$) Earnings per share Book value per share Sales per share Cash flow per share Gross cash per share Net cash per share
2009
2010
2011E
2012E
2013E
18.02 12.17 12.51 9.44 617 883 1,202 1,469 32.2 45.7 1.4 1.0 736 6,646 31.4 68.6 1.8 0.3 1.2 0.4 2.3 3.1 8.5 18.7 11.1 0.9 19.0 50.4 149.6 107.9 25.2 0.7 3.72 7.0 1.0 0.6 (1.4)
11.98 5.07 5.87 4.62 884 761 1,353 1,230 23.5 40.4 1.5 1.0 298 7,339 28.8 71.2 4.0 0.3 1.3 0.4 3.3 7.1 3.4 6.8 4.1 0.7 21.2 54.9 145.9 106.2 22.6 0.3 3.92 6.4 0.9 0.8 (1.1)
8.50 3.00 4.03 3.10 902 761 1,353 1,212 22.3 38.9 1.4 1.0 175 7,543 28.0 72.0 6.0 0.3 1.9 0.4 3.9 11.7 2.2 4.2 2.3 0.7 20.2 57.8 124.7 88.9 18.8 0.2 4.05 6.5 0.6 0.8 (1.1)
8.00 3.00 4.09 3.11 796 761 1,353 1,317 23.4 37.5 1.4 1.0 172 7,748 27.3 72.7 5.9 0.3 2.1 0.4 3.9 12.1 2.2 4.1 2.2 0.7 19.5 59.2 125.6 88.7 19.5 0.2 4.24 6.5 0.6 0.7 (1.2)
8.00 3.00 4.16 3.13 713 761 1,353 1,400 24.0 36.2 1.4 1.0 168 7,955 26.6 73.4 5.9 0.3 2.0 0.4 3.9 12.5 2.2 4.0 2.1 0.7 18.8 59.5 126.0 85.6 20.1 0.2 4.42 6.5 0.6 0.6 (1.2)
6 October 2011
49
APPENDIX I: WOA! (WINDOWS ON ARM) AN OPPORTUNITY FOR NON-APPLE TABLETS/ULTRABOOKS WITH WIN8/ARM
Why we expect component suppliers growth momentum to be driven by ultrabooks/tablets
For 2012, we are still positive on the growth momentum for tablet PCs. In addition to the iPad series, we believe sales of other tablets (non-Apple camp) will still grow, due to demand from the commercial segment. Although Windows 8 is not a surprising OS we view it more as a service pack upgrade it does incorporate together versions of the OS to run tablets, smartphones and PCs, and it offers support for touch solutions. Our checks suggest that Windows 8 will still get a sizable market share in terms of the commercial segment (Windows is still the preferred OS for commercial usages) and that Windows 8 could be regarded as the first Windows OS that fits the ARM-based platform. Some PC makers are trying to avoid the pricier Intel CPU/chipset solutions. However, AMD and ARM are not likely to replace Intels solution in the near term, due to various concerns.
Windows 8 + ARM-based platform to win together

Cannot win it alone
According to our checks, we believe neither the Windows 8 nor ARM-based platform can go it alone, as Windows 8 does not seem to provide end-users with a surprisingly new OS nor is it competitive with Apples iOS (with comprehensive applications and mature users adoption on tablets). As for an ARM-based platform, we know there are several major solution providers (such as nVidia, Samsung and TI) that have been dedicated to this platform for a while, and since the previous Windows version (Windows 7) cannot run smoothly on current ARM-based platforms, this means another Linux-based OS (such as Chrome OS) is being used, often failing in the end because of users lower confidence in and experience with these other OS.
Windows 8 + ARM-based platform synergies

Windows 8 is the first Widows OS that can be operated smoothly on ARM-based platforms. The benefit of smoothly operating on an ARM-based platform is more than that it offers a new alternative an ARM-based OS platforms is 50% cheaper in terms of CPUs/chipsets/passive components vs an Intel solution. Indeed, PC makers can now offer clients a reliable, but familiar Windows on a cheaper platform that offers more portability and additional functionality.
Which segment to penetrate?

Commercial: Definitely, as we believe the Windows platform is still welcome in terms of usage in medicine, education, office work, etc. Gray area between Apple iOS and Google: The combination of Windows 8 + ARM might gain market share in the grey area that consists of PC makers and end-users who are hesitant to use the Google platform because of slow responsiveness and ownerships issues (in comparison to well-built Microsfot Windows) if there are any technical bugs or specific tailor-made requests. Googles Android OS is open source, which provides cost savings, but when any bugs are found and problem solving is needed, there is general concern among end-users and PC makers because the Google platform does not offer the same level of support that Microsoft does.
6 October 2011 50
APPENDIX II: NOTEBOOK, DESKTOP AND TABLET PCS

Figure 74: NB buyer/supplier matrix
Barclays Capital Asia ex-Japan Technology Hardware Research - 2011E Notebook Buyer/Supplier Matrix (version 2.1)
Supplier HP Brand ranking Products Brand units Acer Brand ranking Products Brand units Dell Brand ranking Products Quanta Compal Wistron Hon Hai 44.7% 2.4% 3.5% 21.2% HP #1 HP #5 HP #6 HP #2 Low-end and Corporate; AMD Corporate, small Corporate and lowmainstream consumer consumer end consumer 19,000 1,000 1,500 9,000 7.7% 59.0% 29.5% 0.0% Acer #3 Acer #1 Acer #2 Acer #4 Slim NB Netbooks, Consumer, Consumer Consumer slim NB 3,000 23,000 11,500 0 11.9% 38.5% 31.8% 9.9% Dell #3 Dell #1 Dell #2 Dell #4 Corporate and Consumer Corporate CULV (13", 14", 15") Consumer and mainstream consumer 3,000 9,695 8,000 2,500 12.9% 42.9% 30.0% 0.0% Lenovo #3 Lenovo #1 Lenovo #2 IdeaPad Consumer: IdeaPad Corp: ThinkPad; Some consumer (IdeaPad) 3,000 10,000 7,000 0 14.3% 40.5% 0.0% 0.0% Toshiba #3 Toshiba #1 Consumer 3,000 8,500 0 0 25.6% 15.4% 0.0% 2.6% Asus #2 Asus #3 Asus #4 K-series 5,000 3,000 0 500 92.3% 0.0% 0.0% 7.7% Apple #1 Apple #2 MacBook Pro/Air MacBook 12,000 0 0 1,000 33.3% 0.0% 22.2% 22.2% Sony #1 Sony #2 Sony #2 E-series E-series Y-series (CULV) 3,000 0 2,000 2,000 36.4% 0.0% 9.1% 0.0% Fujitsu #1 Fujitsu #3 2,000 1,000 54,000 52,100 0 500 55,695 48,260 500 1,000 31,500 27,500 0 3,425 18,425 9,600 Pegatron 0.0% Inventec 18.8% HP #3 Corporate and server 8,000 0.0% Flextronics 9.4% HP #4 AMD Yukon, CULV 4,000 0.0% Others 0.0% 2011E Total 100.0% 9.9% 0 0.0% 42,500 100.0% 14.4% 0 4.0% Dell #5 0 4.0% Dell #5 0 0.0% 39,000 100.0% 7.3%
0 3.8% Acer #4 Corporate 1,500 0.0%
Brand units Lenovo Brand ranking Products Brand units Toshiba Brand ranking Products Brand units Asustek Brand ranking Products Brand units Apple Brand ranking Products Brand units Sony Brand ranking Products Brand units Fujitsu Brand ranking Products Brand units Others 2011E Total 2010E Total
0 4.3% Lenovo #4
1,000 0.0%
1,000 0.0%
0 9.9% Corporate
25,195 100.0% 18.5% 23,300 100.0% 10.5% 21,000 100.0% 15.4% 19,500 100.0% 33.7% 13,000 100.0% 9.2% 9,000 100.0% 74.4% 5,500 26,953 214,076 200,000
1,000 7.1% Toshiba #4 Consumer 1,500 56.4% Asus #1 Corp, N-series 11,000 0.0%
0 33.3% Toshiba #2 Consumer 7,000 0.0%
0 0.0%
2,300 4.8%
0 0.0%
1,000 0.0%
0 0.0%
0 0.0%
0 0.0%
0 0.0%
0 0.0%
0 0.0%
0 22.2%
0 0.0%
0 18.2% Fujitsu #2 1,000 0 17,000 16,150
0 0.0%
2,000 36.4%
0 2,500 17,500 15,350
0 0 5,000 3,000
2,000 18,528 14,956 28,040
2011E Notebook brand as a % of supplier

Quanta HP Acer Dell Lenovo Toshiba Asustek Apple Sony Fujitsu Others Total 35.2% 5.6% 5.6% 5.6% 5.6% 9.3% 22.2% 5.6% 3.7% 1.9% 100.0% Compal 1.8% 41.3% 17.4% 18.0% 15.3% 5.4% 0.0% 0.0% 0.0% 0.9% 100.0% Wistron 4.8% 36.5% 25.4% 22.2% 0.0% 0.0% 0.0% 6.3% 1.6% 3.2% 100.0% Hon Hai 48.8% 0.0% 13.6% 0.0% 0.0% 2.7% 5.4% 10.9% 0.0% 18.6% 100.0% Pegatron 0.0% 8.6% 0.0% 5.7% 8.6% 62.9% 0.0% 0.0% 0.0% 14.3% 100.0% Inventec 47.1% 0.0% 5.9% 0.0% 41.2% 0.0% 0.0% 0.0% 5.9% 0.0% 100.0% Flextronics 80.0% 0.0% 20.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Others 0.0% 0.0% 0.0% 15.4% 6.7% 0.0% 0.0% 13.4% 13.4% 51.2% 100.0%
Note: Brand ranking refers to PC brands major supplier, based on company data Source: Company data, Barclays Capital estimates
6 October 2011
51
Figure 75: Barclays Capitals global PC (NBs + DTs) shipment forecasts

Units in (000)
Calendar Year
Worldwide
Y/Y Q/Q
U.S.
2008 287,945 11.0%
2009 295,400 2.6%
1Q10 81,225 28.1% -6.8%

17,950
2Q10 81,250 22.2% 0.0%

18,600
3Q10 87,190 11.3% 7.3%

18,400
4Q10 90,805 4.2% 4.1%

19,880
2010 340,470 15.3%
1Q11 81,260 0.0% -10.5%

16,400
2Q11 83,904 3.3% 3.3%

17,694
3Q11E 92,885 6.5% 10.7%

18,537
4Q11E 97,312 7.2% 4.8%

20,216
2011E 355,360 4.4%
2012E 378,603 6.5%
2013E 397,734 5.1%
2014E 416,441 4.7%
65,560
70,000
74,830
72,847
72,867
73,058
73,051
Y/Y Q/Q % of Total

Western Europe
2% 23%
65,850
7% 24%
65,150
20% -13% 22%

17,500
14% 4% 23%
15,350
2% -1% 21%
16,515
-4% 8% 22%
19,100
7% 22%
68,465
-9% -18% 20%

14,500
-5% 8% 21%
12,100
1% 5% 20%
14,175
2% 9% 21%
17,355
-3% 20%
58,130
0% 19%
56,646
0% 18%
56,514
0% 18%
56,184
Y/Y Q/Q % of Total

Japan
18% 23%
14,245
-1% 22%
13,505
17% -15% 22%

4,525
16% -12% 19%

3,650
1% 8% 19%
3,650
-7% 16% 21%

3,825
5% 20%
15,650
-17% -24% 18%

3,760
-21% -17% 14%

3,785
-14% 17% 15%

3,758
-9% 22% 18%

3,893
-15% 16%
15,196
-3% 15%
16,288
0% 14%
16,603
-1% 13%
16,893
Y/Y Q/Q % of Total

Asia Pacific
6% 5%
72,815
-5% 5%
82,840
24% 29% 6%
23,500
13% -19% 4%
25,800
18% 0% 4%
27,250
9% 5% 4%
25,450
16% 5%
102,000
-17% -2% 5%
27,000
4% 1% 5%
30,150
3% -1% 4%
32,215
2% 4% 4%
30,183
-3% 4%
119,548
7% 4%
133,523
2% 4%
143,028
2% 4%
151,670
Y/Y Q/Q % of Total

Rest of World
12% 25%
69,475
14% 28%
63,905
41% 2% 29%
17,750
30% 10% 32%

17,850
16% 6% 31%
21,375
11% -7% 28%

22,550
23% 30%
79,525
15% 6% 33%
19,600
17% 12% 36%

20,175
18% 7% 35%
24,199
19% -6% 31%

25,665
17% 34%
89,639
12% 35%
99,281
7% 36%
108,531
6% 36%
118,644
Y/Y Q/Q % of Total
14% 24%
-8% 22%
34% -8% 22%
28% 1% 22%
23% 20% 25%
16% 5% 25%
24% 23%
10% -13% 24%
13% 3% 24%
13% 20% 26%
14% 6% 26%
13% 25%
11% 26%
9% 27%
9% 28%
Note: NB = notebooks; DT = desktops Source: IDC, Gartner, Barclays Capital estimates
Figure 76: Barclays Capitals global NB shipment forecasts

Units in (000)
Calendar Year
Worldwide
Y/Y Q/Q
U.S.
2008 143,050 33%
2009 168,305 18%
1Q10 47,750 41% -9%

11,100
2Q10 46,375 28% -3%

11,100
3Q10 51,775 13% 12%

11,350
4Q10 54,100 3% 4%
12,850
2010 200,000 19%
1Q11 47,700 0% -12%

10,200
2Q11 48,400 4% 1%
10,800
3Q11E 56,750 10% 17%

11,988
4Q11E 59,824 11% 11%

13,666
2011E 212,674 6%
2012E 232,745 9%
2013E 252,538 9%
2014E 273,114 8%
34,255
42,550
46,400
46,654
48,319
50,316
51,982
Y/Y Q/Q % of Total

Western Europe
15% 24%
42,725
24% 25%
45,300
33% -17% 23%

12,200
17% 0% 24%
10,550
0% 2% 22%
11,500
-4% 13% 24%

13,500
9% 23%
47,750
-8% -21% 21%

9,900
-3% 6% 22%
8,200
6% 11% 21%
9,963
6% 14% 23%
12,553
1% 22%
40,616
4% 21%
41,522
4% 20%
42,688
3% 19%
43,452
Y/Y Q/Q % of Total

Japan
39% 30%
8,595
6% 27%
8,705
21% -16% 26%

2,950
16% -14% 23%

2,325
-1% 9% 22%
2,200
-7% 17% 25%

2,400
5% 24%
9,875
-19% -27% 21%

2,400
-22% -17% 17%

2,400
-13% 22% 18%

2,304
-7% 26% 21%

2,511
-15% 19%
9,615
2% 18%
10,375
3% 17%
10,932
2% 16%
11,515
Y/Y Q/Q % of Total

Asia Pacific
16% 6%
27,400
1% 5%
38,630
28% 26% 6%
11,800
12% -21% 5%
12,300
11% -5% 4%
13,700
2% 9% 4%
11,750
13% 5%
49,550
-19% 0% 5%
13,600
3% 0% 5%
14,750
5% -4% 4%
16,815
5% 9% 4%
14,629
-3% 5%
59,794
8% 4%
67,755
5% 4%
75,406
5% 4%
83,378
Y/Y Q/Q % of Total

Rest of World
40% 19%
30,075
41% 23%
33,120
64% 6% 25%
9,700
38% 4% 27%
10,100
20% 11% 26%

13,025
6% -14% 22%
13,600
28% 25%
46,425
15% 16% 29%

11,600
20% 8% 30%
12,250
23% 14% 30%

15,680
25% -13% 24%

16,464
21% 28%
55,994
13% 29%
64,774
11% 30%
73,196
11% 31%
82,786
Y/Y Q/Q % of Total
52% 21%
10% 20%
61% -13% 20%
51% 4% 22%
40% 29% 25%
23% 4% 25%
40% 23%
20% -15% 24%
21% 6% 25%
20% 28% 28%
21% 5% 28%
21% 26%
16% 28%
13% 29%
13% 30%
Source: IDC, Gartner, Barclays Capital estimates
6 October 2011
52
Figure 77: Barclays Capitals global DT shipment forecasts

Units in (000)
Calendar Year
Worldwide
Y/Y Q/Q
U.S.
2008 144,895 -5%
2009 127,095 -12%
1Q10 33,475 14% -4%

6,850
2Q10 34,875 15% 4%

7,500
3Q10 35,415 8% 2%
7,050
4Q10 2010 36,705 140,470 11% 6% 4%

7,030 28,430
1Q11 33,560 0% -9%

6,200
2Q11 35,504 2% 6%
6,894
3Q11E 36,135 2% 2%
6,549
4Q11E 37,487 2% 4%
6,549
2011E 142,686 2%
2012E 2013E 145,858 145,196 2% 0%
2014E 143,327 -1%
31,305
27,450
26,193
24,547
22,742
21,069
Y/Y Q/Q % of Total

Western Europe
-8% 22%
23,125
-12% 22%
19,850
4% -7% 20%
5,300
10% 9% 22%
4,800
5% -6% 20%
5,015
-4% 0% 19%
5,600
4% 20%
20,715
-9% -12% 18%

4,600
-8% 11% 19%

3,900
-7% -5% 18%

4,212
-7% 0% 17%
4,802
-8% 18%
17,514
-6% 17%
15,124
-7% 16%
13,826
-7% 15%
12,731
Y/Y Q/Q % of Total

Japan
-8% 16%
5,650
-14% 16%
4,800
8% -12% 16%
1,575
15% -9% 14%

1,325
5% 4% 14%
1,450
-7% 12% 15%

1,425
4% 15%
5,775
-13% -18% 14%

1,360
-19% -15% 11%

1,385
-16% 8% 12%
1,454
-14% 14% 13%

1,382
-15% 12%
5,581
-14% 10%
5,913
-9% 10%
5,671
-8% 9%
5,378
Y/Y Q/Q % of Total

Asia Pacific
-7% 4%
45,415
-15% 4%
44,210
16% 35% 5%
11,700
15% -16% 4%
13,500
29% 9% 4%
13,550
22% -2% 4%
13,700
20% 4%
52,450
-14% -5% 4%
13,400
5% 2% 4%
15,400
0% 5% 4%
15,400
-3% -5% 4%
15,554
-3% 4%
59,754
6% 4%
65,767
-4% 4%
67,622
-5% 4%
68,293
Y/Y Q/Q % of Total

Rest of World
0% 31%
39,400
-3% 35%
30,785
24% -2% 35%

8,050
24% 15% 39%

7,750
13% 0% 38%
8,350
15% 1% 37%
8,950
19% 37%
33,100
15% -2% 40%

8,000
14% 15% 43%

7,925
14% 0% 43%
8,519
14% 1% 41%
9,201
14% 42%
33,645
10% 45%
34,507
3% 47%
35,335
1% 48%
35,857
Y/Y Q/Q % of Total
-4% 27%
-22% 24%
12% -3% 24%
7% -4% 22%
4% 8% 24%
8% 7% 24%
8% 24%
-1% -11% 24%
2% -1% 22%
2% 8% 24%
3% 8% 25%
2% 24%
3% 24%
2% 24%
1% 25%
Figure 78: Barclays Capitals tablet PC shipment forecasts

Units in (000) Apple iPad Forecast q/q change y/y change % Unit Share Other Tablets q/q change y/y change Total Tablet Forecast q/q change y/y change Apple iPhone Forecast q/q change y/y change Apple MacBook series Forecast q/q change y/y change 2Q10 3Q10 4Q10 3,270 4,188 7,331 28% 75% 88% 75% 93% 230 562 2,419 144% 330% 3,500 4,750 9,750 36% 105% 8,398 14,102 16,235 -4% 68% 15% 2,468 37% 2,643 7% 2,907 10% 2010 14,789 82% 3,211 18,000 47,487 1Q11 4,694 -36% 73% 1,750 -28% 6,444 -34% 18,647 15% 113% 2,751 -5% 53% 2Q11 9,246 97% 183% 68% 4,365 149% 1798% 13,611 -24% 289% 20,338 9% 142% 2,792 1% 13% 3Q11E 11,927 29% 185% 66% 6,243 43% 1011% 18,170 182% 283% 17,897 -12% 27% 3,504 26% 33% 4Q11E 14,313 20% 95% 59% 10,131 62% 319% 24,444 80% 151% 30,784 72% 90% 3,854 10% 33% 2011E 40,180 172% 64% 22,489 600% 62,669 248% 87,666 85% 12,901 31% 1Q12E 8,588 -40% 83% 60% 5,833 -42% 233% 14,421 -41% 124% 28,937 -6% 55% 3,469 -10% 26% 2Q12E 11,164 30% 21% 67% 5,454 -6% 25% 16,618 -73% 22% 26,043 -10% 28% 3,712 7% 33% 3Q12E 12,727 14% 7% 64% 7,130 31% 14% 19,857 38% 9% 35,939 38% 101% 4,306 16% 23% 4Q12E 17,818 40% 24% 64% 9,947 40% -2% 27,765 67% 14% 44,924 25% 46% 4,629 8% 20% 2012E 50,296 25% 64% 28,364 26% 78,660 26% 135,843 55% 16,115 25% 2013E 62,229 24% 66% 31,835 12% 94,065 20%
9,814
Figure 79: Barclays Capitals worldwide PC shipment forecasts tablet PC impact

Units in (000) Apple iPad Forecast Other Tablets Total Tablet Forecast y/y change Total Notebooks (includes netbooks) y/y change Notebooks INCLUDING Tablets y/y change Total Netbooks y/y change 2009 168,305 17.7% 168,305 17.7% 32,000 204.5% 2010 14,789 3,211 18,000 200,000 18.8% 1Q11 4,694 1,750 6,444 47,700 -0.1% 2Q11 9,246 4,365 13,611 289% 48,400 4.4% 3Q11E 11,927 6,243 18,170 283% 56,750 9.6% 74,920 32.5% 6,050 -16.6% 50,700 13.9% 92,885 6.5% 4Q11E 14,313 10,131 24,444 151% 59,824 10.6% 84,268 32.0% 6,500 -16.1% 53,324 15.0% 97,312 7.2% 2011E 40,180 22,489 62,669 248% 212,674 6.3% 2012E 50,296 28,364 78,660 26% 232,745 9.4% 2013E 62,229 31,835 94,065 20% 252,538 8.5% 2014E 72,773 34,078 106,850 14% 273,114 8.1% 379,964 9.6% 20,300 -4.7% 252,814 9.3% 416,441 4.7% 523,291 6.4% 396,141 5.2%
218,000 54,144 62,011 29.5% 13.4% 24.3% 31,000 -3.1% 169,000 24.0% 340,470 15.3% 5,700 -36.7% 42,000 8.4% 81,260 0.0% 6,200 -11.4% 42,200 7.2% 83,904 3.3%
275,343 311,405 346,602 11.3% 26.3% 13.1% 24,450 -21.1% 188,224 11.4% 355,360 4.4% 22,600 -7.6% 210,145 11.6% 378,603 6.5% 21,300 -5.8% 231,238 10.0% 397,734 5.1%
CORE Notebooks Excluding Netbooks & Tablets Entire 136,305 y/y change 2.8% Total PC Unit Forecast (includes netbooks) y/y change Total PCs INCLUDING Tablets y/y change CORE PCs Excluding Netbooks & Tablets Entirely y/y change Source: IDC, Gartner, Barclays Capital estimates 295,400 2.6% 295,400 2.6% 263,400 -5.1%
358,470 87,704 97,515 111,055 121,755 8.0% 15.1% 20.8% 21.1% 21.4% 309,470 17.5% 75,560 4.6% 77,704 4.7% 86,835 8.6% 90,812 9.3%
418,030 457,264 491,798 16.6% 9.4% 7.6% 330,910 6.9% 356,003 7.6% 376,434 5.7%
6 October 2011
53
Figure 80: Barclays Capitals mobile products shipment forecasts Mobility Products - Units 2005 2006 2007 Units in (000) eReaders Tablets Notebooks 63,150 80,375 107,425 54,000 82,000 122,000 Smartphones iPhone 3,704 Total 117,150 162,375 229,425 Y/Y Growth 39% 41%
2008 100 143,050 140,000 15,765 283,150 23%
2009 3,012 168,305 189,000 25,105 360,317 27%
2010 12,306 18,000 200,000 282,000 47,487 512,306 42%
2011E 24,268 62,669 212,674 420,000 87,666 719,612 40%
2012E 30,554 78,660 232,745 567,000 135,843 908,959 26%
Figure 81: Barclays Capitals tablet PC shipment targets by NB ODM/PC brand

Company NB ODMs Compal Quanta Wistron Inventec Pegatron PC vendors Acer Asustek Lenovo* HTC* Samsung* Apple* RIM* MOTO* Shipment targets from c ompan y (2011E) 3mn units "couple of "million units 1mn units less than 1mn units 1.5-2mn units Shipment targets from company (2011E) 2-2.5mn units 1.5-2mn units 1mn units 1.8mn units 5mn units 40mn units 1.1mn units 1.5-2mn units For FY12 (Feb year-end) Over 10% market share in nonApple platform OEM customers Acer, Lenovo, Dell Acer, RIM Acer, Lenovo, Dell HP Asustek, HTC, D ell Note
* Shipments are based on Barclays Capital estimate, not company guidance. Source: Company data, Barclays Capital estimates
6 October 2011
54
Figure 82: Customer-supplier sales matrix (2011E)

Hon Hai Apple HP Dell Lenovo Acer PC Asustek Toshiba Sony IBM Cisco Microsoft Nokia Motorola RIM HTC Sony Ericsson Handset Samsung LG Electronics Sharp ZTE Huawei TCL DIRECTV Other Tech Sirius XM AUO Kingston Others Total 24% 100% 17% 100% 14% 100% 12% 100% 5% 100% 28% 100% 25% 100% 2% 100% 5% 100% 25% 100% 14% 100% 15% 100% 63% 100% 22% 100% 40% 100% 8% 100% 25% 100% 6% 8% 49% 100% 21% 100% 25% 11% 3% 2% 3% 3% 1% 5% 20% 20% 24% 4% 4% 5% 3% 15% 15% 5% 5% 3% 3% 2% 30% 14% 12% 40% 18% 21% 6% 11% 20% 2% 5% 8% 30% 30% 15% 15% 6% 15% 40% 5% 25% 45% 15% 3% 15% 3% 1% 26% 20% 3% Quanta 33% 23% 4% 4% 7% 6% 2% 4% 3% 10% 15% 32% 4% 22% 18% 30% 4% 23% 20% 18% 59% 6% 3% 7% 32% 9% 8% Compal Wistron Inventec Pegatron 13% Cheng Uei 35% Simplo Dynapack 30% 15% 18% 8% 7% 20% 40% 45% 10% 5% 10% 6% 2% 11% AAC 35% BYDE Largan Unimicron Catcher 3% 27% 10% 30% Young Fast Silitech FIH Tripod 6% Wistron NeWeb
6 October 2011
55
Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research Tablet PC buyer/supplier matrix
Company Acer Product ICONIA Tab A500/Picasso ICONIA Tab A100 ICONIA Tab W500 ICONIA iPad iPad 2 ODM Compal Display 10.1", 1280x800 Op System CPU Memory 1GB RAM Storage 16/32GB Flash 8GB Flash 32GB Flash Weight 760g Battery Life 8 hours Price Other features Launch time endMar'11 Jul11 Mar'11 Mar'11 3 Apr'10 11 Mar'11
Android 3.0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core
Acer Acer Acer Apple Apple
Wistron Pegatron Compal Hon Hai Hon Hai
7", 1024x600 Android 3.0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core 10.1", Windows 7 AMD Fusion C-50 APU 1280x800 1.0GHz 14"(Dual Windows 7 Intel Core i5 touchscreen) 9.7", Apple iOS Apple A4 (ARM) 1GHz 1024x768 4.2 9.7", Apple iOS Apple A5 (ARM) 1GHz 1024x768 4.3 Dual Core
512MB RAM 2GB RAM 4GB RAM 256MB RAM 512MB RAM
N/A 970g
N/A 3-cell
320- 750 GB 2.8kg 3 hours HDD 16/32/64GB 680-730g 10 hours SSD 16/32/64GB 601-613g 10 hours SSD 8GB 4GB 413g 8 hours 213g 2 months (WiFi); 221g (3G+WiFi) 170g 1 months 247g 1.16kg 886g 2 months 10 hours N/A
US$395(16G+WiFi); Dual camera: 5MP (rear); US$499 2MP (front); HDMI port (32G+WiFi) US$349 Dual camera: 5MP (rear); 2MP (front) US$499-699 Camera: 1.3MP (front); HDMI port US$1,199 HDMI port US$399-729 (cut US$100 after iPad 2 launch) Wi-Fi: US$499-699; Dual camera, 33% 3G: US$629-829 thinner, 15% lighter, Smart cover US$199 Free cloud storarage US$99 (WiFi-only); US$149 (3G+WiFi)
Amazon Amazon
Kindle Fire Kindle Touch
Quanta Hon Hai
7", 1024x600 Android 2.3 TI OMAP 4 (ARM) 1GHz 512MB RAM 6", 800x600 E Linux Freescale i.MX515 (ARM) 256MB RAM Ink 800MHz
Nov'11 Nov'11
Amazon Amazon Asustek Asustek
Kindle
Hon Hai
Kindle Keyboard Hon Hai EeeSlate EP121 EeePad Slider Pegatron Pegatron
6", 800x600 E Ink 6", 800x600 E Ink 12.1", 1280x800 10.1", 1280x800 10.1", 1280x800
Linux
Freescale i.MX515 (ARM) 800MHz Linux Freescale i.MX353 (ARM) 532MHz Windows 7 Intel Core i5 1.33GHz Dual Core Android 3.0 NVIDIA Tegra 2 (ARM)
256MB RAM 256MB RAM 2GB/4GB RAM 512MB/ 1GB RAM 1GB RAM
2GB 4GB 32/64GB SSD 16/32GB Flash 16/32GB Flash
US$79 US$99 (WiFi-only); US$139 (3G+WiFi) US$999-1,099 2MP camera; Support Adobe Flash US$499-799 Dual camera: 5MP (rear); 1.2MP (front); Support Adobe Flash Pad only: US$399; Dual camera: 5MP (rear); With keyboard 1.2MP (front); optional dock: US$499 keyboard set; Support Adobe Flash US$499-699 Dual camera: 5MP (rear); 1.2MP (front); 3D US$249 N/A N/A US$550 US$399 N/A US$305 0.3MP front camera 5MP camera
Sep'11 Aug'10 Jan'11 Aug'11
Asustek
EeePad Transformer
Pegatron
Android 3.0 NVIDIA Tegra 2 (ARM) Dual Core
675g
up to 16 hours (on dock)
Apr'11
Asustek
EeePad MeMO
Pegatron
7", 1024x600 Android 3.0 NVIDIA Tegra 2 (ARM)
Barnes and Nook Color Noble R100 BenQ Streak 5 Dell Dell Dell Hanwang Streak 7 Streak 10 TouchPab B10
Inventec/Pegatron 10", 1024x600 Android 2.2 TI OMAP3621 (ARM) 800MHz 10", 1024x600 Android 2.2 Samsung 667MHz (ARM) Qisda 5", 800x480 Android 2.2 Qualcomm Snapdragon Qisda (ARM) QSD8250 1 GHz 7", 800x480 Android 2.2 NVIDIA Tegra 2 (ARM) Qisda Pegatron Pegatron 10.1" 10.1", 1024x600 Android 3.0 N/A Windows 7 Intel Celeron 1.3GHz
512MB SDRAM 512MB
8GB-64GB Flash 8GB
N/A 450g 700g 220g 500g N/A 900g
N/A 8 hours 12 hours 1,530mAh 2,100mAh N/A N/A
4Q11 4Q10 1Q11 Aug'10
N/A 4GB Flash 512MB ROM 16GB Flash 512MB RAM 4GB SDRAM 16/32GB Flash N/A N/A 2GB RAM 250GB HDD
Dual camera: 5MP (rear); 1Q11 1.3MP (front) N/A 2H11 1.3MP camera 4Q10
6 October 2011
56
Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research Tablet PC buyer/supplier matrix (continued)
Company Product
HP HTC HTC Lenovo Lenovo Lenovo TouchPad Jetstream Flyer LePad A1 IdeaPad A1 LePad
ODM
Inventec N/A Pegatron
Display
Op System CPU
Qualcomm Snapdragon (ARM) 1.2GHz Dual Core Qualcomm Snapdragon (ARM) 1.5GHz Dual Core Qualcomm Snapdragon (ARM) 1.5GHz TI OMAP3622 (ARM) 1GHz TI OMAP3622 (ARM) 1GHz Qualcomm Snapdragon (ARM) 1.3GHz/ Intel Core i5 1.2GHz (Dock) NVIDIA Tegra 2 (ARM) 1GHz Dual Core
Memory
512MB RAM N/A 1GB RAM 512MB RAM 512MB RAM 1GB RAM
Storage
16/32GB N/A 32GB Flash 2GB/16GB 8GB/16GB
Weight
740g 708g 415g 400g 400g
Battery Life
6,300mAh 7,300mAh 4000mAh 6 hours N/A N/A 8 hours
Price
US$99 (16G) US$699
Other features
Camera: 1.3MP (front)
Launch time
Jul'11 Sep'11 Apr'11 Aug'11 Sep'11 Mar'11 in China
9.7", WebOS 3.0 1024x768 10.1", Android 3.1 1280x768 7", 1024x600 Android 2.4
Compal/Wistron 7", 1024x600 Androd 2.3 Compal/Wistron 7", 1024x600 Androd 2.3 Compal/Wistron 10.1", 1280x800 Android 2.2/LeOS 2.0/Win 7 Android 3.1
16/32/64GB 760g Flash
Lenovo
ThinkPad Tablet Compal/Wistron 10.1", 1280x800 IdeaPad K1 IdeaPad P1 IdeaPad U1 Hybrid Compal/Wistron 10.1", 1280x800 Compal/Wistron 10.1", 1280x800 Compal/Wistron 10.1", 1280x800
1GB RAM
16/32/64GB 750g Flash 16/32/64GB 750g Flash 16/32/64GB 900g Flash 16/32GB N/A Flash
10 hours
Lenovo Lenovo Lenovo
Android 3.1
LG
G-Slate/ Optimus In-house Pad Xoom In-house
8.9", 1280x768 10.1", 1280x800 7", 800x480
NVIDIA Tegra 2 (ARM) 1GHz Dual Core Windows 7 Intel Oak Trail Z670 1.5GHz Windows 7/ Intel Core i5 1.2GHz Android 2.2 (Dock)/Qualcomm Snapdragon 1.3GHz (Tablet) Android 3.0 NVIDIA Tegra 2 (ARM) Dual Core Android 3.0 Android 2.3 NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM)
1GB RAM 2GB RAM 1GB RAM
10 hours 6 hours N/A
Dual camera: 8MP (rear); 1.3MP (front); 4G/LTE US$499 Dual camera: 5MP (rear); 1.3MP (front); With stylus US$156 for 2GB; Dual camera: 3MP (rear); US220 for 16GB VGA (front) US$199 for 8GB; Dual camera: 3MP (rear); US249 for 16GB VGA (front) Wi-Fi only: 2MP camera; SIM card RMB3,499/US$532 slot; Support Adobe Flash; (16G) Turn into Win 7 when connected to a dock US$479(16G); Dual camera: 5MP (rear); (US$509 with 2MP (front); digitizer pen; digitizer pen) USB US$499 (32G) Dual camera: 5MP (rear); 2MP (front); HDMI port N/A 2MP camera (front); USB
Aug'11
Jul'11 4Q11 4Q11 in China
US$1,000
N/A
32GB Flash
650g
6,400mAh 7.5 hours N/A 7 hours 8-10 hours 5-6 hours N/A
MOTO MSI MSI MSI RIM
1GB RAM 512MB RAM 512MB RAM
32GB Flash 4GB Flash 8/16GB Flash 32GB HDD
N/A 395g 800g 800g
WindPad Enjoy 7 MSI WindPad 100A WindPad 110W PlayBook MSI MSI Quanta
10.1", Android 3.0 1024x600 10.1", Windows 7 1024x600 7'', 1024x600 RIM OS (QNX) 7", 1024x600 Android 2.2
AMD Brazos APU Dual 2GB RAM Core ARM, Dual-core Cortex A9 1GB RAM
16/32/64GB 400g Flash 16GB Flash 380g
Samsung
Galaxy Tab
In-house
1GHz Cortex A8
512MB RAM
4,000mAh 7 hours 6000mAh 10 hours
Samsung
Galaxy Tab
In-house
8.9", 1280x800
Android 3.0
NVIDIA Tegra 2 (ARM) 1GHz Dual Core
N/A
16/32GB Flash
467g
2MP camera; SIM card slot; Turn into Windows 7 OS when connected to a stationing dock US$750 Dual camera: 5MP (rear); 2MP (front); 3D video recording; HDMI port US$699 (3G); Dual camera: 5MP (rear); US$499 (Wi-Fi) 2MP (front), HDMI, USB US$230 2MP front camera, and rear camera, HDMI port Below US$500 1.3MP front camera, and rear camera, HDMI port US$700 1.3MP front camera, and rear camera, HDMI port US$499 (16G), 599 Dual camera: 5MP (rear); (32G), 699 (64G) 3MP (front); Support Adobe Flash US$499 (lowered Dual camera: 3MP (rear); from US$599) 1.3MP (front); up to 32GB SD card US$469(16G); Dual camera: 3MP (rear); US$569(32G) 2MP (front); 8.6mm thin
Apr'11 in US 22 Feb'11 in US Sep'11 Jul'11 Jul'11 19 Apr'11
Nov'10 in US Jun'11
6 October 2011
57
Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research Tablet PC buyer/supplier matrix (continued)
Company Product
Samsung Sony Sony Galaxy Tab S1 S2
ODM
In-house Hon Hai N/A
Display
Op System CPU
NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) 1GHz Dual Core NVIDIA Tegra 2 (ARM) NVIDIA Tegra 2 (ARM)
Memory
N/A N/A N/A
Storage
16/32GB Flash N/A N/A
Weight
595g N/A N/A
Battery Life
6860mAh 10 hours N/A N/A
Price
Other features
Launch time
10.1", Android 3.0 1280x800 9.4", 1280x800 Android 3.0 Android 3.0
US$499(16G), Dual camera: 3MP (rear); May'11 US$599(32G) 2MP (front); 8.6mm thin N/A Dual camera, USB port, 4G Fall 2011 N/A Dual camera, USB port, 4G Fall 2011
Toshiba Toshiba ViewSonic ViewSonic
Folio 100 Regza AT300 ViewPad 7 ViewPad 10
5.5", dual screen, 1024x480 10.1", Compal 1024x600 Compal/Pegatron 10.1", 1280x800 7, 800x480 Hon Hai Hon Hai 10.1", 1024x600 10.1", 1024x600 10.1", 1024x600 8", 1024x768 7", 1024x600
Android 2.2 Android 3.0 Android 2.2
N/A 1GB RAM 512MB RAM 1GB RAM
16GB Flash 16GB Flash 16/32GB Flash 16/32GB Flash
760g N/A 410g 875g
1,020mAh 7 hours N/A
ViewSonic
ViewPad 10s
Hon Hai
Qualcomm Scorpion (ARM) MSM 600MHz Dual OS (Win Intel Atom N455 1.66GHz 7/Android 1.6) Android 2.2 NVIDIA Tegra 2 (ARM) 1GHz Dual Core
512MB RAM
512MB Flash 730g
ViewSonic
ViewPad 10pro
Hon Hai
Vizio ZTE
Via Tablet Light 2
Hon Hai N/A
Dual OS (Win Intel Oak Trail Z670 1.5GHz 2GB RAM 7/Android 2.2) Android 2.2 Qualcomm Snapdragon 512MB RAM (ARM) QSD8250 1 GHz Android 2.2 Qualcomm Snapdragon 4GB RAM (ARM) QSD8250 1 GHz
32GB Flash
800g
2GB Flash 32GB Flash
N/A 403g
1.3MP camera, SD card 4Q10 in reader Europe N/A HDMI port, USB, SD card 2Q11 reader 12WHr, 6.5 hours US$349 Dual camera: 3MP (rear); Nov10 0.3MP (front) 3,200mAh US$599(16G); 1.3MP camera, HDMI port, Feb'11 US$679 (32G) USB, SD card reader, Adobe Flash 3,300mAh US$430 1.3MP camera, HDMI port, Feb'11 7.5 hours USB, SD card reader, Adobe Flash 6 hours US$629 1.3MP camera, HDMI port, May'11 USB, SD card reader, Adobe Flash N/A N/A Dual camera: 5MP (rear); Mar'11 0.3MP (front) 10 hours N/A Dual camera 2Q11
399
Figure 84: Barclays Capital Asia ex-Japan Technology Hardware Research China white-box tablet PCs
Company Product
Aigopad AINOL AINOL ALEO EPAD EPAD MicroBee Aigopad N700 V8000HDX V5000G A802
ODM
In-house In-house In-house In-house
Display
7" 7", 800x480 5" 8", 1280x768 7" 8" 7"
Op System CPU
Android 2.1 N/A N/A N/A Android 2.2 Android 2.2 Android 2.1 NVIDIA Tegra 2 (ARM) 1GHz Dual Core N/A N/A N/A 600MHz 1.0GHz 1.2GHz Dual Core
Memory
512MB RAM N/A N/A N/A N/A 512MB RAM N/A
Storage
4/16/32GB HDD 16GB HDD 8GB HDD 4GB HDD 2GB HDD 4GB HDD 8GB HDD
Weight
465g N/A N/A N/A N/A N/A N/A
Battery Life
3,120mAh N/A N/A N/A N/A N/A N/A
Price
N/A RMB930 (US$142) RMB499 (US$76) RMB599 (US$91) RMB799 (US$122) RMB1,380 (US$210) RMB1,198 (US$182)
Other features
Launch time
Android WiFi In-house 8650 Android WiFi 803 In-house Android WiFi 7100 In-house
MicroSD, USB port, HDMI, Launched 1.3MP camera in China MicroSD, USB port, HDMI Launched in China MicroSD Launched in China MicroSD, USB port Launched in China Wi-Fi, USB port, Support Launched Adobe Flash in China Wi-Fi, USB port, Support Launched Adobe Flash in China Wi-Fi, USB port, HDMI Launched port, Support Adobe Flash in China
6 October 2011
58
Figure 85: Tablet PC pricing in China

Company Lenovo Product LePad LePad Apple iPad1 iPad1 iPad1 iPad2 iPad2 iPad2 Motorola Xoom Storage 16G 32G 16G 32G 64G 16G 32G 64G 32G Price (RMB) 3,499 3,999 2,888 3,688 4,488 3,688 4,488 5,288 4,999 Price (USD) 547 625 451 576 701 576 701 826 781
Figure 86: Barclays Capital Asia ex-Japan Technology Hardware Research ultrabook buyer/supplier matrix
Company Product Apple Apple Acer Asustek Asustek Lenovo Toshiba ODM Display 11.6" (1366x768) 13.3" (1440x900) OS Mac OS Mac OS Win 7 Win 7 Win 7 Win 7 Win 7 CPU Core i5-2467M 1.6GHz Core i5-2557M 1.7GHz Memory 2GB DDR3 / 4GB DDR3 4GB DDR3 Storage Weight Thickness Battery Life 5 hours / 30 days standby / 35Wh 7 hours / 30 days standby / 50Wh 7 hours / 50 days standby 5 hours / 10 days standby 7hours / 10 days standby 8 hours / 30 days standby 8 hours / 47Wh Price US$999 / US$1,199 US$1,299 / US$1,599 Other Features Thunderbolt port Thunderbolt port, SD Card Launch Time Jul-11 Jul-11 Sep-11
11.6" MacBook Air Quanta 13.3" MacBook Air Quanta Aspire 3951 (S3) UX21 UX31 U300s
64GB or 128GB SSD 1.08kg 17mm 128GB or 256GB SSD 240GB SSD or 320/500GB HDD 1.35kg 17mm 1.4kg 13mm
Wistron, Compal, 13.3" Quanta (1366x768) Pegatron Pegatron Wistron 11.6" (1366x768) 13.3" (1600x900) 13.3" (1366x768) 13.3" (1366x768)
Core i3 / i5-2467M 1.6GHz / 4GB DDR3 Core i7-2637M 1.7GHz Core i5-2557M 1.7GHz / Core i7 Core i5-2557M 1.7GHz / Core i7 Core i5-2467M 1.6GHz / Core i7-2667M 4GB DDR3 4GB DDR3 4GB DDR3
US$1134-1709 (EUR799-1199) HDMI, SD Card US$899 (TBD) TBD US$1195 US$1000
64GB or 128GB SSD 1.09kg 17mm 128GB 256GB SSD 128GB SSD 1.32kg 17mm 1.34kg 14.9mm 1.13kg 15.8mm
min-DisplayPort, mini-HDMI, USB 3.0 Sep-11 min-DisplayPort, mini-HDMI, USB 3.0 4Q11 HDMI, VGA, USB 3.0, 1.3MP cam HDMI, VGA, USB 3.0, 1.3MP cam Oct-11 Nov-11
Protege Z830 / Z835 Compal
Core i3 / i5-2467M 1.6GHz / Core i7-2637M 1.7GHz 6GB DDR3
6 October 2011
59
Figure 87: Barclays Capital Asia ex-Japan Technology Hardware Research Chinas smartphone line-up
Brand Huawei Huawei ZTE Product U8500 / C8500 Display 3.2" 480x320 TFT Op System Android 2.1 Android 2.2 Android 2.2 Android 2.2 Android 2.2 CPU Memory Storage Camera 512MB 2GB 512MB 170MB 384MB 512MB 512MB 512MB 512MB 2GB 512MB Batteries Other Features Launch Price time 4Q10 RMB850 (Sep 11) 4Q10 RMB1,480 4Q10 RMB979 (Sep 11) 3Q10 RMB1000 (Sep 11) 1Q11 RMB1980 (when launched); RMB1885 (Sep 11)
Qualcomm 256MB MSM7227 600 MHz Qualcomm 512MB MSM7227 600 MHz Qualcomm 256MB MSM7227 600 MHz Qualcomm 256MB MSM7227 600 MHz Qualcomm 100MB MSM7227 600 MHz Marvell PXA310 624MHz 512MB
3MP (rear); 0.3MP WiFi, Bluetooth, 1150mAh (front) GPS 5MP (rear); 0.3MP WiFi, Bluetooth, 1500mAh (front) GPS 3MP (rear); 0.3MP WiFi, Bluetooth, 1250mAh (front) GPS 2MP (rear); 0.3MP WiFi, Bluetooth, 1200mAh (front) GPS 5MP (rear); 0.3MP WiFi, Bluetooth, 1350mAh (front) GPS 5MP (rear); 0.3MP CMMB, GPS, WiFi, 1500mAh (front) Bluetooth 5MP (rear); 0.3MP WiFi, Bluetooth, 1500mAh (front) GPS WiFi, Bluetooth, 5MP (rear); 0.3MP 1500mAh GPS (front) Dual-sim, WiFi, 3MP (rear); 0.3MP 1500mAh Bluetooth, GPS (front) Dual-sim, WiFi, 5MP (rear); 0.3MP 2000mAh Bluetooth, GPS (front) WiFi, Bluetooth, 5MP (rear); 0.3MP 1230mAh (front) GPS 8MP (rear); 0.3MP WiFi, Bluetooth, 1930mAh (front) GPS WiFi, Bluetooth, 5MP (rear); 0.3MP 1370mAh GPS (front) WiFi, Bluetooth, 5MP (rear); 0.3MP 1500mAh GPS (front)
U8800 (IDEOS X5) 3.8" 800x480 TFT V880 3.5" 800x480 TFT 2.8" 320x240 TFT 3.5" 480x320 TFT
Samsung i5508 (Galaxy 5) Samsung i579 Lenovo Lenovo Lenovo Lenovo Lenovo HTC O3 LePhone LePhone S1 A60 P70 Wildfire S
3.5" 800x480 AMOLED OMS 2.0 (Android) 3.7" 800x480 AMOLED LeOS (Android 2.1) 3.61" 800x480 TFT 3.5" 480x320 TFT 3.5" 480x320 TFT 3.2" 480x320 TFT LeOS 2.5 (Android 2.2) Android 2.3 Android 2.3 Android 2.2
4Q10 RMB2200 (Sep 11) May-10 Jun-11 RMB2899 (when launched); RMB1700 (Sep 11) RMB2599 (when launched); RMB2300 (Sep 11)
Qualcomm QSD8250 512MB 1GHz Qualcomm QSD8250 512MB 1GHz MediaTek MT6573 650MHz MediaTek MT6573 650MHz 256MB 512MB
Aug-11 RMB999 (Sep 11) Sep-11 RMB1600 (when launched) May-11 RMB1,840 (Sep 11)
Qualcomm 512MB MSM7227 600 MHz Qualcomm MSM8260 1.5GHz dual core Samsung-Intrinsity S5PC110 1GHz TI OMAP3610 800 MHz 1GB
Xiaomi
M1
4.0" 854x480 TFT
Android 2.3
4GB
Oct-11 RMB1,999 (when launched)
Meizu
M9
3.5" 960x640 TFT 3.7" 854x480 TFT
Android 2.3 Android 2.2
512MB 512MB
512MB 2GB
Jan-11 RMB2,009 (Sep 11) 4Q10 RMB2420 (when launched); RMB2,189 (Sep 11)
Motorola Defy
6 October 2011
60
APPENDIX II: INTEL MICROPROCESSOR ROADMAP

2007 1H07 Technology Intel Core Microarchitecture Microarchitecture 2H07 1H08 45nm process Nehalem Microarchitecture 2008 2H08 1H09 2009 2H09 1H10 32nm process Sandy Bridge Microarchitecture "Tick" Ivey Bridge (Sandy Bridge on 22nm) "Tock" Sandy Bridge Lynnfield (45nm Nehalem) 3Q09 Clarkdale (32nm Westmere) 4Q09 Montevina NB platform Refresh (2Q) Calpella NB platform Clarksfield (45nm Nehalem) 3Q09 Arrandale (32nm Westmere) 4Q09 Pine Trail Netbook platform Gulftown (32nm Westmere) CULV Nehalem based Oak Trail tablet platform "Tock" Haswell 2010 2011/2012 2H10 22nm process Haswell Microarchitecture (22nm) 2013
"Tick" Penryn on 45nm
"Tick" Westmere (Nehalem on 32nm)
"Tock" Nehalem Yorkfield (3Q07) Wolfdale (3Q07) Santa Rosa Refresh (1Q08) Menlow Netbook platform
Desktops
Bloomfield (4Q08)
Sandy Bridge (32nm) 1Q11 Cedar Trail-M Netbook platform
Future processor
Santa Rosa (2Q07)
Montevina NB platform (3Q08)
Moorestown MID platform
Huron River NB platform
Chief River NB platform
NBs Intel Core 2 Duo (Merom, Penryn) Stealey (3Q07) Gilo (4Q07) Atom Silverthorne (2Q08) 2nd gen Intel Core 2 Duo
Pineview (45nm) 4Q09
Atom (45nm)
Arrandale (32nm)
Lincroft
Sandy Bridge (32nm) 1Q11
Atom Medfield (32nm) 2H11
Ivy Bridge (22nm Sandy Bridge) 2H11
Future processor
Servers
Xeon (1Q07) Core 2 Quad & Duo
Caneland (3Q07) Penryn (4Q07) Harpertown (UP, DP, 4Q07)
Harpertown (MP, 1H08)
Dunnington (3Q08) Nehalem 1P (4Q08)
Nehalem EP (1Q09)
Nehalem EX (4Q09)
Westmere 1P (1Q10) / Westmere EP (1H10)
Westmere EX (1H11) Sandy Bridge 1P (1Q11) Sandy Bridge EP (2H11)
Future processor
6 October 2011
61
APPENDIX III: APPLE BUYER/SUPPLIER MATRIX

Apple Buyer/Supplier Matrix
iPad 2 (9.7'') supply chain Components Company Hardware Accelerometer STMicroelectronics (STM.US) Assembly, connectors Hon Hai (2317.TT) Battery packs Dynapack (3211.TT) Battery packs Simplo (6121.TT) Camera module * Largan (3008.TT) Camera module * Genius (3406.TT) Camera module * Asia Optical (3019.TT) Casing Foxconn Tech (2354.TT) Casing Catcher Tech (2474.TT) Coaxial cables, connectors, power cords Wanshih Electronic (6134.TT) Computer components United Alloy (3162.TT) Connector Cheng Uei (2392.TT) Cover glass G-Tech (3149 TT) Flexible copper clad laminates and cover layers (foTaiflex Scientific (8039.TT) FPCB Flexium Interconnect (6269.TT) FPCB Career Technology (6153.TT) Gyroscope * Lingsen Precision (2369.TT) Gyroscope * STMicroelectronics Heat pipes, heat sinks, thermal module Chaun-Choung (6230.TT) Inductor series Mag Layers (3068.TT) Optical fiber connector Jarllytec (3548.TT) Passive components Yageo (2327.TT) PCB Unimicron (3037.TT) PCB NY PCB (8046.TT) PCB Tripod (3044.TT) PCB Compeq (2313.TT) PCB (double sides/multi-sides) Gold Circuit (2368.TT) Power supply Delta (2308.TT) Quartz Crystal for oscillators for PC TXC (3042.TT) Speaker AAC Technology (2018 HK) USB connectors, cable connectors Advanced Connectek (5491.TT) Semi Application processor Samsung (005930.KS) Battery power management Linear (LLTC.US) GPS Broadcom (BRCM.US) LCD backlight Radiant Opto (6176.TT) LCD backlight Coretronic (5371.TT) LCD driver Novatek (3034.TT) LCD glasses G Tech Optoelectronics (3149.TT) LCD panel LG Display (034220.KS) LCD panel Samsung (005930.KS) LCD panel * Chimei Innolux (3481.TT) Memory, A4 processor Samsung (005930.KS) RF, handset baseband Infineon (IFNNY.US) RF, handset baseband (CDMA version) * Qualcomm (QCOM.US) System power mgmt NXP (NXPI.US) TFT-LCD color filters Sintek (3049.TT) Touch Panel Wintek (2384.TT) Touch Panel TPK (3673.TT) Touch Panel * Sintek Photronic (3049.TT) Touch Panel * Cando (8056.TT) Touch Panel * Chimei Innolux (3481.TT) Touchscreen controllers, WiFi, Bluetooth Broadcom (BRCM.US) WiFi Broadcom (BRCM.US) * New supply chain/features in additional to iPad 1 Source: Company data, Barclays Capital iPhone 4 supply chain Components Accerlerometer Application processor Assembly Assembly ** Audio codec Baseband processor, RF Baseband processor, RF ** Bluetooth Camera module (20%) Camera module (80%) Casing Casing Compass sensor Cover glass CPU core FM GPS Gyroscope IC substrate Image sensor LCD Panel LCD Panel LCD Panel LCD Panel Magnetic sensor NAND Flash NAND Flash Power amplifier Power amplifier Power management Quartz Crystal (45%) SDRAM Speaker Touch Panel Touch Panel Touch Panel Touch Panel Touch Panel Touch screen controller VGA sensor WiFi ** for CDMA version only iPhone 5 Assembly Assembly Casing Casing Cover glass NAND Flash NAND Flash Speaker Touch panel Touch panel Touch panel Touch panel Company STMicroelectronics (STM.US) Samsung (005930.KS) Hon Hai (2317.TW) Pegatron (4938.TW) Cirrus (CRUS.US) Infineon (IFX.GY) Qualcomm (QCOM.US) Broadcom (BRCM.US) Genius Electronic Optical (3406.TT) Largan (3008.TT) Foxconn Tech (2354.TW) Catcher (2474.TW) STMicroelectronics (STM.US) G-Tech (3149 TT) ARM (ARMH.US) Broadcom (BRCM.US) Broadcom (BRCM.US) STMicroelectronics (STM.US) Kinsus (3189.TT) Omnivision (OVTI.US) Chimei Innolux (3481.TW) LG Display (034220.KS) Toshiba (6502.JP) Samsung (005930.KS) AKM Semiconductors (3407.JP) Samsung (005930.KS) Toshiba (6502.JP) Skyworks (SWKS.US) Triquint (TQNT.US) Dialog (DLG.GY) TXC (6042.TW) Elpida (6665.JP) AAC Technology (2018 HK) TPK (3673.TW) Wintek (2384.TW) Chimei Innolux (3481.TW) AUO (2409.TW) Sintek (3049.TT) Texas Instruments (TXN.US) Omnivision (OVTI.US) Broadcom (BRCM.US)
Hon Hai (2317.TT) Pegatron (4938.TT) Foxconn Tech (2354.TT) Catcher Tech (2474.TT) G-Tech (3149 TT) Samsung (005930.KS) Toshiba (6502.JP) AAC Technology (2018 HK) TPK (3673.TT) Wintek (2384.TT) Chimei Innolux (3481.TT) Cando (8056.TT)
6 October 2011
62
APPENDIX IV: BILLS OF MATERIALS

Figure 88: Bill of materials for a typical notebook PC (estimated, US$)
Component Display CPU Hard Disk Drive DRAM Battery Casing Optical drive Chipset (data processing / ASP) Connectors Circuit Board Power adapter WLAN Keyboard Others Software Warranty Total Cost Range $51 45 42 23 26 30 27 36 21 15 6 6 4 12 75 30 $449 $63 200 61 29 48 45 42 44 29 15 7 24 6 23 75 60 % of Total 11.4% 10.0% 9.4% 5.1% 5.8% 6.8% 6.1% 8.1% 4.6% 3.2% 1.4% 1.3% 0.9% 2.6% 16.7% 6.7% - 8.2% - 25.9% - 7.9% - 3.7% - 6.3% - 5.9% - 5.5% - 5.7% - 3.8% - 1.9% - 0.9% - 3.1% - 0.8% 3.0% 9.7% 7.8%
Figure 89: Bill of materials for a typical desktop PC (estimated, US$)

Component Monitor CPU Hard Disk Drive DRAM Power source / casing Chipset (data processing / ASP) Connectors Circuit Board Optical drive Keyboard Others Software Warranty Total Cost Range $63 40 42 29 33 25 19 6 21 4 6 75 20 $382 - $116 - 162 71 53 54 44 26 7 79 6 17 75 50 % of Total 16.4% 10.5% 11.1% 7.5% 8.5% 6.6% 4.9% 1.6% 5.5% 1.0% 1.5% - 15.3% - 21.3% - 9.3% - 7.0% - 7.1% - 5.8% - 3.4% - 1.0% - 10.4% - 0.8% 2.3% 9.9% 6.6%
19.6% 5.2% -
- $760
- $772
Source: Gartner, Barclays Capital estimates
Source: Gartner, Barclays Capital estimates
Figure 90: Example of bill of materials for an iPad 2 (US$)

32 GB 3G Wireless Version NAND flash & DRAM Display & Touch screen Baseband RF/PA A5 Processor User Interface Battery BT/FM/GPS/WLAN Electromechanical & mechanical Power Management Camera Modules Box Contents Manufacturing Total Pricing % of Total $65.00 19.3% 127.00 37.8% 19.00 5.6% 14.00 4.2% 12.00 3.6% 25.00 7.4% 9.00 2.7% 35.00 10.4% 10.00 3.0% 4.30 1.3% 6.00 1.8% 10.00 3.0% $336.30 100.0%
Figure 91: Bill of materials for a typical ultrabook (NB)

Component Display CPU (Intel Core i3) SSD (128G) DRAM Battery (polymer) Metal casing Optical drive Chipset Connectors Circuit Board Power adapter WLAN Keyboard Others Assembly Software Warranty Total
Cost (US$) $67 $173 $150 $26 $47 $55 $0 $40 $25 $15 $7 $15 $5 $17 $20 $75 $45 $781
% of Total 9% 22% 19% 3% 6% 7% 0% 5% 3% 2% 1% 2% 1% 2% 3% 10% 6%
Source: iSuppli, Barclays Capital estimates
6 October 2011
63
Valuation Methodology and Risks

Asia ex-Japan IT Hardware Foxconn Technology Co., Ltd. (2354 TT / 2354.TW) Valuation Methodology: Our 12-month PT for FTC is NT$120 based on a target P/E multiple of 13x our 2012 EPS forecast of NT$9.23. FTC's historical P/E for 2007-11E was 10-40x, averaging 13.5x in 2009-11E. We conservatively value the stock, due to the volatile sales contribution from game consoles and the downward trend of thermal sales and their gross margin, and so view a P/E of 13x as justified. Going forward, however, we believe FTC may deserve a premium because of its promising metal casing business for iPad, iPhone and ultrabooks. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue. Risks which May Impede the Achievement of the Price Target: The risks that could prevent our NT$120 PTfrom being achieved are: 1) demand for Apple products, such as the iPad and iPhone, proving to be lower than we expect; 2) demand for ultrabooks also lower than expected; and 3) FTC's capacity proves insufficient to meet demand for metal casings (for unibody types, in particular, which require FTC to operate numerous CNC machines). Ju Teng International Co., Ltd. (3336 HK / 3336.HK) Valuation Methodology: Our HK$1.20 PT Ju Teng is based on P/E using a target P/E multiple of 5x our 2012 EPS forecast of HK$0.2. We set our target multiple at 6x, which in line with the stock's normal trading cycle (2-10x) of 6x, because we do not expect Ju Teng's to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years. Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could prevent our HK$1.20 PT for Ju Teng from being achieved are: 1) lower-than-expected demand for metal casings, 2) Ju Teng's capacity for and experience in metal casing (both die-casting and stamping) catchs up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng's metal casing manufacturing. Shin Zu Shing Co., Ltd. (3376 TT / 3376.TW) Valuation Methodology: Our NT$58 PT for Shin Zu SHing is based on P/E using a target P/E multiple of 12x (with a normal trading cycle (1024x) of 12x, We apply our target multiple for our 2012 EPS forecast of NT$4.85. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks. Although tablet cannibalization could negatively impact growth of NB hinge sales, we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E. Risks which May Impede the Achievement of the Price Target: The risks that our NT$58 PT for Shin Zu Shing will not be achieved include the following. Upside risks: The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum. Downside risks: The key risks to the downside that could prevent our price target from being achieved, in our view, are the following: 1) lowerthan-expected demand for ultrabooks and MacBook Air/Pro could negatively impact the expected sales growth momentum in 2012 and 2) a lower-than-expected ultra-thin (hollow) hinge adaption rate for NBs due to limited budgets for implementation of higher-end specs.
6 October 2011
64
ANALYST(S) CERTIFICATION(S)
I, Allen Chang, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
IMPORTANT DISCLOSURES CONTINUED

For current important disclosures, including, where relevant, price target charts, regarding companies that are the subject of this research report, please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barcap.com or call 1-212-526-1072. The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities. Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA. These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analysts account. Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise. Primary Stocks (Ticker, Date, Price) Foxconn Technology Co., Ltd. (2354.TW, 05-Oct-2011, TWD 96.8), 1-Overweight/2-Neutral Ju Teng International Co., Ltd. (3336.HK, 05-Oct-2011, HKD 1.40), 3-Underweight/2-Neutral Shin Zu Shing Co., Ltd. (3376.TW, 05-Oct-2011, TWD 60.4), 2-Equal Weight/2-Neutral Guide to the Barclays Capital Fundamental Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the sector coverage universe). In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. Stock Rating 1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. 2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12month investment horizon. 3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisory capacity in a merger or strategic transaction involving the company. Sector View 1-Positive - sector coverage universe fundamentals/valuations are improving. 2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. 3-Negative - sector coverage universe fundamentals/valuations are deteriorating. Below is the list of companies that constitute the "sector coverage universe": Asia ex-Japan IT Hardware Acer Inc. (2353.TW) Chicony Electronics (2385.TW) Digital China Holdings Ltd. (0861.HK) Hon Hai Precision Industry Co., Ltd. (2317.TW) Asustek Computer Inc. (2357.TW) Compal Electronics Inc. (2324.TW) Dynapack International Technology Corp. (3211.TW) Inventec Inc. (2356.TW) Cheng Uei Precision Industry Co., Ltd. (2392.TW) Darfon Electronics (8163.TW) Foxconn Technology Co., Ltd. (2354.TW) Ju Teng International Co., Ltd. (3336.HK)
6 October 2011
65

Lenovo Group Ltd. (0992.HK) Shin Zu Shing Co., Ltd. (3376.TW) Sunrex Technology (2387.TW) Wistron Corporation (3231.TW) Distribution of Ratings: Barclays Capital Inc. Equity Research has 1815 companies under coverage. 44% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 59% of companies with this rating are investment banking clients of the Firm. 42% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 51% of companies with this rating are investment banking clients of the Firm. 12% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 36% of companies with this rating are investment banking clients of the Firm. Guide to the Barclays Capital Price Target: Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period. Barclays Capital offices involved in the production of equity research: London Barclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London) New York Barclays Capital Inc. (BCI, New York) Tokyo Barclays Capital Japan Limited (BCJL, Tokyo) So Paulo Banco Barclays S.A. (BBSA, So Paulo) Hong Kong Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong) Toronto Barclays Capital Canada Inc. (BCC, Toronto) Johannesburg Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg) Mexico City Barclays Bank Mexico, S.A. (BBMX, Mexico City) Taiwan Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan) Seoul Barclays Capital Securities Limited (BCSL, Seoul) Mumbai Barclays Capital Securities (India) Private Limited (BSIPL, Mumbai) Singapore Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore) Pegatron Corp. (4938.TW) Simplo Technology Co., Ltd. (6121.TW) Quanta Computer Inc. (2382.TW) Skyworth Digital Holdings Ltd. (0751.HK)
Synnex Technology International Corp. (2347.TW) TPV Technology Ltd. (0903.HK)
6 October 2011
66
Foxconn Technology Co., Ltd. (2354 TT / 2354.TW)

TWD 104.00 (04-Oct-2011) Rating and Price Target Chart - TWD (as of 04-Oct-2011)
Stock Rating 1-OVERWEIGHT Currency=TWD Date Closing Price Rating
Sector View 2-NEUTRAL
Price Target
150
125
100
75
50
Jan- 09
Jul- 09
Jan- 10
Jul- 10
Jan- 11
Jul- 11
Closing Price
Link to Barclays Capital Live for interactive charting
Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Foxconn Technology Co., Ltd. or one of its affiliates. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Foxconn Technology Co., Ltd.. Valuation Methodology: Our 12-month PT for FTC is NT$120 based on a target P/E multiple of 13x our 2012 EPS forecast of NT$9.23. FTC's historical P/E for 2007-11E was 10-40x, averaging 13.5x in 2009-11E. We conservatively value the stock, due to the volatile sales contribution from game consoles and the downward trend of thermal sales and their gross margin, and so view a P/E of 13x as justified. Going forward, however, we believe FTC may deserve a premium because of its promising metal casing business for iPad, iPhone and ultrabooks. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue. Risks which May Impede the Achievement of the Price Target: The risks that could prevent our NT$120 PTfrom being achieved are: 1) demand for Apple products, such as the iPad and iPhone, proving to be lower than we expect; 2) demand for ultrabooks also lower than expected; and 3) FTC's capacity proves insufficient to meet demand for metal casings (for unibody types, in particular, which require FTC to operate numerous CNC machines).
6 October 2011
67
Ju Teng International Co., Ltd. (3336 HK / 3336.HK)

HKD 1.40 (04-Oct-2011) Rating and Price Target Chart - HKD (as of 04-Oct-2011)
9.00 8.25 7.50 6.75 6.00 5.25 4.50 3.75 3.00 2.25 1.50 0.75 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11
Stock Rating 3-UNDERWEIGHT Currency=HKD Date Closing Price Rating
Price Target
Closing Price
Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Ju Teng International Co., Ltd. or one of its affiliates. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Ju Teng International Co., Ltd.. Valuation Methodology: Our HK$1.20 PT Ju Teng is based on P/E using a target P/E multiple of 5x our 2012 EPS forecast of HK$0.2. We set our target multiple at 6x, which in line with the stock's normal trading cycle (2-10x) of 6x, because we do not expect Ju Teng's to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years. Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could prevent our HK$1.20 PT for Ju Teng from being achieved are: 1) lower-than-expected demand for metal casings, 2) Ju Teng's capacity for and experience in metal casing (both die-casting and stamping) catchs up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng's metal casing manufacturing.
6 October 2011
68
Shin Zu Shing Co., Ltd. (3376 TT / 3376.TW)

TWD 61.00 (04-Oct-2011) Rating and Price Target Chart - TWD (as of 04-Oct-2011)
Stock Rating 2-EQUAL WEIGHT Currency=TWD Date Closing Price Rating
Price Target
200
175
150
125
100
75
50
25 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11
Closing Price
Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Shin Zu Shing Co., Ltd. or one of its affiliates. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Shin Zu Shing Co., Ltd.. Valuation Methodology: Our NT$58 PT for Shin Zu SHing is based on P/E using a target P/E multiple of 12x (with a normal trading cycle (1024x) of 12x, We apply our target multiple for our 2012 EPS forecast of NT$4.85. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks. Although tablet cannibalization could negatively impact growth of NB hinge sales, we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E. Risks which May Impede the Achievement of the Price Target: The risks that our NT$58 PT for Shin Zu Shing will not be achieved include the following. Upside risks: The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum. Downside risks: The key risks to the downside that could prevent our price target from being achieved, in our view, are the following: 1) lowerthan-expected demand for ultrabooks and MacBook Air/Pro could negatively impact the expected sales growth momentum in 2012 and 2) a lower-than-expected ultra-thin (hollow) hinge adaption rate for NBs due to limited budgets for implementation of higher-end specs.
6 October 2011
69
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(BC) Asia Ex-Japan IT Hardware Initiating Coverage Ultra Books and Tablets Creating Op

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EQUITY RESEARCH

Source: Company data, Barclays Capital estimates

Barclays Capital | Asia ex-Japan IT Hardware

Old New 04-Oct-11

New %Chg Old New %Chg Old New %Chg

130.00 130.00 N/A 120.00

11.84 11.84 N/A 9.23 9.98 1.43 9.98 1.43

N/A 0.20 0.05 3.39 6.16 0.05 3.39 6.16

Barclays Capital | Asia ex-Japan IT Hardware

Thin-and-light concept to drive product evolution

Implications of tablet PCs and ultrabooks the component winners reshuffle

Source: Barclays Capital

Barclays Capital | Asia ex-Japan IT Hardware

Figure 2: iPhone forecasts, 2010-13E

Figure 3: iPad and total tablet forecasts, 2010-13E

Apple iPhone Forecast

Apple iPad Forecast

Total Tablet Forecast

Barclays Capital | Asia ex-Japan IT Hardware

Barclays Capital | Asia ex-Japan IT Hardware

Barclays Capital | Asia ex-Japan IT Hardware

ULTRABOOKS AND THIN-TYPE NOTEBOOKS: DRIVING GROWTH IN NOTEBOOK PCS

Key components for tablet PCs and ultrabooks

Just what is a thin-and-light NB?

Our proprietary analysis indicates an ASP of US$699 is achievable.

Barclays Capital | Asia ex-Japan IT Hardware

Figure 5: Ultrabooks bill of materials (BOM)

Local tax, distribution, retailer, and others

Local tax, distribution, retailer, and others

ASP US$ 699

Local tax, distribution, retailer, and others

650 Metal casing (unibody): $50 600

BOM Cost Local tax, distribution, retailer, and others

## BOM Cost Local tax, distribution, retailer, and others

600 Local tax, distribution, retailer, and others

## Local tax, distribution, retailer, and others ##

550 MVA, packings, overhead, opex: $59 500 Adaptor: $5

Local tax, distribution, retailer, and others

600 Metal casing (unibody): $50

MVA, packings, overhead, opex: $59 Adaptor: $5

Metal casing (unibody)+laser etch: $100

550 MVA, packings, overhead, opex: $68 Adaptor: $5

Metal casing (unibody): $50

Batteries 500 (Polymer): $35

plastic casing: $10

Batteries (Polymer): $35 450 450

OS: $50 450 Batteries (Polymer): $30

MVA, packings, overhead, opex: $59 Adaptor: $5 Batteries (cylindrical): $18

450 MVA, packings, overhead,opex: $59

OS: $50 400 Others: $28.7 Modules: $16.8

Others: $28.7 Others: $28.7 Modules: $16.8 400 Modules: $16.8

350 Hinge-up LCM: $82

350 Hinge-up LCM: $82

LCD: 43 300 300

LCD: 43 300 300

## Others: $28.7 Modules: $16.8 ## LCD: 43

300 Others: $28.7 Modules: $16.8 250 LCD: 43

300 Others: $28.7 Modules: $16.8 250 LCD: 43

250 SSD: $134

250 SSD: $134

250 SSD: $134

250 SSD: $115