Richard Davenport's  Instablog

• Jun revs NT$61.938B (US$1.886B)
• +34.1% M/M, well above 7-yr seasonal avg of +13.8%
• Implies Q2 revs of NT$159.961B (US$4.871B)
• +7.0% Q/Q, above 7-yr seasonal avg of +5.0% Q/Q
• Consistent with other positive PC supply chain data
• Supports our long position on numerous PC supply chain names

Earlier today Quanta Computer, the world's largest notebook ODM, reported Jun revs of NT$61.938B (US$1.886B). The M/M growth of +34.1% is well above a 7-yr avg of +13.8%. The strong Jun numbers implies Q2 revs of NT$159.961B (US$4.871b). The Q/Q growth of +7.0% is above a 7-yr avg of +5.0% Q/Q.

Quanta's May results were below seasonal norms, due to component shortages (see our comment from 6.10.09), as were April's. But given the very strong Jun numbers, those component shortages (LCD panels and optical pick-up heads) seem to be resolved.

Taiwan data thus far for June is looking very strong. We view Quanta's positive June and Q2 results as the latest in a long line of positive PC supply chain data points going back to early April (see SMSC: Positive PC Supply Chain Indicator, 4.9.09). Earlier today, we published a note on Acer's very strong Jun results.We reiterate our long position on AMD, ATHR, AUTH, DELL, HPQ, IDTI, INTC, LSI, LXK, MRVL, MU, NVDA, SMSC, STX, SYNA, and WDC.

• XLNX sees Jun-Q revs down ~5% Q/Q vs prior guidance of down -4% to +4%
• Equates to ~$357.3M, -5.5% below Street expectations of $397.1M
• Shortfall due to "supply constraints on certain Virtex-5 devices that are in high demand"
• Believe constraint is at UMC; Virtex 5 manufactured at 65nm, which is 11% of UMC's Q1 capacity
• Supply constraint positive for semi equipment names
• Believe demand is China 3G related; supports our long position on 12 names exposed to that trend
• Also supports positive stance on UMC and other foundries, as well as raw material suppliers CCMP and WFR

XLNX this morning issued a press release guiding Jun-Q revs down "approximately" 5% Q/Q vs prior guidance of down -4% to up +4% Q/Q. This equates to ~$357.3M (-5.5% below Street $397.1M). The revised guidance is due to "supply constraints on certain Virtex-5 devices that are in high demand." XLNX has been experiencing strong demand from China 3G infrastructure.

Based on other data, it follows that China 3G infrastructure is still the source of the demand. So where are the supply constraints? We do not know, but UMC is XLNX"s main foundry (XLNX is UMC's largest customer). Virtex-5 is manufactured on UMC's 65nm node, which accounted for 11% of its capacity in Q1. So it would seem that UMC wants more Virtex-5 chips than UMC can produce, due not only to China 3G infrastructure demand, but also demand from UMC's other customers at the 65nm node.

So, given that XLNX states that certain Virtex-5 devices are in high demand, we believe this is continued strength from China 3G infrastructure, and thus reiterate our long position on ADI, ALTR, ALU, COGO, CTV, PMCS, PWAV, SMI, TQNT, TXN, and XLNX.

Given that the supply constraint is at UMC's 65nm node, we view this as a positive for semi equipment names AEIS, AMAT, KLAC, LRCX, MKSI, and NVLS. Recall that we went positive on semi equipment due to foundry utilization rates expected to more than double in the current Q.

Continuing with the supply contraint at UMC's 65nm node: ostensibly this is from demand at other UMC customers on this process. This suggests continued strength at UMC, which is a positive for other foundries TSM and SMI, as well as raw material suppliers CCMP and WFR.

While this data point is a negative from XLNX's revenue perspective, we maintain our long position because the demand that is driving XLNX"s revenues remains intact.

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