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Richard Davenport
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Richard Davenport provides differentiated research utilizing supply chain analysis, as well as more traditional methods. He is a former sell-side analyst at Citigroup. In 2005 he founded Connexiti LLC, a market-leading provider of supply chain data, research, and analytics. While at Connexiti,... More
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  • Quanta: Solid Start To Q3 PC Supply Chain 1 comment
    Aug 8, 2012 2:18 PM | about stocks: AAPL, AMD, DELL, HPQ, INTC, MU, NVDA, STX, WDC

    Quanta Computer (2382.TT), the world's largest notebook ODM, reported July consolidated revenues of NT$87.88B (US$2.93B), down -1.15% M/M, and up +17.65% Y/Y. The -1.15% M/M decline compares favorably to a 10-year seasonal average of -4.27% (σ=8.29%). July's results mark the 3rd consecutive month that Quanta has reported revenue growth above seasonal norms on a M/M basis, following four consecutive months of reporting revenue growth below seasonal norms. The better-than-seasonal results also compare favorably to published market expectations of a -10% M/M decline.

    The next three months (August, September, and October) are important for notebook back-to-school and Christmas build indications; these months rank 5th, 4th, and 2nd, respectively, among the other months of the year in terms of seasonal M/M revenue growth. If Quanta reports August and September M/M revenue growth only in line with seasonal norms (+5.90% and +11.79%, respectively), then its Q3 revenues would amount to NT$285B (US$9.51B). This would represent Q/Q revenue growth of +24.25%, well above a 10-year average of +9.45%. Thus Quanta has "cushion" to report below-seasonal growth in August and September, and still report a seasonally normal Q3 -- or else is on track to report a stronger-than-normal Q3.

    With today's concerns about inventories and macroeconomic data, Quanta's positive results are all the more meaningful, and are a strong indicator of actual downstream demand. Hewlett-Packard (NYSE:HPQ) has historically been its largest customer, accounting for roughly 40% of revenues. Apple (NASDAQ:AAPL) is a strong customer as well.

    Because it is the world's largest notebook manufacturer, Quanta's results are an incremental positive data point for upstream PC supply chain names such as Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD), Nvidia (NASDAQ:NVDA), Seagate (NASDAQ:STX), Western Digital (NASDAQ:WDC), and Micron (NASDAQ:MU), as well as major customers Hewlett Packard , Apple , and Dell (NASDAQ:DELL), among others. Major competitor Compal (2324.TT) has yet to report July revenue; strength there could confirm the positive trend, or weakness may counterbalance Quanta's strength for the PC supply chain at large. We'll report that data as soon as it's available.

    Disclosure: I am long AAPL.

    Themes: long-ideas Stocks: AAPL, AMD, DELL, HPQ, INTC, MU, NVDA, STX, WDC
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  • Richard Davenport
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    Author’s reply » With more data now in, Quanta's results seem more like an anomaly. Compal (2324.TT), the #2 global notebook ODM, reported July consolidated revenues of NT$51.21B (US$1.71B). The M/M decline of -10.1% is well below a 10-year average of +9.72%. So as we noted in our original post above, it appears that for the PC supply chain, Quanta's results are more of an anomaly, and that Compal's weakness appears to counterbalance Quanta's strength. Similarly, Wistron's July revenues of NT$45.76B (US$1.53B) showed a M/M decline of -14.96%, well below a 10-year average of -2.95%. Furthermore, published reports suggest that the notebook ODMs are currently expecting flat M/M revenues for August, which would be below seasonal norms.
    9 Aug 2012, 06:56 AM Reply Like
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