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Quanta: Solid Start To Q3 PC Supply Chain

|Includes: Apple Inc. (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 (NYSE:WDC), and Micron (NASDAQ:MU), as well as major customers Hewlett Packard , Apple , and Dell (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.