Windows Refresh and PC.pdf

G lo ba l T ec hn ol og y March 21, 2014 Alberto Moel, ScD (Senior Analyst) ? alberto.moel@ ? +852-2918-5749 Mark L. Moerdler, Ph.D. (Senior Analyst) ? mark.moerdler@ ? +1-212-756-1857 Stacy A. Rasgon, Ph.D. (Senior Analyst) ? stacy.rasgon@ ? +1-212-756-4403 Jessica Zhou ? jessica.zhou@ ? +852-2918-5722 Hyde Chen ? hyde.chen@ ? +852-2918-5791 Ranjit Ramachandran, CFA ? ranjit.ramachandran@ ? +1-212-823-3612 See Disclosure Appendix of this report for important disclosures and analyst certifications. Global Technology: Do Operating System Refreshes or End of Life Events Drive PC Shipments? Ticker Rating CUR 19 Mar 2014 Closing Price Target Price TTM Rel. Perf. EPS P/E 2013A 2014E 2015E 2013A 2014E 2015E Yield 992.HK (Lenovo) O HKD 8.49 10.00 12.0% 0.47 0.63 0.72 18.1 13.5 11.8 2.2% 2357.TT (Asustek) O TWD 291.00 295.00 -15.4% 29.79 28.80 29.54 9.8 10.1 9.9 6.5% 2353.TT (Acer) M TWD 17.85 16.70 -33.6% -1.07 -5.96 -0.16 0.7 0.8 0.9 NA MSFT O USD 39.55 47.00 19.4% 2.58 2.81 3.22 15.3 14.1 12.3 2.3% INTC U USD 25.43 18.00 -0.1% 1.89 1.77 1.95 13.5 14.4 13.0 3.5% MXAPJ 456.79 34.84 38.82 42.90 13.1 11.8 10.6 3.1% SPX 1872.01 108.65 117.83 130.73 17.2 15.9 14.3 1.9% O – Outperform, M – Market-Perform, U – Underperform, N – Not Rated * 2357.TT, 2353.TT estimates are 2012A/2013E/2014E; 2353.TT metrics is P/B Highlights A frequent question we get from investors is whether the current great moderation in corporate PC shipments from a terrible beginning in 2013 to a more positive (at least less bad) environment now may be triggered by the upcoming end-of-life (EOL) of Windows XP in April 2014. In our note today we dimension that potential upside and the implications for the Asian PC companies and their upstream partners, Intel and Microsoft. ∑ Our fundamental view is that PC shipment normalization will inexorably follow a classic S-curve model, which means regardless of any EOL or software refresh, PC shipment growth rates will head towards zero (or slightly positive)