Ticonderoga on IT Hardware & Networking: Taiwan Tech Trip-Computex - Day 3

June 2, 2011 8:37 AM EDT
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Ticonderoga on IT Hardware & Networking: Taiwan Tech Trip-Computex - Day 3 by Brian White

Ticonderoga's White said, "Data Points Signal iPhone Upside Versus Our Estimates - Today, we visited contacts in Taipei and attended the Computex Show. The data points thus far surrounding iPhone demand in the June quarter are pointing to the potential for flat units Q/Q and better than the down 15% Q/Q projection. Although the supply chain does not correlate exactly with trends at Apple (Nasdaq: AAPL)(Buy), the two generally move in the same direction. If we assume flat iPhone shipments in the June quarter, this would equate to 18.65 million units, or 2.8 million higher than our projection. This would add approximately $1.8 billion to our revenue forecast; however, we are cognizant that nearly a month remains in the quarter. Essentially, we are not seeing the typical pause in demand that generally occurs ahead of the introduction of a next-generation iPhone that historically has occurred in June/July. Furthermore, we are picking up data points that suggest initial production at certain iPhone component suppliers will begin in July with volume production planned in August for the next-generation iPhone, supporting our view of a September launch. Our checks are also highlighting that the recent launch of the white iPhone 4 has helped drive incremental demand in the June quarter, which we believe has been especially popular in Asia and sold out here in Taipei."

"More Thoughts on the Chengdu Explosion and the Impact on iPad 2. Our meetings yesterday provided us with some incremental concerns regarding the recent explosion at Hon Hai's Chengdu facility and its impact on iPad 2 production. However, our meetings today indicate that the Chengdu facility has been held back by yield issues on certain outside components; thus, the operation may not have reached the optimal utilization rate. Therefore, the explosion in Chengdu may result in more of an equilibrium situation with certain component vendors, rather than a shortage situation. Netting this all out, we believe the production of iPad 2 will be supply constrained during the June quarter; however, we are not prepared to place the bulk of the blame on the Chengdu operation. We will continue to closely monitor the situation."

"The Competitive Environment Is Heating Up for Cover Glass. The theme of increased competition in the cover glass market is clear in Taiwan, and customers expect pricing pressure in the market to accelerate as more capacity is brought online. For example, Corning's (NYSE: GLW)(Sell) Gorilla Glass is increasingly butting heads with Asahi's DragonTrail, while Nippon Electric Glass is expected to be a larger competitor in the future and other less known companies remain in the fray. Essentially, more competition is expected to drive a better cost down in the supply chain. We also get the sense that Corning charges a premium for Gorilla Glass versus Asahi's DragonTrail; however, the slight difference in quality seems to be lost on customers."

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