Analysts Cite Five Growth Areas To Watch

SAN JOSE, Calif. — PC demand is starting off the year better than expected with Acer, Apple and Hewlett-Packard benefiting from the trend. In smart phones, Samsung and LG Electronics will ship many more handsets using Google Android and diversify baseband suppliers potentially benefitting Broadcom and Infineon. Those were some of the conclusions from a recent Asia trips by a handful of analysts from Barclays Capital who reported on their findings in a conference call. PC demand better than expected Barclays believes its current forecast of 16 percent PC growth in 2010 is "a bit conservative." A best-case scenario could see growth above 20 percent, said Ben Reitzes, head of IT hardware research at Barclays. The Wall Street firm believes notebook sales could expand 27 percent this year. The business in the first three months of this year is outperforming its seasonal tendency to be down about ten percent he said. Although the initial surge in 2010 could moderate by mid-year, "demand forecasts from customers like HP, Acer and Apple seem solid even into 3Q," Reitzes said. Ones to watch: Acer, Apple, HP Intel and Advanced Micro Devices should both benefit from a better than expected PC market. In terms of systems companies Acer, Apple and HP are the ones to watch. "We visited Acer and are very impressed by their execution," said Reitzes. "HP and Acer are the big rivalry going forward, especially in China and others--with the exception of Apple--are on the outside looking in," he said. Among the others, the analyst said Dell's performance has been "uninspiring" with orders weakening in the latest quarter. By contrast he was bullish on Apple's outlook for sales of Macintosh computers, iPhones and iPods. "We still believe Apple is readying a major update to the iPhone this summer with key features that could include a thinner design with an updated camera and more multi-touch capabilities around the entire device--besides the screen--for ease of use," Reitzes said. He said iPhone unit sales could grow 25 percent in the next quarter and another 55 percent in the fall due to the new designs. In addition, Apple could sell as many as 1.2 million iPads in the product's first quarter and more than two million a quarter once yield issues are resolved later in the year. Android coming on strong Plenty of new smartphones are on the way this year from Korea's top handset makers, and a large portion of them will be based on Google Android. Samsung will release 40 new handsets in 2010, half of them based on Google Android, said Jeff Kvaal, a communications hardware analyst at Barclays. For its part, LG plans to release 20 new touch-screen smartphones targeting sales of as many as 80 million units, and 70 percent of those devices will be based on Android. The trend is great for Google and its backers. But it could be a negative for Motorola which is betting its comeback in handsets on its ability to design standout Android phones like the Droid and as many as 20 follow-on handsets it has in the works, Kvaal said. "With more Android players, tension for differentiation and fragmentation is likely to become more acute," he added. Samsung and LG both plan to diversify their suppliers of cellphone baseband chips this year, said Tim Luke, semiconductor analyst at Barclays. The moves could see Infineon win more business in mid- and low-end 3G phones from both Korean companies and Broadcom gain business in Samsung's high-end handsets all at the expense of Qualcomm, he said. Qualcomm will likely retaliate by more aggressively seeking business with other top tier cellphone makers including Motorola and Nokia, Luke said. Inventory challenges everywhere The only downside ahead is the possibility for shortages and inventory build ups which so far look modest, according to the Barclays analysts. Luke cited the possibility of double- or pre-ordering affecting supplies of analog, memory and power management chips. "For now channel inventory and inventory on hand is modest," said Luke. But "visibility into the second half of the year is somewhat more limited," he added. Graphics, some displays and other chip- and board level components may be in short supply for a few weeks or months. "Clearly AMD and Nvidia have seen shortages [in graphics processors] now that could be alleviated in May," Luke said. In addition, "some industry sources are suggesting that there are shortages of flip-chip substrates used by Intel for 32nm [processors] which may possibly restrain [Intel's] 32nm ramp," he said. In flat-panel displays both supply and demand appear to be tracking upwards, according to C.J. Muse, Barclays' analyst for displays and semiconductor capital equipment. Orders from the last two weeks suggest panel demand in the first months of 2010 could be flat from the previous quarter, rather than down as much as 10 percent as previously expected. Separately, companies including TCL, Panda, Sharp and LG could make investments in as many as five new advanced LCD fabs in China this year, he added.