Thursday, November 16, 2006

Calls of Note Part 7

- ThinkEquity's Eric Ross notes that the PC supply chain is weakening worse than seasonality. Recent conversations with Asian semiconductor supply chain companies indicate lower motherboard shipments than the market had previously expected. November sales are trending flat to down versus October. This is weakness beyond what is typically expected from seasonality. As an example, one large Taiwanese motherboard manufacturer that the firm frequently speaks with has lowered its Q4 forecast for motherboard shipments from 8-10% Q/Q growth to flat. This is a continuation of what they heard when in Asia in September.

The most common explanation for weakness we hear is component shortages. Demand for AMD (NYSE:AMD) components is off the charts-feeding their new customer DELL (NASDAQ:DELL) and the other major PC OEMs at the expense of distributors. One source believes Intel (NASDAQ: INTC) is seeing shortages as well, although this has not checked out anywhere else.

Firm believes component shortages are an excuse for poor PC unit demand. As they check further down the chain there do not appear to be shortages of components or chipsets.

While PC unit demand is ok (certainly not great), the mix is decidedly lower end. This is negatively impacting margins throughout the supply chain. Most expect demand will be little changed from Vista.

Notablecalls: Not actionable but very good to know category. Eric Ross continues to produce quality research at Think.

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