[BC] Asia Ex-Japan IT Hardware Initiating Coverage Ultra Books and Tablets Creating Op

EQUITY RESEARCH 6 October 2011

ASIA EX-JAPAN IT HARDWARE Initiating coverage: Ultrabooks and tablets creating opportunities for some suppliers We initiate on three IT hardware suppliers – Foxconn Tech (FTC), Shin Zu Shing (SZS) and Ju Teng – all No. 1 in their sub-segments of notebook casings and hinges: We expect FTC (2354 TT, 1-OW, PT NT$120) to benefit from a 3-year upcycle for metal casings and SZS (3376 TT, 2-EW, PT NT$58) to profit on the likely adoption of hollow-type hinges in ultra-thin NBs. However, we believe Ju Teng (3336 HK, 3-UW, PT HK$1.20) will suffer near term from the cannibalization of NBs with plastic casings until it can fully offer metal casings. We maintain our 2-Neutral view on the Asia ex-Japan IT Hardware sector with FTC, Simplo, Cheng Uei, Acer and Lenovo our top picks.

Tablets/ultrabooks appear the way forward: Most importantly, we view FTC, SZS and Ju Teng as important winners and losers – along with polymer battery makers Simplo (1-OW, PT NT$290) and Dynapack (2-EW, NT$130) – in the current migration from conventional NBs with plastic casings to tablet/ultrabooks with metal casings.

Sleek and stylish but with an acceptable ASP of US$699: The ultrabooks are poised for launch in 2H11 and 2012 – priced similarly to NBs, yet even more stylish and more affordable than Apple’s MacBook Air/Pro – will likely not create a new NB segment, but rather help to sustain and improve the market for conventional NBs by enhancing the product’s differentiation from tablets and smartphones. For our detailed proprietary analysis of the cost breakdown and margins for ultrabooks with various configurations see p9, Fig 5).

Metal casings are becoming the norm for three reasons: 1) durability – thinner products require a stronger shell; 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness – metal casings are recyclable and their production low polluting.

FTC should remain the leader in metal casings in 2012: In terms of capacity and appealing prices, FTC should remain the preferred metal casing provider for tablets/ultrabooks in the near term. Moreover, we believe FTC still has ample opportunity to expand its sales further given its first-mover advantage, position as the sole supplier for iPads/iPhones and the robust market for ultrabooks that we forecast. SZS’s thin and higher-end (hollow type) hinges for the MacBook Air/Pro and possibly for ultrabooks should ease any impact from tablet cannibalization of NBs. Ju Teng is working to catch up in the metal casings, but will likely not be competitive until 2013.

Price PT Pot. up/ EPS CAGR P/E (x)

Company Ticker Rating (NT/HK$) (NT/HK$) down to PT 2010-13E 2011E 2012E

Foxconn Tech 2354.TT 1-OW 96.8 120 24% 20% 13.6 10.7

Shin Zu Shing 3376.TT 2-EW 60.4 58 -4% 1% 16.0 12.8

Ju Teng 3336.HK 3-UW 1.40 1.2 -14% -12% 6.0 5.9

Source: Company data, Barclays Capital estimates

Barclays Capital does and seeks to do business with companies covered in its research reports. As aresult, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

This research report has been prepared in whole or in part by research analysts based outside the US who are not registered/qualified as research analysts with FINRA.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 65.

INITIATING COVERAGE Asia ex-Japan IT Hardware 2-NEUTRAL Unchanged For a full list of our ratings, price targets and earnings in this report, please see table on page 2

Asia ex-Japan IT Hardware Allen Chang +8862 663 84695 [email protected] BCSTW, Taiwan Kirk Yang +852 290 34635 [email protected] Barclays Bank, Hong Kong

Barclays Capital | Asia ex-Japan IT Hardware

6 October 2011 2

Summary of our Ratings, Price Targets and Earnings Estimates in this Report

Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E)

Old New 04-Oct-11 Old New %Chg Old New %Chg Old New %Chg

Asia ex-Japan IT Hardware 2-Neu 2-Neu

Acer Inc. (2353 TT / 2353.TW) 1-OW 1-OW 34.00 45.00 45.00 - -2.01 -2.01 - 4.47 4.47 -

Asustek Computer Inc. (2357 TT / 2357.TW) 1-OW 1-OW 203.00 290.00 290.00 - 20.93 20.93 - 24.16 24.16 -

Cheng Uei Precision Industry Co., Ltd. (2392 TT / 2392.TW) 1-OW 1-OW 65.50 100.00 100.00 - 5.91 5.91 - 9.07 9.07 -

Chicony Electronics (2385 TT / 2385.TW) 2-EW 2-EW 50.00 52.00 52.00 - 7.40 7.40 - 5.84 5.84 -

Compal Electronics Inc. (2324 TT / 2324.TW) 3-UW 3-UW 26.60 26.00 26.00 - 3.13 3.13 - 3.72 3.72 -

Darfon Electronics (8163 TT / 8163.TW) 1-OW 1-OW 18.75 28.00 28.00 - 0.46 0.46 - 1.31 1.31 -

Digital China Holdings Ltd. (861 HK / 0861.HK) 1-OW 1-OW 8.14 18.30 18.30 - 1.14 1.14 - 1.41 1.41 -

Dynapack International Technology Corp. (3211 TT / 3211.TW) 2-EW 2-EW 102.00 130.00 130.00 - 9.84 9.84 - 11.84 11.84 -

Foxconn Technology Co., Ltd. (2354 TT / 2354.TW) N/A 1-OW 104.00 N/A 120.00 - N/A 7.26 - N/A 9.23 -

Hon Hai Precision Industry Co., Ltd. (2317 TT / 2317.TW) 1-OW 1-OW 68.90 100.00 100.00 - 7.64 7.64 - 9.98 9.98 -

Inventec Inc. (2356 TT / 2356.TW) 3-UW 3-UW 11.50 10.00 10.00 - 1.46 1.46 - 1.43 1.43 -

Ju Teng International Co., Ltd. (3336 HK / 3336.HK) N/A 3-UW 1.40 N/A 1.20 - N/A 0.20 - N/A 0.20 -

Lenovo Group Ltd. (992 HK / 0992.HK) 1-OW 1-OW 4.66 6.50 6.50 - 0.04 0.04 - 0.05 0.05 -

Pegatron Corp. (4938 TT / 4938.TW) 2-EW 2-EW 28.35 27.00 27.00 - 0.03 0.03 - 3.39 3.39 -

Quanta Computer Inc. (2382 TT / 2382.TW) 3-UW 3-UW 58.80 49.00 49.00 - 5.71 5.71 - 6.16 6.16 -

Shin Zu Shing Co., Ltd. (3376 TT / 3376.TW) N/A 2-EW 61.00 N/A 58.00 - N/A 3.87 - N/A 4.85 -

Simplo Technology Co., Ltd. (6121 TT / 6121.TW) 1-OW 1-OW 184.00 290.00 290.00 - 14.12 14.12 - 20.71 20.71 -

Skyworth Digital Holdings Ltd. (751 HK / 0751.HK) 1-OW 1-OW 2.36 6.10 6.10 - 0.61 0.61 - 0.71 0.71 -

Sunrex Technology (2387 TT / 2387.TW) 3-UW 3-UW 20.30 19.00 19.00 - 1.64 1.64 - 2.06 2.06 -

Synnex Technology International Corp. (2347 TT / 2347.TW) 2-EW 2-EW 67.20 83.00 83.00 - 4.53 4.53 - 5.26 5.26 -

TPV Technology Ltd. (903 HK / 0903.HK) 2-EW 2-EW 2.20 3.60 3.60 - 0.06 0.06 - 0.08 0.08 -

Wistron Corporation (3231 TT / 3231.TW) 2-EW 2-EW 34.50 40.00 40.00 - 5.04 5.04 - 5.01 5.01 -

Source: Barclays Capital Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.

FY1(E): Current fiscal year estimates by Barclays Capital. FY2(E): Next fiscal year estimates by Barclays Capital.

Stock Rating: 1-OW: 1-Overweight 2-EW: 2-Equal Weight 3-UW: 3-Underweight RS: RS-Rating Suspended

Sector View: 1-Pos: 1-Positive 2-Neu: 2-Neutral 3-Neg: 3-Negative

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6 October 2011 3

INVESTMENT SUMMARY

We initiate coverage of three IT hardware suppliers – Foxconn Tech (1-OW, PT NT$120), Shin Zu Shing (2-EW, PT NT$58) and Ju Teng (3-UW, PT HK$1.20). All three companies are important players in the notebook supply chain, each ranked No. 1 in their respective sub-segments. However, we also see them as key players in the current migration from conventional NBs with plastic casings to tablet/ultrabooks with metal casings. Other key companies with exposure to the strong growth expected in tablets/ultrabooks are the polymer battery makers Simplo(1-OW, PT NT$290) and Dynapack (2-EW, NT$130).

We maintain our 2-Neutral stance on the Asia ex-Japan IT Hardware sector. Our top 1-OW picks among the 22 stocks we cover are FTC (2354.TT), Simplo (6121.TT), Cheng Uei (2392.TT), Acer (2353.TT) and Lenovo (0992.HK) for EPS growth in 2012E.

Thin-and-light concept to drive product evolution

We reiterate our view that the thin-and-light concept will drive product design trends – such as that for tablets (the iPad in particular), ultra-thin type NBs (MacBook Air/Pro), ultrabooks (for most of the other top-tier brand PC makers) and mid- to high-end smartphones (iPhone in particular). For these devices, the product must satisfy three requirements: 1) durability – thinner products require a stronger shell; 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness – metal casings are recyclable and their production low polluting.

Implications of tablet PCs and ultrabooks – the component winners reshuffle With the maturing concepts of thin-and-light like products and cloud computing (lower dependency on hardware specifications and a higher reliance on applications/software), the winners among the component suppliers are being reshuffled. We believe there are three key tablet/ultrabook components that determine the winners:

Metal casings: These make the device both more stylish and durable for thin-type NBs. FTC (2354.TT) has the most to benefit, in our view.

Polymer batteries: This is the must-have component to avoid thickness issues; Simplo (6121.TT) and Dynapack (3211.TT) appear well positioned.

Hollow-type hinges: These are the best-to-use component to significantly reduce thickness; SZS (3376.TT) should be the main beneficiary.

Figure 1: The likely winners and losers of the tablet PC and ultrabook boom

Company Ticker Situation in 2011-12E

Foxconn Tech 2354.TT First mover, sole metal casings supplier for iPad/iPhone and a major supplier for ultrabooks

Simplo 6121.TT Major polymer battery supplier for iPad, MacbookAir/Pro and most other top-tier brand tablets and ultrabooks Win

ners

Dynapack 3211.TT Major polymer battery supplier for iPad, MacbookAir/Pro

Juteng

3336.HK

Major plastic casings supplier for most brand NBs, but suffers from cannibalization of NBs (with plastic casings)

Lose

rs

Source: Barclays Capital

Until this year, metal casings had been a niche segment within the

supply chain, requiring both sufficient capacity and a high yield rates for suppliers to be

profitable; however, we see 2011 as the beginning of a 3-year

upcycle for metal casings as they become the mainstream

packaging material

We expect FTC to benefit most from the expected upsurge in

metal casings, as it should remain the leader in the segment

for 2012 and have ample opportunity to expand because

of the following: 1) its first-mover advantage;

2) its position as the sole supplier for the iPad and iPhone; and 3) its potential to gain from

the expected boom in ultrabooks overall


6 October 2011 4

Strong sales of iPhone and iPad driving demand for metal casings

For 2011-12E, we prefer stocks strongly associated with Apple products, tablets and thin-and-light NBs. According to our US IT hardware analyst, Ben Reitzes, Apple will ship 39mn iPad units in 2011 and 49mn in 2012. Including non-Apple tablets, Ben estimates total shipment volumes for tables at 63mn for 2011E and 79mn for 2012E. Ben’s y/y growth rate forecasts of 26% for 2012 and 20% for 2013E are far above the forecasts of single-digit growth rates for the PC industry overall near term. We believe FTC, as the main supplier of metal casings for Apple products (including iPhones/iPads/iMacs) is set to benefit from this expected growth.

Ben rates Apple as 1-OW with a 12-month PT of US$555 amid his 1-Positive view on the US IT Hardware sector. He believes Apple will continue to extract more profit from competitors in key growth categories.

Valuations

We base our 12-month price targets for FTC, SZA and Ju Teng on P/E. The P/E multiples we use are in line with historical average forward P/Es for each company (see the 12-month forward P/E charts in each company section of this report). For FTC, we use 13x (historical P/E for 2007-11E was 10-40x with an average of 13.5x for 2009-11E) applied to our 2012E EPS of NT$9.23 for a price target of NT$120. For SZS, we use 12x (normal trading cycle (10-24x) of 12x) applied to our 2012E EPS of NT$4.85 for a price target of NT$58. For Ju Teng, we use 5x applied to our 2012E EPS of HK$0.24 (normal trading cycle (2-10x) of 6x) for a price target of HK$1.20.

Risks

The key risks on an industry and macro level that could prevent our price targets from being achieved, in our view, include: 1) lower-than-expected demand for tablets, Apple products and ultrabooks; 2) any unexpected change in the material cycle; and 3) a new impactful competitor coming along and taking significant market share. All three scenarios would cause major concerns for us regarding our valuations and assumptions for growth momentum in 2012. However, we believe that all three are highly unlikely to occur.

Apple (1-OW; PT US$555) Covered by Ben Reitzes

Ben believes Apple will continue

to extract more profit from competitors in key growth

categories

Figure 2: iPhone forecasts, 2010-13E Figure 3: iPad and total tablet forecasts, 2010-13E

47,487

80,361

110,785

129,950

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2010 2011E 2012E 2013E

Apple iPhone Forecast

Units in (000)

14,789

38,90448,736

59,765

18,000

62,669

78,661

94,065

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2010 2011E 2012E 2013E

Apple iPad Forecast Total Tablet Forecast

Units in (000)

Source: Barclays Capital estimates Source: Barclays Capital estimates


6 October 2011 5

Figure 4: Asia ex-Japan IT Hardware and Wireless Equipment & Products sectors – valuation comparison

Price Price Pot. up Mkt cap P/E (x) P/B (x) ROE (%)

Company Ticker Rating target local /downside US$mn 10A 11E 12E 10A 11E 12E 10A 11E 12E

Notebook makers

Hon Hai 2317 TT 1-OW 100.0 67.6 47.9% 23,610 9.3 8.8 6.8 1.5 1.3 1.1 16.1% 14.9% 16.8%

Lenovo 0992 HK 1-OW 6.5 4.7 39.5% 6,179 42.2 21.1 14.8 3.6 3.2 2.8 8.7% 15.1% 18.9%

Asustek 2357 TT 1-OW 290.0 208.0 39.4% 5,116 9.7 9.9 8.6 1.5 1.4 1.3 15.5% 14.1% 15.4%

Acer 2353 TT 1-OW 45.0 33.7 33.7% 2,973 5.9 NA 7.5 1.0 1.1 1.0 16.1% -6.8% 13.1%

Wistron 3231 TT 2-EW 40.0 35.2 13.6% 2,398 5.7 7.0 7.0 1.2 1.2 1.1 21.2% 17.2% 15.9%

Pegatron 4938 TT 2-EW 27.0 27.3 -1.1% 2,013 10.0 NA 8.1 0.7 0.6 0.6 6.8% 0.1% 7.7%

Compal Electronics 2324 TT 3-UW 26.0 27.3 -4.6% 3,947 5.0 8.7 7.3 1.0 1.0 1.0 20.6% 11.9% 13.1%

Inventec 2356 TT 3-UW 10.0 11.8 -14.9% 1,137 10.0 8.2 8.1 0.9 0.8 0.8 8.6% 9.9% 9.6%

Quanta Computer 2382 TT 3-UW 49.0 58.5 -16.2% 7,339 11.9 10.2 9.5 2.0 1.8 1.7 16.7% 17.9% 17.9%

PC component suppliers

Catcher 2474 TT 1-OW 300.0 171.0 75.4% 4,044 25.7 10.7 9.0 3.5 2.6 2.2 13.5% 24.5% 24.0%

Largan 3008 TT 1-OW 1,080.0 652.0 65.6% 2,858 21.6 14.5 10.3 6.1 5.2 4.3 28.0% 36.0% 41.5%

Simplo 6121 TT 1-OW 290.0 180.5 60.7% 1,653 15.2 12.8 8.7 3.8 3.2 2.5 25.0% 25.0% 29.1%

Cheng Uei Precision 2392 TT 1-OW 100.0 63.0 58.7% 979 16.9 10.9 6.9 1.5 1.4 1.2 8.8% 13.2% 17.7%

Lite-on Tech 2301 TT 2-EW 39.0 26.9 45.0% 2,030 6.8 6.4 5.9 0.7 0.7 0.7 10.7% 11.2% 11.7%

Dynapack 3211 TT 2-EW 130.0 102.5 26.8% 435 11.5 10.4 8.7 2.8 2.5 2.2 24.1% 23.9% 25.7%

Foxconn Tech 2354 TT 1-OW 120.0 96.8 24.0% 3,709 14.8 13.3 10.5 2.1 2.0 1.7 14.4% 15.3% 16.4%

Shin Zu Shing 3376 TT 2-EW 58.0 60.4 -4.0% 313 12.8 15.7 12.6 1.3 1.4 1.5 10.0% 9.2% 11.7%

Ju Teng 3336 HK 3-UW 1.2 1.4 -14.3% 204 4.7 10.5 6.2 0.4 0.4 0.3 7.5% 3.4% 5.3%

Delta Electronics 2308 TT NR NA 69.0 NA 5,413 10.3 12.9 NA 2.2 2.0 NA 21.1% 15.3% NA

Celxpert 3323 TT NR NA 20.2 NA 70 7.9 8.2 NA 0.7 NA NA 9.5% NA NA

Jarllytec 3548 TT NR NA 17.8 NA 29 9.7 NA NA 0.4 NA NA 4.5% NA NA

Senao 2450 TT NR NA 86.2 NA 713 17.9 14.2 NA 4.7 NA NA 26.0% NA NA

Aurora 2373 TT NR NA 43.0 NA 474 17.8 12.6 NA 2.1 2.3 NA 11.9% 18.5% NA

Pan International 2328 TT NR NA 29.2 NA 485 44.6 NA NA 1.2 NA NA 2.7% NA NA

Coxon 3607 TT NR NA 38.0 NA 143 13.0 NA NA 0.8 NA NA 6.0% NA NA

Notes: Prices at close of trading on 5 October 2011. NR = not rated; 1-OW = 1-Overweight; 2-EW = 2-Equal Weight; 3-UW = 3-Underweight For full disclosures on each rated company, including details of company-specific valuation methodology and risks, please refer to: http://publicresearch.barcap.com. Source: Bloomberg, Bloomberg consensus estimates for non-rated stocks, Barclays Capital estimates for rated stocks

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6 October 2011 6

CONTENTS

INVESTMENT SUMMARY..................................................................................................................3

ULTRABOOKS AND THIN-TYPE NOTEBOOKS: DRIVING GROWTH IN NOTEBOOK PCS........7

METAL CASINGS: THE LATEST 3-YEAR CYCYLE TREND FOR PACKAGING MATERIALS....10

POLYMER BATTERIES: MUST-HAVE COMPONENT TO AVOID THICKNESS ISSUES ............11

HOLLOW-TYPE HINGS: BEST-TO-USE COMPONENT TO REDUCE THE THINKNESS ISSUE FOR ULTRABOOKS...........................................................................................................................12

COMPANIES

FOXCONN TECH (1-OW; PT NT$120; 24% POTENTIAL UPSIDE): ULTRA-THIN NBS TO SUSTAIN GROWTH ..........................................................................................................................13

SHIN ZU SHING (2-EW; PT NT$58; 4% POTENTIAL DOWNSIDE): EXPECTING ULTRA-THIN NBS TO TURN CANNIBALIZATION AROUND ..............................................................................27

JU TENG (3-UW; PT HK$1.20; 14% POTENTIAL DOWNSIDE): SUFFERING FROM THE MATERIAL MIGRATION ..................................................................................................................40

APPENDIX

APPENDIX I: WOA! (WINDOWS ON ARM) – AN OPPORTUNITY FOR NON-APPLE TABLETS/ULTRABOOKS WITH WIN8/ARM................................................................................50

APPENDIX II: NOTEBOOK, DESKTOP AND TABLET PCS............................................................51

APPENDIX II: INTEL MICROPROCESSOR ROADMAP.................................................................61

APPENDIX III: APPLE BUYER/SUPPLIER MATRIX .......................................................................62

APPENDIX IV: BILLS OF MATERIALS ............................................................................................63


6 October 2011 7

ULTRABOOKS AND THIN-TYPE NOTEBOOKS: DRIVING GROWTH IN NOTEBOOK PCS

We reiterate our forecast for sales growth of 48% y/y for tablet PCs and 180% for thin-type notebooks (from 14mn in 2011E to 40mn units in 2012E), which we expect to account for 10-20% of total NB shipments in 2012, up from 6% for 2011E (please refer to our 19 July report “Initiate coverage of Simplo and Dynapack: leaders of the pack” [click here]). We believe ultrabooks and thin-type NBs – the MacBook Air/Pro and the up-and-coming thin-type NBs of 17-21mm – will be the key trend in the coming years in the fast-growing NB product segment.

Key components for tablet PCs and ultrabooks

Metal casings: These make devices both more stylish and durable for thin-type NBs.

Polymer batteries: This is the must-have component to avoid thickness issues.

Hollow-type hinges: These are the best-to-use component to significantly reduce thickness.

Just what is a thin-and-light NB?

When we refer to thin-and-light NBs, we mean: 1) ultrabooks – the term originally coined by Intel to describe NBs with a thickness of 18mm or less; 2) products such as Apple’s MacBook Air and MacBook Pro; and 3) other extremely thin NBs that usually use polymer batteries for their thin-and-light form factor. (Please see Appendix II, p55 for our matrix on NB, desktop and tablet PCs.)

Most top-tier brand PC makers appear to be developing thin-and-light NBs (eg, ultrabooks) for shipment starting from September 2011 and early 2012E (as Acer did in September). These thin-and-light NBs are gaining popularity through innovation and development, mainly because of the following: 1) durability – thinner products require a stronger shell; 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices; 3) eco-friendliness – metal casings are recyclable and their production low polluting.

Is this just another netbook-like story – a new segment that was created, yet failed to keep growing? We believe this isn’t the case. Ultrabooks and thin-and-light NBs are not at all like netbooks (low-end, low quality and low ASPs) or CULV (consumer ultra low voltage) laptops, which had disappointing hardware performances. In fact, we believe they represent not a low-end product but an improved segment, which we expect to help sustain NB demand. We see thin-and-light NBs as not a new segment to compete with standard NBs but an improved version of standard NBs given their similar pricing range.

What impact/concept do tablet PCs (iPad in particular) bring us? 1) A lower dependency on hardware specs – as a result of maturing applications and various cloud-concept applications; 2) portability – tablets enlighten consumers how thin and light a computing device can be, thus, the thin-and-light trend will likely be a key attribute to ensure sales; 3) stylish design – the computing device is no longer just a PC, but more like an accessory we use in our daily work and life; and 4) more affordable ASPs.

Our proprietary analysis indicates an ASP of US$699 is achievable (Figure 5). Hardware specs are being simplified but still allow for normal usage. Near term, we do not expect any additional increases in the bill of materials (BOM). Please refer to Figure 5 for details of our BOM analysis for ultrabooks.

We see thin-and-light NBs as not a new segment to compete with

standard NBs but an improved version of standard NBs given

their similar pricing range

Our proprietary analysis indicates an ASP of US$699 is

achievable.

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6 October 2011 8

Figure 5: Ultrabooks – bill of materials (BOM)

1000

850

Modules (CMOS, T/P, K/B, W/L, B/T, Speaker, Mic)Others (Connectors, cables, Antenna, Hinge, Thermal, Fan, PCB, RLC, Audio chip, LAN chip)

800

750

ASP US$ 699

650 650 650

## 600 600 600 600 600 600

## 550 550 550 550 550 550

Adaptor: $5

## 500 500 500 500 500 500Adaptor: $5 Adaptor: $5

Adaptor: $5

## plastic casing: $10 450 450 450 450 450 450

## 400 Adaptor: $5 400 Adaptor: $5 400 400 400 400

Adaptor: $5

## 350 350 350 350 350 350

## 300 300 300 300 300 300

## 250 250 250 250 250 250

## 200 200 200 200 200 200

## 150 150 150 150 150 150

## 100 100 100 100 100 100

50 50 50 50 50 50 50

10 10 10 10 10 10 10

Configuration Conventional NBs

#1 Ultrabook (HDD) + Metal casings (die-

casting)

#2 Ultrabook (HDD) + Metal

casings (Unibody)

#3 Ultrabook (SSD) + Metal casings (die-

casting)

#4 Ultrabook (SSD) + Metal

casings (Unibody)

#5 Ultrabook (SSD) + Metal

casings (Unibody)+Hing

e-up LCM

Apple MacbookAir

Blended margin 11%, with ASP of $699 5%, with ASP of $699 6%, with ASP of $799 9%, with ASP of $899 6%, with ASP of $899

Metal casing (die-casting)

$25

Others: $28.7

BOM

Cos

t

MVA, packings, overhead, opex:

$59

Batteries (Polymer): $35

OS: $50

SSD: $134

CPU +C/S: $150

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Cost BO

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othersLocal tax, distribution, retailer, and

others


MVA, packings, overhead,opex:

$59 BOM

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t


$59

Local tax, distribution,

retailer, and others

SSD: $115

Metal casing (unibody)+laser

etch: $100


$68

Modules: $16.8

LCD: 43

HDD: $35

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Memory: $20

CPU +C/S: $150


$59

LCD: 43

Metal casing (die-casting):

$25

Batteries (cylindrical): $18

OS: $50

LCD: 43

Modules: $16.8

Others: $28.7

OS: $50

Others: $28.7

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SSD: $134

Memory: $20

HDD: $35 HDD: $35

Memory: $20Memory: $20


Hinge-up LCM: $82

CPU +C/S: $150

Others: $28.7

Modules: $16.8

Memory: $20Memory: $20

SSD: $134

Memory: $20

CPU +C/S: $150CPU +C/S: $150

MVA, packings, overhead,opex:

$59


OS: $50

Others: $28.7

Modules: $16.8

CPU +C/S: $150 CPU +C/S: $150

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trib

utio

n, re

taile

r, a

nd o

ther

s

LCD: 43

Modules: $16.8

Others: $28.7Others: $28.7

Modules: $16.8

LCD: 43

Modules: $16.8

Hinge-up LCM: $82

Loca

l tax

, dis

trib

utio

n, re

taile

r, an

d ot

hers

BOM

Cos

t


OS: $50



$59

OS: $50



others


others

Source: Barclays Capital estimates


6 October 2011 9

Figure 6: Key product differentiation – hinge-up LCM vs die casting vs unibody

Terms Key messages

Hinge-up LCM Key concept:

Directly integrating all components (Antenna, CMOS, backlight, TFT open-cell, and B(LCD Bezel) cover) into A(LCD front cover)

Key advantage: Thickness reduction, weight reduction Key concern: High price tag Die-casting

Key concept: Traditional process of metal casing

Key advantage: Most popular, due to its cycle time is faster than Unibody's, with more affordable pricing

Key concern: Good enough but not as great as unibody in terms of appearance, in comparison

Ultrabook (Acer S3 and some other upcoming top-tier brand makers this year end)

Unibody Key concept: Shape the metal materials (the whole bulk of metal) through computer numerical control (CNC) machines and laser

application. Key advantage: More solid and lighter due to less structural materials needed Key concern: More expensive than Die-casting, due to the longer cycle production time and high cost of CNC machines

Apple MacbookAir/Pro, Mac mini, ultrabooks (Asus UX series and some other upcoming top-tier brand makers this year end)



6 October 2011 10

METAL CASINGS: THE LATEST 3-YEAR CYCLE TREND FOR PACKAGING MATERIALS

The advantages of metal casings

Every 3-5 years, there has been a migration of notebook casing material. We see 2011 as the beginning of the three-year metal-casing wave. The adoption rate of metal casings has risen significantly since 2010, as Figure 6 demonstrates, driven by the shift to tablets and ultrabooks. We expect demand for metal casings to continue to grow until at least 2013 because of the advantages they provide – durability, style and eco-friendliness. We believe that FTC will continue to benefit the most from the metal casings boom in the next few years.

Metal casings are becoming the norm for three reasons: 1) durability – thinner products require a strong material to house their hardware, especially for larger products such as NBs and tablets; 2) style – consumer electronics are now viewed more as accessories rather than simply portable computing devices; and 3) eco-friendliness – metal casing are recyclable and their production lower polluting.

FTC – beneficiary of the metal casings trend and still the leader in 2012… We expect FTC to benefit most from shift to metal casings as it should remain the leader in the segment for 2012 and have ample opportunity to expand further because of the following: 1) its first-mover advantage; 2) its position as the sole supplier for the iPad and iPhone; and 3) the potential to gain from the expected boom in ultrabooks.

… but Ju Teng is catching up Ju Teng is the leader in plastic casings, but it is working to catch up with its comprehensive peers in terms of metal casing capacity. However, we do not expect it to catch up until 2013 at the earliest. Until then, it will likely continue to suffer from the cannibalization of plastic casings by metal casings.

What lies ahead for casings?

The preferred material of the next 3-year material cycle is anyone’s guess. Possibilities include carbon, bamboo, glass, ceramics or even a return to plastic with a special surface treatment. Each material has its own specific advantages and disadvantages. However, we expect metal casings to hold their own for awhile.

Figure 7: Notebook casings – trends is casing materials for notebooks, tables, ultrabooks and Apple NBs

?MetalPlastic + IMR/IMF

Plastic +UV paintPlastic + paint Plastic vs metal Metal

2003 2005 2008 2010 2012E 2013E

Most products are a single colour – grey, blue, white, or black

Some products use higher-end paint –ultraviolet, looks shiny

New technology boom, In-mold rolling/forming (IMR/IMF), a variety of designs & colours, customized, shorter production cycle time, widely adopted

Apple iPad introduces metal casings, while NBs stick with plastic

Tablets, ultrabooks, MacbookAir/Pro, smartphones expected to bring meaningful growth to metal casings

Metal still the mainstream, while the industry looks for further enhanced surface-treatment technology for metal casings or other new materials

Possibilities include: metal, plasticbamboo, carbon,glass, ceramics

The golden age of metal casings

Source: Barclays Capital estimates

Metal casings offer three key advantages: 1) durability for thinner products; 2) stylish design; and, 3) eco-friendliness


6 October 2011 11

POLYMER BATTERIES: MUST-HAVE COMPONENT TO AVOID THICKNESS ISSUES

Polymer batteries are the must-have component to avoid thickness issues. Within this segment, Simplo (6121.TT) and Dynapack (3211.TT) appear well positioned. The new hero when it comes to spurring PC demand – the tablet – will, in our opinion, be the key driver of PC growth beginning in 2011. It will also be the key growth catalyst for both Simplo (with the largest share globally) and Dynapack. We expect Simplo, which holds the major share in the Apple battery supply chain, as well as relationships with other tablet makers, to benefit most from this trend.

Polymer batteries – the trend for ultrabook (thin-and-light) products

Most NBs use cylindrical battery packs; however, with the shift to the thin-and-light form factor for NBs, such as for ultrabooks and the MacBook Air and Pro, the trend is to use Li-polymer batteries instead of Li-ion batteries. The size of the Li-polymer battery is customisable based on specific product requirements, and as such, can be made thinner than the cylindrical type (fixed shape/standardized size).

Figure 8: Z-stack in NB – cylindrical vs polymer batter

Cylindricalbattery

C cover (top case)

A cover (LCD cover)

B cover (LCD bezel)

LCD

Cylindricalbattery

D cover (bottom case)

Polymer battery

C cover (top case)

A cover (LCD cover)

B cover (LCD bezel)

LCD


Cylindricalbattery

C cover (top case)

A cover (LCD cover)

B cover (LCD bezel)

LCD

Cylindricalbattery


Cylindricalbattery

C cover (top case)

A cover (LCD cover)

B cover (LCD bezel)

LCD

Cylindricalbattery


Polymer battery

C cover (top case)

A cover (LCD cover)

B cover (LCD bezel)

LCD


Polymer batteryPolymer battery

C cover (top case)

A cover (LCD cover)

B cover (LCD bezel)

LCD




6 October 2011 12

HOLLOW-TYPE HINGS: BEST-TO-USE COMPONENT TO REDUCE THE THINKNESS ISSUE FOR ULTRABOOKS

Hollow-type hinges are the best-to-use component to significantly reduce the thickness issue. We view SZS (3376.TT) as the most likely winner in this space. Its hollow-type hinges can help NB products to be even thinner because the antenna can be put through the hinge, saving the space vs. other hinges that require the antenna to run outside along with the hinge. SZS has the highest yield rate and best quality for hollow-type hinges, which is proven by its position as the only supplier for Apple’s MacBook Air/Pro. We discuss SZS’s competitive advantages more fully in the company specific section of this report.

Figure 11: Working/business models of hinge suppliers, ODMs/OEMs and PC brands

Hinge providers

ODM/EMS

PC brands

SZS, Sin Her, Jarlly, Lian Hong, …

Acer, Dell, Toshiba, ASUS, Samsung, Apple, Sony, Fujitsu, …

The ODM/EMS directly assign (in most cases) the

hinge components

Quanta, Compal, Wistron, Hon Hai, Inventec, Pegatron, Flextronics

The hinges are assigned by the PC brands and then shipped to

the ODM/EMS for finished goods assembly

Source: Company data, Barclays Capital

Figure 9: Hollow-type hinges

Figure 10: Other key parts of hollow-type hinge modules

Source: SZS, Barclays Capital Source: SZS, Barclays Capital


6 October 2011 13

FOXCONN TECH (1-OW; PT NT$120; 24% POTENTIAL UPSIDE): ULTRA-THIN NBS TO SUSTAIN GROWTH

We initiate coverage of metal-casing maker FTC with a 1-Overweight rating and 12-month price target of NT$120. For 2011-12E, we prefer stocks strongly associated with Apple products, tablets and ultrabooks (or any thin-and-light NBs). For FTC, in 2012, we forecast EPS growth of 27% y/y and expect the sales contribution from light metal casings to help the company maintain its overall gross margin and offset the downward trend for ASPs and gross margins we forecast for game consoles and thermal modules for 2012. We expect sales of light metal casings to continue to trend upward as metal casings become a must-have packaging for any ultra-thin product.

iPhones/iPads and ultra-thin NBs drive growth of metal casings We reiterate our forecast for 48% y/y sales growth for tablet PCs and triple-digit growth for ultrabooks (180%), which we expect to reach 10-20% of total NB shipments in 2012, up from 6% in 2011E (please refer to our 19 July 2011 report, “Initiate coverage of Simplo and Dynapack: leaders of the pack”). We believe ultrabooks and thin-type NBs (thin-and-light NBs, such as MacBook Air/Pro) of 17-21mm thickness will definitely be the trend to watch in the NB product segment in the coming years.

Light metal casings: a trend and key factor for ultra-thin products

The light metal casing has become a must-have in terms of product design, no matter whether the brand maker decides to use unibody or simpler stamping or die-casting. The metal is the key material in building a durable package to house the product structure as well as creating a keen sense of style and design. Given the boom of the iPhone, iPad and other Apple products and the potential from ultrabooks (including MacBook Air/Pro and other brands’ ultra-thin NBs) as well as the higher gross margin (resulting from the complicated process) and the higher entry barriers in terms of capacity scale (key manufacturing equipment: die-casting, stamping and CNC (computer numerical controls – a type of high-end drilling machine for producing unibodies), yield rates and technology, we believe metal casings are the product segment to sustain sales and earnings growth in 2012.

Potential to grow – just the beginning of profit improvement We like FTC, not only because it is a major metal-casing provider but also because we believe it still has significant ability to grow and expand. We expect the sales contribution of metal casings to grow to 30% in 2012E from 22% in 2011E, and its profit contribution to rise to 46% in 2012E from 30% in 2011E. Thus, FTC’s overall gross margin has the potential to either improve or maintain steady vs the usual trend of contracting margins in the hardware segment (refer to Figures 16-19).

Figure 12: FTC – statistical abstract

Year to Net profit EPS EPS P/E P/B ROE Div. yield31-Dec (NT$mn) (NT$) growth (%) (x) (x) (%) (%)

2009A 6,263 5.40 -0.4% 18.3 2.0 14.8 2.53 2010A 7,610 6.53 20.9% 15.2 2.2 15.5 3.03 2011E 8,498 7.26 11.2% 13.6 2.1 16.5 3.03 2012E 10,806 9.23 27.2% 10.7 1.8 18.7 4.55 2013E 13,190 11.27 22.1% 8.8 1.5 19.2 5.15

Source: TEJ, Company data, Barclays Capital estimates

2354 TT / 2354.TW

Stock Rating 1-OVERWEIGHT

Sector View 2-NEUTRAL

Price Target TWD 120.00

Price (05-Oct-2011) TWD 96.80

Potential Upside/Downside +24%


6 October 2011 14

COMPANY SNAPSHOT

2354 TT Foxconn Tech Asia ex-Japan IT Hardware

Income statement (NT$mn) 2010A 2011E 2012E 2013E CAGRRevenue 136,724 129,088 149,201 159,915 5.4% Stock Rating 1-OVERWEIGHTEBITDA 13,451 14,831 17,875 20,414 14.9% Sector View 2-NEUTRALEBIT 9,468 10,060 13,399 15,830 18.7% Price (05-Oct-2011) NT$96.8Pre-tax income 9,614 10,854 13,854 16,284 19.2% Price Target NT$120Net income 7,610 8,498 10,806 13,190 20.1% Ticker 2354 TT/2354.TWEPS (NT$) 6.53 7.26 9.23 11.27 20.0%Diluted EPS (NT$) 6.53 7.26 9.23 11.27 20.0% Investment case

Diluted shares (mn) 1,160 1,165 1,170 1,170 0.3%Dividend per share (NT$) 3.00 3.00 4.50 5.10 19.3%

Margin and return data (%) AverageGross margin 10.8 11.3 13.0 13.6 12.2 EBITDA margin 9.8 11.5 12.0 12.8 11.5 EBIT margin 6.9 7.8 9.0 9.9 8.4 Pre-tax margin 7.0 8.4 9.3 10.2 8.7 Net margin 5.6 6.6 7.2 8.2 6.9 Upside case NT$135ROIC 11.8 9.8 11.7 12.6 11.5 ROA 8.1 8.7 9.9 10.7 9.3 ROE 15.5 16.5 18.7 19.2 17.5

Balance sheet and cash flow statement (NT$mn) CAGRTangible fixed assets 21,770 18,747 15,178 11,500 -19.2%Intangible fixed assets - - - - NACash and equivalents 18,266 25,003 36,912 50,328 40.2% Downside case NT$90Total assets 92,552 102,711 115,673 130,981 12.3%Short- and long-term debt 5,973 10,861 13,307 15,754 38.2%Net debt/(funds) (11,121) (13,567) (23,030) (33,999) NAOther long-term liabilities 2,058 1,324 1,324 1,324 -13.7%Total liabilities 42,193 49,962 53,041 56,080 9.9%Shareholders' equity 50,359 52,749 62,632 74,901 14.1%Change in working capital (800) (5,452) (823) (609) NACash from operations 10,831 7,914 14,588 17,295 16.9% Upside/downside scenarios

Capital expenditure (2,713) (1,748) (907) (907) NAFree cash flow 9,681 9,288 10,385 11,892 7.1%

Valuation and leverage metrics AverageP/E (x) 15.2 13.6 10.7 8.8 12.1 EV/EBITDA (x) 8.2 7.3 5.5 4.3 6.3 FCF yield (%) 8.8 8.4 9.4 10.8 9.4 P/B (x) 2.2 2.1 1.8 1.5 1.9 Dividend yield (%) 3.0 3.0 4.5 5.2 3.9 Total debt/capital (%) 12.4 17.8 18.1 17.9 16.6 Source: Thomson Reuters Datastream, Barclays Capital est.

Net debt/equity (%) (22.1) (25.7) (36.8) (45.4) (32.5) Revenue and EPS, 2010-13E

Selected operating metricsInventory days 15 41 58 56 Accounts receivable days 75 79 69 67 Accounts payable days 54 73 78 75 Cash-conversion cycle 37 47 50 48

Source: Company data, Barclays Capital estimates Note: FY end Dec.

Downside could come from a 20% decline in saleson lower-than-expected ultrabook and tabletdemand in 2012 driving the price to NT$90, on P/Eof 13x 2012E lower EPS of NT$6.92 .

Why 1-OW? FTC's position as Apple's major supplierof metal casings should drive sales and earningsgrowth momentum in 2012E. This would also offsetthe downward trend of game consoles and the lowmargins of thermal modules in 2012.

If sales are 10% higher than we model, on better-than-expected ultrabook and tablet demand in 2012,this could drive the price to NT$135, on a P/E of 13x2012E higher EPS of NT$10.38.

0

50

100

150

200

2010A 2011E 2012E 2013E

024681012Revenue EPS (NT$)NT$bn NT$

DownsideCase

NT$105(6.1%)

PriceTarget

NT$120(21.1%)

UpsideCase

NT$135(36.2%)

24

74

124

174

29-Sep-10 9-Sep-11

DownsideCase

NT$90(-6.74%)

PriceTarget

NT$120(24.0%)

UpsideCase

NT$135(39.3%)

24

74

124

174

29-Sep-10 9-Sep-11


6 October 2011 15

Valuation and risks

Valuation Our 12-month price target for FTC is NT$120. We use P/E to value FTC, setting our target multiple at 13x and applying it to our 2012 EPS forecast of NT$9.23. FTC’s historical P/E for 2007-11E was 10-40x, with an average of 13.5x for 2009-11E. We prefer to value the stock conservatively at this moment due to the volatile sales contribution from game consoles as well as the downward trend of thermal sales and their gross margin, and so view a P/E multiple of 13x as justified. Going forward, however, we believe FTC may deserve a premium because of its promising metal casing business for iPad, iPhone and ultrabooks. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue.

Our price target represents potential upside of 24%, which we estimate is at the upper end of its peer group; therefore, we assign a 1-Overweight rating.

Risks The key risks that could prevent our price target from being achieved, in our view, are the following: 1) demand for Apple products, such as the iPad and iPhone, proving to be lower than we expect; 2) demand for ultrabooks also lower than expected; and 3) FTC’s capacity proves insufficient to meet demand for metal casings (for unibody types, in particular, which require FTC to operate numerous CNC machines).

Earnings outlook for 2011-12E

Apple expected to drive FTC sales According to our US IT hardware analyst, Ben Reitzes, 39mn iPad units will be shipped in 2011 and 49mn in 2012E. Including non-Apple tablets, Ben estimates total shipment volumes at 63mn for 2011E and 79mn for 2012E. The y/y growth rates of 26% forecast for 2012E and 20% for 2013E are far above the PC industry’s average growth forecast of single digits for the near term. We believe FTC, as the main supplier of metal casings for Apple products (including iPhones/iPads/iMacs), is set to benefit from this expected growth.

Figure 13: FTC – product applications

Products Major applications

Metal casings NBs, mobile phones, projectors, e-readers, digital cameras

Thermal modules NBs, DTs, servers, work stations

Game consoles Assembly for major game console providers


Metal casings sales to be driven by iPhones and iPads We like FTC as it is the major metal casings source for iPads and iPhones, which are Apple’s high-growth product lines. These two product segments also bring meaningful revenue to the supply chain. With this growth trend expected to continue and FTC’s position as a major source, we believe its earnings growth momentum over the coming years will continue to be high.

Growth from metal casings for Apple products


6 October 2011 16

Potential to grow – metal casing momentum appears just the beginning in 2011E

We like FTC, not only because it is a major metal casing provider, but because we believe it still has ample ability to grow and expand We expect the sales contribution of metal casings will grow to 30% for 2012E (from 22% for 2011E), and the profit contribution will increase to 46% for 2012E (from 30% for 2011E). Thus, the company’s overall gross margin has the potential to either improve or be maintained amid the usual trend of margin contractions.

Figure 14: iPhone forecasts, 2010-13E Figure 15: iPad and total tablet forecasts, 2010-13E

47,487

80,361

110,785

129,950

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2010 2011E 2012E 2013E


Units in (000)

14,789

38,90448,736

59,765

18,000

62,669

78,661

94,065

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2010 2011E 2012E 2013E


Units in (000)

Source: Estimates of Barclays Capital’s US IT hardware analyst, Ben Reitzes Source: Estimates of Barclays Capital’s US IT hardware analyst, Ben Reitzes

Figure 16: FTC – sales contributions, 2011E Figure 17: FTC – sales contributions, 2012E

Thermal15%Game

consoles63%

Metal casings

22%

Metal casings

30%

Thermal14%

Game consoles

56%

Source: Company data, Barclays Capital estimates Source: Company data, Barclays Capital estimates

Figure 18: FTC – gross profit contributions, 2011E Figure 19: FTC – gross profit contributions, 2012E

Metal casings

30%

Thermal13%

Game consoles

57%

Metal casings

46%

Game consoles

43%

Thermal11%



6 October 2011 17

Figure 20: FTC – sales revenue, 2006-13E

78,964

135,102

159,903 155,059136,724

129,088

149,201159,915

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2006 2007 2008 2009 2010 2011E 2012E 2013E

sales revenue

NT$ mn


Figure 21: FTC – ROE, 2010-13E

Figure 22: FTC – EPS, 2010-13E

15.51 16.4818.73 19.18

0

5

10

15

20

25

2010 2011E 2012E 2013E

ROE 2010-13E, %

6.537.26

9.23

11.27

0

2

4

6

8

10

12

2010 2011E 2012E 2013E

EPS 2010-13E, NT$

NT$


Figure 23: FTC – 12M forward P/E (x)

Figure 24: FTC – 12M forward P/B (x)

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45

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ar-1

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ar-1

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n-11

Rolling 1y PE Mean +1 SD -1 SD

0.0

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Rolling 1y PB Mean +1 SD -1 SD



6 October 2011 18

Figure 25: FTC – share price performance

0

50

100

150

200

250

300

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

-100

-50

0

50

100

150

200

250

300

Sales, % ch YoY, 3MMA (RHS) Share price (NT$) (LHS)

NT$ y/y %

Source: TEJ, Barclays Capital

Sensitivity analysis for sales and the operating margin

We analyze the sensitivity of our 2012 EPS forecast to examine and support our view that FTC’s risk-reward profile is positive under various scenarios. We conclude that two major factors affect EPS: 1) sales and 2) the operating margin.

Our base-case scenario calls for sales of NT$149bn for 2012E (15.6% y/y) and an operating margin of 9% (up from 7.8% for 2011E), representing EPS of NT$9.23. We conclude the following:

Worst-case scenario: Quarterly volumes were to remain flat and its operating margin lower than our forecast.

Best-case scenario: EPS would be higher than our forecast with a significant improvement in cost efficiency.

Base-case scenario: On our earnings forecasts, FTC would still follow the pattern of the Apple products, tablet and ultrabook boom going forward. We could see further upside to earnings revisions after that.

Figure 26: FTC – sensitivity analysis for Barclays Capital’s EPS forecast for 2012 based on sales and operating margin

Revenue of NT$149bn, 2012E

-10% -5% 0% 5% 10%

+1.5%-pts 9.81 10.48 11.15 13.82 12.48

+1.0%-pts 9.24 9.87 10.51 13.05 11.78

+0.5%-pts 8.66 9.27 9.87 12.29 11.08

Base case 8.09 8.66 9.23 11.52 10.38

-0.5%-pts 7.52 8.06 8.60 10.76 9.68

-1.0%-pts 6.94 7.45 7.96 9.99 8.98

Ope

ratin

g m

argi

n

-1.5%-pts 6.37 6.84 7.32 9.23 8.28

Note: “0”represents our financial forecasts in our base-case scenario Source: Barclays Capital estimates


6 October 2011 19

Figure 27: FTC – sensitivity analysis for Barclays Capital’s price target for 2012 on sales and operating margin

Revenue of NT$149bn, 2012E

-10% -5% 0% 5% 10%

+1.5%-pts 128 136 145 180 162

+1.0%-pts 120 128 137 170 153

+0.5%-pts 113 120 128 160 144

Base case 105 113 120 150 135

-0.5%-pts 98 105 112 140 126

-1.0%-pts 90 97 103 130 117

Ope

ratin

g m

argi

n -1.5%-pts 83 89 95 120 108


Catalysts

Near-term catalysts High exposure to Apple for 2011-12E: We expect the gross profit contribution from metal casings to expand to 46% in 2012 (from 30% in 2011), along with the dual Apple-related catalysts – the launch of iPhone 5 and iPad3, We expect FTC to continue to deliver strong absolute growth, both in terms of revenue/profits and share price performance despite the recent weakness in the PC industry. In terms of volumes for metal casings for Apple iPhones, iPads and ultrabooks, we believe FTC will be able to maintain its position as the largest metal casing supplier for iPads, iPhones and ultrabooks.

Long-term catalysts Metal casings – the 3-year material cycle trend: We expect earnings growth of 27% y/y, on the back of the ultrabook boom (we forecast 180% y/y shipment unit growth, from 14mn units in 2011 to 40mn units in 2012, the long-term product/material trend).

The competitive situation

Light metal casings (30% of total sales in 2012E, around 20% GM) Metal casings have been a trend in product design of NBs, mobile phones, consumer electronics and tablets for some time now, owing to the advantage of lightness, better heat-reduction, better hardness, recyclability and stylish appearance, especially for tablets and ultra-thin NBs.

The competition – one of two major suppliers FTC is one of two major metal casing suppliers in the supply chain, and we believe it will continue to hold its lead through at least 2012. The other supplier is catcher (2474.TT) which covered by our analyst, Dale Gai. The entry barriers to this segment are capacity scale, which depends on how many CNC the metal casing suppliers have. Although other component suppliers have placed aggressive orders for CNC machines to catch up with FTC’s production capacity for unibody designs (some ultrabooks implement this higher-end metal casing instead of mainstream designs that use die-casting and stamping), the larger


6 October 2011 20

the order a supplier places, the faster the supplier gets the end product. The lead time for CNC machines currently ranges from 1.5 months to 6 months depending on the bargaining power of the supplier pacing the order. Thus, we expect FTC, which already has the machines – to continue to benefit from Apple’s iPad 2 and iPad 3 as well as its iPhone 4 and 5 in 2012.

Light metal casings – life cycle

Thermal – ASP & GM declining (14% of total sales in 2012E, around 10% GM)

Although thermal modules are vital for heat reduction for PC/handset products, we are quite conservative for thermal’s future growth owing to the following: 1) low barriers to entry – there are countless suppliers, fierce competition exists in pricing and it operates more like a traditional manufacturing business; and 2) alternatives – there are various substitutes for heat reduction, such as GTS (thermal flexible graphite sheets), which is thinner and easier to implement and can also reduce heat but are currently more expensive.

Usage of thermal modules

Thermal modules are normally used to reduce the heat from the CPU and graphic chips, without thermal modules, the heat might cause poor user experiences of overheating, or even OS crashes. Several key factors form a total solution: 1) a thermal module – made from metal that absorbs and disperses the heat from CPUs or graphics chips; 2) a fan – this blows the heat out of the product casing; and 3) heat pipe – this links the heat between the heat pad on the CPU or graphics chip and the thermal module and then is used to channel the heat out via a fan.

Game consoles – the sales contribution is declining (56% of total sales in 2012E, 10% GM) Since 2010, game console sales have been in a downtrend, due to lack of new eye-catching applications. Given the lower gross margin of the assembly business and concern about the downward demand, we are conservative on the future growth of its sales and earnings contribution.

Figure 28: iPhone forecasts, 2010-13E

Figure 29: iPad and total tablet forecasts, 2010-13E

47,487

80,361

110,785

129,950

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2010 2011E 2012E 2013E


Units in (000)

14,789

38,90448,736

59,765

18,000

62,669

78,661

94,065

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2010 2011E 2012E 2013E


Units in (000)

Source: US IT hardware analyst, Ben Reitzes, Barclays Capital estimates Source: US IT hardware analyst, Ben Reitzes, Barclays Capital estimates


6 October 2011 21

Company profile

Since 1990, Foxconn Technology Co. Ltd. has been engaged in the manufacture, research, development and distribution of computer, communication and consumer electronics products. The company mainly provides magnesium and aluminium alloy casings and structures as well as heat sinks for desktops, servers, NB computers and other 3C products and consumer electronics. Its products are used in the manufacture of NBs, phones, projectors, e-readers, digital cameras, servers, workstation heat sinks and household game consoles, among others.

COMPANY FACTS 2010 revenue: US$4.7bn Employees: 80,448 worldwide (June 2011) Headquarters: Taipei, Taiwan Business field: Designs and manufactures thermal modules, Mag/Al casing, mechanic parts, and assembly for NBs, servers and other 3C products.; has more than 15 design, manufacturing and sales sites worldwide Chairman and president: Lee Hang Ming

Figure 30: FTC – foreign investment (%)

Figure 31: FTC – shareholding structure

28

29

29

30

30

31

31

32

32

Aug-10 Oct-10 Jan-11 Mar-11 Jun-11 Aug-11

Foreign Invest.%-TSE

Shareholder Holding %

1 Hon Hai Precision Ind. Co., Ltd 10.1%

2 Pao-Hsin Int'l. Investment 8.7%

3 Hung Yang Venture Investment Co., Ltd 6.1%

4 Hsin-Sheng Investment 5.7%

5 Samoya Shih-Sung 2.9%

6 Hung-Yuan International Investment 2.4%

7 Hung-Ch'i Int'l 2.2%

8 Hsien-Chin International Investment 1.5%

9 Samoya Shang-Chia Investment 1.4%

10 BVISheng-Feng Development 1.3%

Source: TEJ, Barclays Capital Source: TEJ, Barclays Capital


6 October 2011 22

Figure 32: FTC – key historical events

Year Event

1990 Established Q-RUN Technology Co., Ltd. 1992 Burrard Investment Pte Ltd. Singapore and Mr Lin Chung-Dian joined the company as shareholders.

1993 Signed a contract with NCD, US and the company (then Q-Run) was commissioned to develop a 15” high-resolution B/W terminal (SRT-1501).

1994 1) Bought the factory buildings and established Tucheng mill in No. 3, ChungShan, Rd, Tucheng city, Taipei county; 2) became a public company with the approval of the Securities and Futures Commission, Ministry of Finance.

1995 1) Finished developing MONIPUTER(PM1550), the first multimedia computer of its kind, which integrated rotation mount, fax machine, modem, telephone answering, video decompression (MPEG) card, sound card and TV function into one; 2) WIN, one of the top three magazines in Germany, chose SRC-1502 as the winner for its excellent quality in 15” models after a careful evaluation.

1996 Listed on the Taiwan Stock Exchange. 1998 Obtained ISO-14001 Environmental Management System certification from TUV Rheinland Taiwan.

1999 1) Established R&D department to carry out the R&D of desktop computers and video products; 2) signed a supply agreement with Compaq Computer Corp. FTC began to supply desktop computers for Compaq.

2000 RD department succeeded in developing analog board, down converter board and video board and Foxconn Tech started manufacturing PCBA for iMAC computers.

2004 Merged Foxconn Precision Components Co., Ltd; renamed Q-RUN Technology Co., Ltd. To Foxconn Technology Co., Ltd. 2005 Increased capital to NT$5,621,350,000 through retained earnings. 2006 Increased capital to NT$6,537,870,000 through retained earnings. Increased capital increase to NT$5,065,000,000 through retained earnings.



6 October 2011 23

Figure 33: FTC – quarterly income statement, 1Q10-4Q13E

(NT$mn) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2009 2010 2011E 2012E 2013E

Sales 32,964 30,113 33,251 40,396 35,643 24,034 31,936 37,475 35,499 36,797 38,110 38,795 39,420 40,864 39,815 39,815 155,059 136,724 129,088 149,201 159,915

COGS -29,951 -27,140 -29,559 -35,245 -32,412 -21,215 -27,950 -32,908 -30,971 -32,067 -33,118 -33,666 -34,166 -35,321 -34,377 -34,377 -142,239

-121,896

-114,484

-129,821

-138,240

Gross profit 3,013 2,973 3,692 5,150 3,231 2,819 3,986 4,567 4,528 4,730 4,992 5,130 5,255 5,543 5,438 5,438 12,820 14,828 14,604 19,380 21,675

Operating expenses -1,167 -930 -1,344 -1,918 -1,217 -873 -1,127 -1,327 -1,427 -1,487 -1,533 -1,533 -1,461 -1,461 -1,461 -1,461 -4,861 -5,360 -4,544 -5,981 -5,845

Operating income 1,846 2,042 2,348 3,232 2,015 1,946 2,859 3,240 3,101 3,243 3,459 3,596 3,793 4,082 3,977 3,977 7,959 9,468 10,060 13,399 15,830

Non-op income -109 -62 170 147 527 114 4 150 114 114 114 114 114 114 114 114 35 146 794 455 455

Pre-tax income 1,737 1,980 2,518 3,379 2,541 2,060 2,863 3,390 3,214 3,356 3,573 3,710 3,907 4,196 4,091 4,091 7,993 9,614 10,854 13,854 16,284

Tax or credits -299 -657 -401 -648 -264 -717 -630 -746 -707 -738 -786 -816 -742 -797 -777 -777 -1,731 -2,004 -2,356 -3,048 -3,094

Net income 1,438 1,323 2,117 2,732 2,277 1,343 2,233 2,644 2,507 2,618 2,787 2,894 3,165 3,399 3,314 3,314 6,263 7,610 8,498 10,806 13,190

EPS (NT$) 1.23 1.14 1.82 2.34 1.95 1.15 1.91 2.26 2.14 2.24 2.38 2.47 2.70 2.90 2.83 2.83 5.40 6.53 7.26 9.23 11.27

Margin analysis (%)

Gross profit 9.1% 9.9% 11.1% 12.7% 9.1% 11.7% 12.5% 12.2% 12.8% 12.9% 13.1% 13.2% 13.3% 13.6% 13.7% 13.7% 8.3% 10.8% 11.3% 13.0% 13.6%

Operating profit 5.6% 6.8% 7.1% 8.0% 5.7% 8.1% 9.0% 8.6% 8.7% 8.8% 9.1% 9.3% 9.6% 10.0% 10.0% 10.0% 5.1% 6.9% 7.8% 9.0% 9.9%

Net profit 4.4% 4.4% 6.4% 6.8% 6.4% 5.6% 7.0% 7.1% 7.1% 7.1% 7.3% 7.5% 8.0% 8.3% 8.3% 8.3% 4.0% 5.6% 6.6% 7.2% 8.2%

y/y (%)

Sales -16.8% -7.2% -3.9% -16.6% 8.1% -20.2% -4.0% -7.2% -0.4% 53.1% 19.3% 3.5% 11.0% 11.1% 4.5% 2.6% -3.0% -11.8% -5.6% 15.6% 7.2%

Gross profit 60.2% -5.7% 8.7% 17.3% 7.3% -5.2% 8.0% -11.3% 40.1% 67.8% 25.2% 12.3% 16.0% 17.2% 8.9% 6.0% -3.8% 15.7% -1.5% 32.7% 11.8%

Operating income 98.1% 19.1% -5.9% 14.8% 9.1% -4.7% 21.8% 0.3% 53.9% 66.6% 21.0% 11.0% 22.3% 25.9% 15.0% 10.6% -3.8% 19.0% 6.3% 33.2% 18.1%

Net income 58.0% 49.7% 6.9% 9.8% 58.4% 1.5% 5.5% -3.2% 10.1% 94.9% 24.8% 9.4% 26.2% 29.8% 18.9% 14.5% 1.0% 21.5% 11.7% 27.2% 22.1%

EPS (NT$) 57.3% 49.0% 6.4% 9.3% 57.7% 1.1% 5.0% -3.6% 10.1% 94.9% 24.8% 9.4% 26.2% 29.8% 18.9% 14.5% -0.4% 20.9% 11.2% 27.2% 22.1%

q/q (%)

Sales -31.9% -8.6% 10.4% 21.5% -11.8% -32.6% 32.9% 17.3% -5.3% 3.7% 3.6% 1.8% 1.6% 3.7% -2.6% 0.0%

Gross profit -31.4% -1.3% 24.2% 39.5% -37.3% -12.8% 41.4% 14.6% -0.9% 4.5% 5.6% 2.7% 2.4% 5.5% -1.9% 0.0%

Operating income -34.5% 10.6% 14.9% 37.7% -37.7% -3.4% 46.9% 13.3% -4.3% 4.6% 6.7% 4.0% 5.5% 7.6% -2.6% 0.0%

Net income -42.2% -8.0% 60.0% 29.0% -16.6% -41.0% 66.3% 18.4% -5.2% 4.4% 6.5% 3.8% 9.4% 7.4% -2.5% 0.0%

EPS (NT$) -42.5% -8.0% 60.0% 29.0% -17.0% -41.0% 66.3% 18.4% -5.2% 4.4% 6.5% 3.8% 9.4% 7.4% -2.5% 0.0%



6 October 2011 24

Figure 34: FTC – income statement, 2009-13E

Year-end 31 Dec (NT$mn) 2009 2010 2011E 2012E 2013E

Total revenue 155,059 136,724 129,088 149,201 159,915 COGS (142,239) (121,896) (114,484) (129,821) (138,240)Gross profit 12,820 14,828 14,604 19,380 21,675 Operating expenses (4,861) (5,360) (4,544) (5,981) (5,845)EBITDA 11,979 13,451 14,831 17,875 20,414 Depreciation (4,021) (3,983) (4,771) (4,476) (4,584)Amortisation - - - - - EBIT 7,959 9,468 10,060 13,399 15,830 Interest income 138 189 260 341 341 Interest expense (533) (326) (193) (176) (176)Net Interest income/expense (395) (137) 67 164 164 Gains on disposals 746 447 (43) (185) (185)Net associated profits 75 (38) (97) (130) (130)Profit before tax 7,993 9,614 10,854 13,854 16,284 Tax (1,731) (2,004) (2,356) (3,048) (3,094)Profit after tax 6,263 7,610 8,498 10,806 13,190 Minority interest - - - - - Net profit 6,263 7,610 8,498 10,806 13,190 Average weighted ordinary shares 972 1,113 1,113 1,113 1,113 EPS (NT$) 5.40 6.53 7.26 9.23 11.27 Fully diluted EPS (NT$) 5.40 6.53 7.26 9.23 11.27 Source: Company data, Barclays Capital estimates

Figure 35: FTC – balance sheet, 2009-13E


Cash and equivalent 22,508 18,266 25,003 36,912 50,328 Short-term investments 53 26 0 0 0 Receivables 28,593 27,861 27,898 28,881 29,640 Inventory 4,882 5,447 20,476 20,948 21,390 Other current assets 5,196 8,803 3,425 3,425 3,425 Total current assets 61,232 60,402 76,802 90,166 104,784 Net fixed assets 23,039 21,770 18,747 15,178 11,500 Intangible assets - - - - - Other assets 778 756 1,756 4,556 8,556 Associates & other LT investments 11,205 9,625 5,406 5,773 6,140 Total other assets 35,022 32,151 25,909 25,507 26,196 Total assets 96,254 92,552 102,711 115,673 130,981 Short term debt 4,168 3,911 8,710 11,037 13,365 Payables 17,418 18,436 27,423 28,055 28,647 Current portion of LT liabilities 12,351 1,171 575 575 575 Other current liabilities 12,961 14,555 9,779 9,779 9,779 Total current liabilities 46,898 38,074 46,487 49,446 52,366 Long-term debt 1,280 2,062 2,151 2,270 2,389 Other liabilities 337 2,058 1,324 1,324 1,324 Total other liabilities 1,617 4,120 3,475 3,594 3,714 Total liabilities 48,515 42,193 49,962 53,041 56,080 Share capital 9,720 11,130 11,130 11,130 11,130 Share premium and other reserves 36,672 40,839 43,281 52,987 65,077 Minority Interest - - - - - Others 1,347 (1,610) (1,662) (1,485) (1,307)Total equity 47,740 50,359 52,749 62,632 74,901 Total liabilities and equity 96,254 92,552 102,711 115,673 130,981 Source: Company data, Barclays Capital estimates


6 October 2011 25

Figure 36: FTC – cash flow statement, 2009-13E


Net profit 6,263 7,610 8,498 10,806 13,190 Depreciation 4,021 3,983 4,771 4,476 4,584 Amortisation - - - - - Associate share of (profits)/loss (75) 38 97 130 130 Total gross cash flow 10,208 11,630 13,366 15,411 17,904 Change in total working capital 7,024 (800) (5,452) (823) (609)Total operating cash flow 17,232 10,831 7,914 14,588 17,295 Capex less disposals (631) (2,713) (1,748) (907) (907)Change in other assets 154 22 (1,000) (2,800) (4,000)Change in associates (5,691) 1,542 4,122 (497) (497)Total investment cash flow (6,169) (1,149) 1,374 (4,203) (5,403)Change in gross debt (7,573) (10,654) 4,291 2,447 2,447 Change in other long-term liabilities 37 1,721 (733) - - Change in equity 4,365 (4,990) (6,108) (922) (922)Total financing cash flow (3,171) (13,923) (2,550) 1,525 1,525 Total cash flow 7,892 (4,242) 6,737 11,909 13,416 Cash balance at beginning of the year 14,615 22,508 18,266 25,003 36,912 Cash balance at end of the year 22,508 18,266 25,003 36,912 50,328 Source: Company data, Barclays Capital estimates


6 October 2011 26

Figure 37: FTC – key financial metrics (2009-13E)


Profitability

Gross margin (%) 8.27 10.85 11.31 12.99 13.55

Operating margin (%) 5.13 6.92 7.79 8.98 9.90

Pre-tax margin (%) 5.16 7.03 8.41 9.29 10.18

Net margin (%) 4.04 5.57 6.58 7.24 8.25

Financial Cash (NT$mn) 22,508 18,266 25,003 36,912 50,328 ST debt (NT$mn) 4,168 3,911 8,710 11,037 13,365 LT debt (NT$mn) 13,631 3,233 2,726 2,845 2,964 Net debt (NT$mn) (4,709) (11,121) (13,567) (23,030) (33,999)Net debt/equity (%) (9.9) (22.1) (25.7) (36.8) (45.4)Debt/equity (%) 37.3 14.2 21.7 22.2 21.8 Current ratio (x) 1.3 1.6 1.7 1.8 2.0 Quick ratio (x) 1.1 1.2 1.1 1.3 1.5

Economic value

NOPAT (NT$mn) 6,228 7,464 7,704 10,351 12,736

Total capital (NT$mn) 65,539 57,504 64,185 76,515 91,230

Gross debt/capital (%) 27.2 12.4 17.8 18.1 17.9

Equity/capital (%) 72.8 87.6 82.2 81.9 82.1

Valuation

P/E (x) 18.3 15.2 13.6 10.7 8.8

P/B (x) 2.0 2.2 2.1 1.8 1.5

P/CFPS (x) 5.6 10.2 13.9 7.6 6.4

EV/sales (x) 0.8 0.8 0.8 0.7 0.5

EV/EBITDA (x) 9.7 8.2 7.3 5.5 4.3

EV/EBIT (x) 14.7 11.6 10.7 7.3 5.5

Performance

ROA (%) 6.7 8.1 8.7 9.9 10.7

ROE (%) 14.8 15.5 16.5 18.7 19.2

ROIC (%) 11.2 11.8 9.8 11.7 12.6

Asset turnover (x) 1.7 1.4 1.3 1.4 1.3

Working capital/sales (%) 9.2 16.3 23.5 27.3 32.8

Inventory processing days 19.2 15.5 41.3 58.2 55.9

A/R collection days 71.4 75.4 78.8 69.5 66.8

A/P payment days 49.0 53.7 73.1 78.0 74.9

Coverage

Interest coverage 22.5 41.3 77.0 101.5 115.9

Value per share (NT$)

Earnings per share 5.40 6.53 7.26 9.23 11.27

Book value per share 49.11 45.25 47.39 56.27 67.30

Sales per share 159.52 122.84 115.98 134.05 143.68

Cash flow per share 17.73 9.73 7.11 13.11 15.54

Gross cash per share 23.16 16.41 22.46 33.16 45.22

Net cash per share 4.84 9.99 12.19 20.69 30.55



6 October 2011 27

SHIN ZU SHING (2-EW; PT NT$58; 4% POTENTIAL DOWNSIDE): EXPECTING ULTRA-THIN NBS TO TURN CANNIBALIZATION AROUND

We initiate coverage of hinge manufacturer SZS with a 2-Equal Weight rating and 12-month price target of NT$58. We expect 2011 to be a tough year for the hinge providers due to the following: 1) cannibalization brought on by the tablet boom and 2) price-erosion from competition for conventional NBs. We see the MacBook Air/Pro and the potential from ultrabooks as helping to sustain and slightly ease this cannibalization impact. In our view, the significant potential from ultrabooks and ultra-thin NBs (such as Apple’s MacBook Air/Pro) will be the lifesaver for the hinge manufacturers in 2012, and we expect SZS with its advanced experience and technology in hollow-type hinges (which have a higher entry barrier) for Apple products – to maintain its lead on the back of this boom.

Ultrabooks and ultra-thin (MacBook Air/Pro) NBs appear the lifesavers for higher-end hollow-type hinges for three reasons: 1) SZS holds the lead in terms of market share of hinges (45-50% of total NBs), yield rate and technology; 2) it is also the major hinge supplier to Apple’s MacBook Air/Pro (90%+ share) due to its higher yield rate and reliability; and 3) the hollow-type hinge is also one of the keys to making NBs thinner (saving more space by allowing the antenna to be put inside the hinge.

For 2012, we forecast EPS growth of 25% y/y, based on the following: 1) inventory write-offs by year-end 2011; 2) adoption of hollow-type hinges for ultrabooks; and 3) its high dominant market share of hinges for Apple’s MacBook Air/Pro should help SZS maintain its sales and earnings growth momentum.

Potential inventory write-off significant to 2012 outlook Because of weak NB demand in 2011, SZS may be suffering from inventory overbuild. We would welcome any move by the company to write off inventory, which would improve its 2012 outlook. Should this take place, we would expect the share price to strength by 12% by end-2011.

Figure 38: SZS – statistical abstract

Year to Net profit EPS EPS P/E P/B ROE Div. yield31-Dec (NT$mn) (NT$) growth (%) (x) (x) (%) (%)

2009A 1,443 9.70 15.9% 6.4 1.2 21.6 8.88 2010A 743 4.71 -51.4% 13.1 1.3 9.8 4.85 2011E 613 3.87 -17.4% 16.0 1.5 8.7 4.04 2012E 768 4.85 25.2% 12.8 1.5 11.7 4.85 2013E 769 4.85 0.1% 12.8 1.5 12.0 4.85


3376 TT / 3376.TW

Stock Rating 2-EQUAL WEIGHT


Price Target TWD 58.00

Price (05-Oct-2011) TWD 60.40

Potential Upside/Downside -4%


6 October 2011 28

COMPANY SNAPSHOT

3376 TT Shin Zu Shing Asia ex-Japan IT Hardware

Income statement (NT$mn) 2010A 2011E 2012E 2013E CAGRRevenue 6,673 8,301 9,391 9,774 13.6% Stock Rating 2-EQUAL WEIGHTEBITDA 1,295 1,141 1,343 1,373 2.0% Sector View 2-NEUTRALEBIT 957 741 918 919 -1.4% Price (05-Oct-2011) NT$60.4Pre-tax income 903 831 1,012 1,013 3.9% Price Target NT$58Net income 743 613 768 769 1.1% Ticker 3376 TT/3376.TWEPS (NT$) 4.71 3.87 4.85 4.85 1.0%Diluted EPS (NT$) 4.69 3.87 4.85 4.85 1.1% Investment case

Diluted shares (mn) 149 158 158 158 2.0%Dividend per share (NT$) 3.00 2.50 3.00 3.00 0.0%

Margin and return data (%) AverageGross margin 23.7 18.6 18.8 18.3 19.8 EBITDA margin 19.4 13.7 14.3 14.0 15.4 EBIT margin 14.3 8.9 9.8 9.4 10.6 Pre-tax margin 13.5 10.0 10.8 10.4 11.2 Net margin 11.1 7.4 8.2 7.9 8.6 Upside case NT$65ROIC 8.7 5.3 6.8 6.9 6.9 ROA 6.5 5.1 6.0 6.1 5.9 ROE 9.8 8.7 11.7 12.0 10.5

Balance sheet and cash flow statement (NT$mn) CAGRTangible fixed assets 2,350 2,222 2,037 1,823 -8.1%Intangible f ixed assets 67 66 66 66 -0.4%Cash and equivalents 4,256 4,828 4,721 4,760 3.8% Downside case NT$51Total assets 11,342 12,739 12,660 12,535 3.4%Short- and long-term debt 1,615 3,097 3,097 3,097 24.2%Net debt/(funds) (2,640) (1,731) (1,623) (1,662) NAOther long-term liabilities 360 360 360 360 0.0%Total liabilities 3,880 6,082 6,157 6,186 16.8%Shareholders' equity 7,462 6,657 6,503 6,349 -5.2%Change in working capital (420) (88) (139) (21) NACash from operations 660 925 1,054 1,201 22.1% Upside/downside scenarios

Capital expenditure (273) (271) (240) (240) NAFree cash flow 155 508 815 961 83.9%

Valuation and leverage metrics AverageP/E (x) 13.1 16.0 12.8 12.8 13.7 EV/EBITDA (x) 4.9 6.4 5.5 5.4 5.6 FCF yield (%) 1.6 5.2 8.3 9.8 6.2 P/B (x) 1.3 1.5 1.5 1.5 1.5 Dividend yield (%) 4.8 4.0 4.8 4.8 4.6 Total debt/capital (%) 17.8 31.8 32.3 32.8 28.7 Source: Thomson Reuters Datastream, Barclays Capital est.

Net debt/equity (%) (35.4) (26.0) (25.0) (26.2) (28.1) Revenue and EPS, 2010-13E

Selected operating metricsInventory days 51 53 57 56 Accounts receivable days 151 136 133 131 Accounts payable days 83 78 77 76 Cash-conversion cycle 119 111 114 112

Source: Company data, Barclays Capital estimates Note: FY end Dec.

If ultrabook demand is lower than expected, salescould decline 10% more than we model in 2012,driving the price to NT$51, on a P/E of 12x 2012Elower EPS of NT$4.25

Why a 2-Equal Weight? Although we believe 2011will be the toughest year for the hinge providers,because of tablet cannabilzation, we expect thepotential adoption rate of higher-end hinges on thin-type NBs to help sustain both sales and earningsgrowth momentum for SZS in 2012E.

The shares could rise above our PT if ultrabookdemand in 2012 impacts sales +10% more, drivingthe price to NT$65, on a P/E of 12x 2012E higherEPS of NT$5.41

02468

1012

2010A 2011E 2012E 2013E

0123456Revenue EPS (NT$)NT$bn NT$

DownsideCase

NT$51(-18.0%)

PriceTarget

NT$58(-6.85%)

UpsideCase

NT$65(4.3%)

24

44

64

84

104

29-Sep-10 9-Sep-11

DownsideCase

NT$51(-15.1%)

PriceTarget

NT$58(-3.68%)

UpsideCase

NT$65(7.8%)

24

44

64

84

104

29-Sep-10 9-Sep-11


6 October 2011 29

Valuation

Our 12-month price target for SZS is NT$58. We value SZS by using a P/E multiple of 12x (with normal trading cycle (10-24x) of 12x, We apply our target multiple for our EPS forecast of NT$4.85 for 2012. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks. Although tablet cannibalization could negatively impact growth of NB hinge sales, we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E.

Our price target represents potential downside of 4%, which we estimate is in line with SZS’s peer group; therefore, we assign a 2-Equal Weight rating.

Risks

Upside risks: The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum.

Downside risks: The key risks to the downside that could prevent our price target from being achieved, in our view, are the following: 1) lower-than-expected demand for ultrabooks and MacBook Air/Pro could negatively impact the expected sales growth momentum in 2012 and 2) a lower-than-expected ultra-thin (hollow) hinge adaption rate for NBs due to limited budgets for implementation of higher-end specs.

Price-erosion competition never-ending, but the yield rate makes the difference With increasingly more participants in the conventional NB hinge supply chain, APSs and GMs have been declining. However, due to its higher yield rate and reliability, SZS continues to be the market share leader with 45-50% of total NBs and 90%-plus of MacBook Air/Pro. SZS was not the sole supplier to Apple at first; however, as the other suppliers are no longer able to afford the low yield rate, it is now increasing its market share.

Figure 39: SZS – sales contributions, 2012E

Figure 40: SZS – hinge sales contributions, 2012E

Others18%

Hinges82%

NBs60%

TV/ monitors/

AIOs26%

Consumer electronics

9%

Others5%



6 October 2011 30

Earnings outlook for 2011E-12E

Apple MacBook Air/Pro and ultrabooks to drive SZS sales We believe SZS is set to benefit from the forecast growth in ultrabook sales. SZS is the main supplier of hinges for MacBook Air/Pro, and most top-tier brand makers are launching ultrabooks using SZS’s solution. Indeed, the company is in the development stage for new models for 2012E.

Figure 41: SZS – sales revenue, 2006-13E

4,0385,140

6,4067,029 6,673

8,3019,391 9,774

0

2,000

4,000

6,000

8,000

10,000

12,000

2006 2007 2008 2009 2010 2011E 2012E 2013E

sales revenue

NT$ mn


Figure 42: SZS – ROE, 2010-13E

Figure 43: SZS – EPS, 2010-13E

9.808.69

11.67 11.96

0

2

4

6

8

10

12

14

2010 2011E 2012E 2013E

%, ROE 2010-13E

4.71

3.87

4.85 4.85

0

1

2

3

4

5

6

2010 2011E 2012E 2013E

EPS 2010-13E

NT$



6 October 2011 31

Figure 46: SZS – share price performance

0

20

40

60

80

100

120

140

160

180

Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10

-60

-40

-20

0

20

40

60

80

Sales, % ch YoY, 3MMA (RHS) Share price (NT$) (LHS)

NT$ y/y %

Source: TEJ, Barclays Capital

Sensitivity analysis – sales and operating margins

We analyze the sensitivity of our forecast for SZS’s EPS 2012 to examine and support our view that its risk-reward profile is positive under various scenarios. We conclude that two major factors affecting EPS are 1) sales and 2) operating margins.

Our base-case scenario calls for sales of NT$9.4bn for 2012 (up 13% y/y) and an operating margin of 9.8% (up from 8.9% for 2011E), representing EPS of NT$4.85. We conclude the following:

Worst-case scenario: Quarterly volumes would remain flat and the operating margin would turn out to be lower than we forecast.

Base-case scenario: On our earnings forecasts, SZS still follows the pattern of the Apple products and ultrabook boom going forward. We could see further upside to earnings revisions after that.


Figure 44: SZS – 12M forward P/E

Figure 45: SZS – 12M forward P/B

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6 October 2011 32

Figure 47: SZS – sensitivity analysis to Barclays Capital’s EPS forecast for 2012 based on sales and operating margin

Revenue of NT$9.4bn, 2012E

-10% -5% 0% 5% 10%

+1.5%-pts 5.07 5.40 5.74 6.07 6.41

+1.0%-pts 4.80 5.12 5.44 5.76 6.08

+0.5%-pts 4.54 4.84 5.14 5.45 5.75

Base case 4.27 4.56 4.85 5.14 5.43

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-1.5%-pts 3.47 3.71 3.96 4.20 4.45


Figure 48: SZS – sensitivity analysis to Barclays Capital price target for 2012 based on sales and operating margin

Revenue of NT$9.4bn, 2012E

-10% -5% 0% 5% 10%

+1.5%-pts 61 65 69 73 77

+1.0%-pts 58 61 65 69 73

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Catalysts

Near-term catalysts High exposure to Apple (MacBook Air/Pro) in 2011-12E: We expect SZS to continue to deliver strong absolute growth, both in terms of revenue/profit and share price performance, despite recent weakness in the PC industry and tablet cannibalization. In terms of volume, SZS should benefit from being the major hinge components supplier for Apple’s MacBook Air/Pro.

Long-term catalysts – higher-end hinges for ultra-thin NBs We expect ultrabooks and ultra-thin NBs to be the lifesavers for higher-end hinge makers: SZS is the hinge leader in terms of market share (45-50% of total NBs), yield rates and technology. And, because of its higher yield rates and reliability, it is the major hinge supplier for Apple’s MacBook Air/Pro (90%+ share). In addition, the hollow-type hinge is also one of the keys to thinner NBs (saves space by allowing the antenna to be put inside the hinge).


6 October 2011 33

Potential inventory write-off significant for outlook for 2012: We believe SZS suffers from inventory overbuild in 2011 due to weak NB demand so any potential move to write off inventory this year would help our outlook for 2012. Should this take place, 2011 could turn out to be a tough year for SZS and could result in some short-term weakness for its stock price at year-end.

The competitive situation

Hinges (82% of total sales for 2012E, 18% GM) With the dramatic trend of declining ASPs since 2010 due to price competition, SZS’s gross margin shrank from 32% for 2009 to 18% currently. We believe it will be difficult for the company to return its gross margin to the previous level with new entrants cutting prices to gain share in the NB market.

Figure 49: SZS’s competition – market share of NBs in 2012E, %

SZS45%

Sin Her20%

Jarlly15%

Lian Hong15%

others5%


Price-erosion competition never-ending, but the yield rate makes the difference

With increasingly more participants in the conventional NB hinge supply chain, ASPs and GMs have been declining. SZS, however, with its high yield rates and reliability, continues to be the market share leader – 45-50% of total NBs and 90%+ of Apple’s MacBook Air/Pro (SZS was not the sole supplier to Apple in the beginning, but since the other suppliers can no longer afford the low yield rates, SZS’s share is increasing).

Figure 50: SZS – hinges expected to account for 82% of total sales in 2012

Notebook & tablet PCs LCD monitors 3C MIM hinges



6 October 2011 34

Others (18% of total sales for 2012E, 20% GM) SZS also manufactures key parts for hinge modules – springs, stampings, lathes and plastics – rather than fully rely on outsourcing.

Figure 51: SZA – others expect to account for 18% of total sales for 2012

Springs Stampings Lathes Plastics


Company profile

SZS was founded in 1965 by Ming Wen Lu and Sheng Nan Lu in San Chung City, Taiwan, to manufacture a variety of springs. Then, in 1981, it began manufacturing progressive dies, moulds and stamping-related tooling. In 1990, SZS foresaw the growing importance of hinges. Given its ample knowledge of precision mould development and production, it launched new hinge research and development. In effect, the company realigned itself toward the production of hinges and related products. SZS provides 1) hinge products, which include commercial NB PC hinges, industrial hinges, military NB PC hinges, liquid crystal display (LCD) monitor hinges, personal digital assistant (PDA) hinges, LCD television hinges and electronic dictionary hinges, among others; 2) spring products, which are applied primarily in computers, electronic products, optical products, household electric appliances, information products, communication products, instruments, automobiles and bicycles; and 3) stamping products, which include stamping components and profiled products, as well as related components and accessories. By 1999, SZS had positioned itself as a preferred hinge supplier to ODM/EMS/brand PCs.

COMPANY FACTS 2010 revenue: NT$6.6bn Employees: 6,185 worldwide (June 2011) Headquarters: Taipei, Taiwan Worldwide service: Taiwan, Singapore, Suzhou, Shenzeng, Guangdong Chairman and president: Lu Sheng Nan

Figure 52: SZS – foreign investment (%) Figure 53: SZS – shareholding structure

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Shareholder Holding %

1 Lu Sheng Nan 10.0%

2 Lu Min Wen 5.8%

3 Lu Yu Ch'eng 3.0%

4 Lu P'ei Fang 2.9%

5 Lu Tsun Hung--a 2.7%

6 Lu Yu Shu 2.0%

7 Lu Wen Ying 1.9%

8 Juan Ming Hui 1.8%

9 Lu You Lin-(a) 1.6%

10 Shin Kong Life Insurance Co., Ltd 1.3%

Source: TEJ, Barclays Capital Source: TEJ, Barclays Capital


6 October 2011 35

Figure 54: SZS – key historical events

Year Event

1965 Min-Wen Lu and Sheng-Nan Lu co-founded Shin Shing Springs Factory in San Chung city, Taiwan.

1968 The company adopted the name: Shin Zu Shing Spring and Mechanical Co., Ltd. when it entered into a technical cooperation agreement with with Riken Co., Japan.

1973 Expansion led to the relocation of SZS to Su Lin city, Taiwan.

1981 Launched progressive die and mold manufacturing, and tool manufacturing that was related to stampings.

1990 Established a department focused on the research and development of hinges. Designed and received the first international patent for notebook PC hinges. Launched a hinge-assembly line and established itself as an OEM and ODM for notebook PCs.

1993 Granted an "AA" grade Award company from Matsushita company, Taiwan.

1995 Awarded ISO 9002 status.

1997 Adopted the name: Shin Zu Shing Co., Ltd.

1999 Established itself as the largest hinge provider for notebook PCs in Taiwan .

2001 Awarded ISO 9001 status. (2000 rev)

2004 SZS Financial Supervisory Commission approved the request for a public offering.

2004 Investment Commission approved the establishment of a subsidiary firm: SZS Precision Electronic Co., Ltd was located in Su Zhou , China .

2004 Awarded ISO 14001 status.

2005 OTC approved initial public offering of SZS.

2007 Awarded IECQ QC080000 status 2009 Selected for “Asia's Fastest-Growing Small Companies: The Top 10” in 2008 by BusinessWeek



6 October 2011 36

Figure 55: SZS – quarterly income statement, 1Q10-4Q13E

(NT$mn) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2009 2010 2011E 2012E 2013E

Sales 1,534 1,554 1,539 2,045 1,860 2,019 2,108 2,314 2,120 2,424 2,424 2,424 2,444 2,444 2,444 2,444 7,029 6,673 8,301 9,391 9,774

COGS -1,109 -1,157 -1,250 -1,576 -1,525 -1,651 -1,704 -1,879 -1,721 -1,969 -1,969 -1,969 -1,995 -1,995 -1,995 -2,004 -4,745 -5,092 -6,759 -7,628 -7,989

Gross profit 425 398 289 468 335 369 404 435 399 455 455 455 448 448 448 440 2,284 1,580 1,543 1,763 1,785

Operating expenses -125 -132 -159 -208 -182 -187 -202 -232 -202 -210 -217 -217 -217 -217 -217 -217 -581 -623 -802 -845 -866

Operating income 301 266 131 261 153 182 203 203 197 245 238 238 232 232 232 223 1,703 957 741 918 919

Non-op income -10 18 -6 -56 27 -38 52 47 30 -36 52 47 30 -36 52 47 68 -54 89 94 94

Pre-tax income 291 284 124 204 180 145 255 250 227 209 291 285 262 196 284 270 1,771 903 831 1,012 1,013

Tax or credits -67 -38 -7 -49 -77 -69 -36 -35 -55 -49 -71 -69 -63 -46 -69 -66 -328 -160 -217 -244 -244

Net income 224 246 117 156 104 75 219 215 172 160 220 216 198 150 215 205 1,443 743 613 768 769

EPS (NT$) 1.42 1.56 0.74 0.99 0.66 0.48 1.38 1.36 1.08 1.01 1.39 1.36 1.25 0.95 1.36 1.29 9.66 4.69 3.87 4.85 4.85

Margin analysis (%)

Gross profit 27.7% 25.6% 18.8% 22.9% 18.0% 18.3% 19.2% 18.8% 18.8% 18.8% 18.8% 18.8% 18.4% 18.4% 18.4% 18.0% 32.5% 23.7% 18.6% 18.8% 18.3%

Operating profit 19.6% 17.1% 8.5% 12.7% 8.2% 9.0% 9.6% 8.8% 9.3% 10.1% 9.8% 9.8% 9.5% 9.5% 9.5% 9.1% 24.2% 14.3% 8.9% 9.8% 9.4%

Net profit 14.6% 15.8% 7.6% 7.6% 5.6% 3.7% 10.4% 9.3% 8.1% 6.6% 9.1% 8.9% 8.1% 6.1% 8.8% 8.4% 20.5% 11.1% 7.4% 8.2% 7.9%

y/y (%)

Sales 4.2% -18.8% -20.7% 20.2% 21.2% 29.9% 36.9% 13.2% 14.0% 20.0% 15.0% 4.7% 15.3% 0.8% 0.8% 0.8% 9.7% -5.1% 24.4% 13.1% 4.1%

Gross profit -14.4% -41.2% -55.2% 0.7% -21.3% -7.3% 39.7% -7.1% 19.1% 23.3% 12.5% 4.5% 12.5% -1.4% -1.4% -3.3% 7.9% -30.8% -2.4% 14.3% 1.3%

Operating income -19.8% -51.2% -72.7% -14.8% -49.1% -31.4% 55.3% -22.0% 28.6% 34.4% 17.5% 17.2% 17.7% -5.3% -2.7% -6.3% 11.4% -43.8% -22.6% 23.9% 0.1%

Net income -35.3% -37.6% -73.4% -40.2% -53.7% -69.3% 86.7% 38.0% 65.3% 112.0% 0.5% 0.6% 15.4% -6.2% -2.2% -5.2% 21.7% -48.5% -17.4% 25.2% 0.1%

EPS (NT$) -38.9% -41.2% -74.9% -43.6% -53.9% -69.4% 85.9% 37.4% 65.3% 112.0% 0.5% 0.6% 15.4% -6.2% -2.2% -5.2% 15.9% -51.4% -17.4% 25.2% 0.1%

q/q (%)

Sales -9.8% 1.3% -1.0% 32.8% -9.1% 8.6% 4.4% 9.8% -8.4% 14.3% 0.0% 0.0% 0.8% 0.0% 0.0% 0.0%

Gross profit -8.5% -6.5% -27.2% 61.8% -28.5% 10.2% 9.6% 7.6% -8.4% 14.1% 0.0% 0.0% -1.4% 0.0% 0.0% -1.9%

Operating income -1.7% -11.7% -50.9% 99.7% -41.2% 18.9% 11.3% 0.3% -3.1% 24.3% -2.7% 0.0% -2.7% 0.0% 0.0% -3.7%

Net income -14.0% 9.6% -52.3% 32.7% -33.3% -27.3% 190.2% -1.9% -20.1% -6.8% 37.6% -1.8% -8.4% -24.2% 43.4% -4.9%

EPS (NT$) -18.8% 9.6% -52.3% 32.7% -33.6% -27.3% 190.2% -1.9% -20.1% -6.8% 37.6% -1.8% -8.4% -24.2% 43.4% -4.9%



6 October 2011

Figure 56: SZS – income statement, 2009-13E


Total revenue 7,029 6,673 8,301 9,391 9,774 COGS (4,745) (5,092) (6,759) (7,628) (7,989)Gross profit 2,284 1,580 1,543 1,763 1,785 Operating expenses (581) (623) (802) (845) (866)EBITDA 1,998 1,295 1,141 1,343 1,373 Depreciation (295) (338) (400) (425) (454)Amortisation - - - - - EBIT 1,703 957 741 918 919 Interest income 35 40 62 62 62 Interest expense (60) (27) (33) (33) (33)Net Interest income/expense (26) 13 28 28 28 Gains on disposals 124 (5) (3) 1 1 Net associated profits - - (0) (0) (0)Profit before tax 1,771 903 831 1,012 1,013 Tax (328) (160) (222) (253) (253)Profit after tax 1,443 743 609 759 759 Minority interest - - 4 9 9 Net profit 1,443 743 613 768 769 Average weighted ordinary shares 149 158 158 158 158 EPS (NT$) 9.70 4.71 3.87 4.85 4.85 Fully diluted EPS (NT$) 9.66 4.69 3.87 4.85 4.85 Source: Company data, Barclays Capital estimates

Figure 57: SZS – balance sheet, 2009-13E


Cash and equivalent 5,213 4,256 4,828 4,721 4,760 Short-term investments 3 85 51 51 51 Receivables 2,688 2,823 3,343 3,501 3,530 Inventory 634 802 1,169 1,225 1,247 Other current assets 398 574 529 529 529 Total current assets 8,937 8,540 9,921 10,027 10,116 Net fixed assets 2,415 2,350 2,222 2,037 1,823 Intangible assets 72 67 66 66 66 Other assets 147 384 382 382 382 Associates & other LT investments - - 149 148 148 Total other assets 2,634 2,802 2,819 2,633 2,419 Total assets 11,570 11,342 12,739 12,660 12,535 Short term debt 1,713 1,614 1,658 1,658 1,658 Payables 993 1,328 1,566 1,641 1,670 Current portion of LT liabilities 22 1 - - - Other current liabilities 771 576 1,058 1,058 1,058 Total current liabilities 3,499 3,518 4,283 4,357 4,386 Long-term debt - 1 1,439 1,439 1,439 Other liabilities 370 360 360 360 360 Total other liabilities 370 361 1,800 1,800 1,800 Total liabilities 3,868 3,880 6,082 6,157 6,186 Share capital 1,493 1,584 1,584 1,584 1,584 Share premium and other reserves 6,080 6,019 5,111 4,779 4,448 Minority Interest - - - - - Others 129 (141) (38) 140 317 Total equity 7,702 7,462 6,657 6,503 6,349 Total liabilities and equity 11,570 11,342 12,739 12,660 12,535 Source: Company data, Barclays Capital estimates


6 October 2011

Figure 58: SZS – cash flow statement, 2009-13E


Net profit 1,443 743 613 768 769 Depreciation 295 338 400 425 454 Amortisation - - - - - Associate share of (profits)/loss - - 0 0 0 Total gross cash flow 1,738 1,081 1,013 1,193 1,222 Change in total working capital 158 (420) (88) (139) (21)Total operating cash flow 1,896 660 925 1,054 1,201 Capex less disposals (307) (273) (271) (240) (240)Change in other assets (44) (233) 3 - - Change in associates - - (149) 0 0 Total investment cash flow (350) (506) (417) (240) (240)Change in gross debt (678) (120) 1,482 - - Change in other long-term liabilities 11 (9) 0 - - Change in equity 578 (983) (1,418) (922) (922)Total financing cash flow (89) (1,112) 64 (922) (922)Total cash flow 1,457 (957) 572 (108) 39 Cash balance at beginning of the year 3,757 5,213 4,256 4,828 4,721 Cash balance at end of the year 5,213 4,256 4,828 4,721 4,760 Source: Company data, Barclays Capital estimates


6 October 2011

Figure 59: SZS – key financial metrics, 2009-13E


Profitability

Gross margin (%) 32.49 23.69 18.59 18.77 18.26


Pre-tax margin (%) 25.19 13.54 10.01 10.78 10.36

Net margin (%) 20.52 11.13 7.39 8.18 7.86

Financial Cash (NT$mn) 5,213 4,256 4,828 4,721 4,760 ST debt (NT$mn) 1,713 1,614 1,658 1,658 1,658 LT debt (NT$mn) 22 2 1,439 1,439 1,439 Net debt (NT$mn) (3,478) (2,640) (1,731) (1,623) (1,662)Net debt/equity (%) (45.2) (35.4) (26.0) (25.0) (26.2)Debt/equity (%) 22.5 21.7 46.5 47.6 48.8 Current ratio (x) 2.6 2.4 2.3 2.3 2.3 Quick ratio (x) 2.3 2.0 1.9 1.9 1.9

Economic value

NOPAT (NT$mn) 1,375 797 520 665 666

Total capital (NT$mn) 9,437 9,078 9,754 9,600 9,447


Equity/capital (%) 81.6 82.2 68.2 67.7 67.2

Valuation

P/E (x) 6.4 13.1 16.0 12.8 12.8

P/B (x) 1.2 1.3 1.5 1.5 1.5

P/CFPS (x) 4.9 14.8 10.6 9.3 8.2

EV/sales (x) 0.8 1.0 0.9 0.8 0.8

EV/EBITDA (x) 2.8 4.9 6.4 5.5 5.4

EV/EBIT (x) 3.3 6.7 9.8 8.1 8.0

Performance

ROA (%) 13.1 6.5 5.1 6.0 6.1

ROE (%) 21.6 9.8 8.7 11.7 12.0

ROIC (%) 15.2 8.7 5.3 6.8 6.9

Asset turnover (x) 0.6 0.6 0.7 0.7 0.8




A/P payment days 86.6 83.2 78.1 76.7 75.6

Coverage


Value per share (NT$)



Sales per share 47.07 42.12 52.40 59.27 61.70



Net cash per share 23.29 16.67 10.92 10.25 10.49



6 October 2011

JU TENG (3-UW; PT HK$1.20; 14% POTENTIAL DOWNSIDE): SUFFERING FROM THE MATERIAL MIGRATION

We initiate coverage of Ju Teng (3336 HK) with a 3-Underweight rating and 12-month price target of HK$1.20. Our price target is based on 6x our EPS forecast of HK$0.2 for 2012. With a solid global market share in plastic casings for NB products and leadership in technology for injections, moldings and painting, Ju Teng will likely contiue to maintain its leading position for products using plastic casings. However, we expect a significant slowdown in plastic casings given the trend for metal casing is becoming the mainstream for products such as tablets (Apple’s iPad in particular), thin-type NBs (Apple’s MacBook Air/Pro), high-end smartphones and potential ultrabooks. Thus, we expec a de-rating during the 3-year trend of a switch to metal casing that we forecast for 2010-12E.

Long-term investment thesis

The market share for plastic casing clients is close to being saturated. We estimate that Ju Teng’s major clients account for more than 70% of its sales for 2011 as Ju Teng has been the first source for plastic casings for major top-tier brand makers. We also estimate that Ju Teng’s market share of plastic casings is nearly 40-50% for 2011. Without a strong growth driver, such as tablets and thin-type NBs, upside potential for further share price gains might be limited since the company faces pressure from the boom of metal casing and from competitor such as Foxconn Tech in supplying metal casings for Apple’s iPads and iPhones as well as for other upcoming ultrabooks.

Could Ju Teng catch up with competitors and gain share in the metal casing supply chain? Not likely in 2012, in our view. We believe Ju Teng is the leader of casing design/manufacturing in NB supply chain; however, we expect the major metal casing suppliers like Foxconn Tech and Catcher will take the lead in 2012 due to their 1) existing big scale of production capacity; 2) higher yield rates because of accumulated experience with various clients and products; and 3) their well-recognized market positions in terms of producing quality metal casings.

Figure 60: Ju Teng – statistical abstract

Year to Net profit EPS EPS P/E P/B ROE Div. yield

31-Dec (HKD mn) (HKD) growth (%) (x) (x) (%) (%)

2009A 705 0.66 1% 1.8 0.3 18.7 6.7

2010A 331 0.30 -55% 4.0 0.3 6.8 6.7

2011E 226 0.20 -32% 6.0 0.3 4.2 1.7

2012E 229 0.20 1% 5.9 0.3 4.1 1.7

2013E 230 0.20 1% 5.9 0.3 4.0 1.7


3336 HK / 3336.HK

Stock Rating 3-UNDERWEIGHT


Price Target HKD 1.20

Price (05-Oct-2011) HKD 1.40

Potential Upside/Downside -14%


6 October 2011

COMPANY SNAPSHOT

Juteng Asia ex-Japan IT Hardware

Income statement (HK$mn) 2010A 2011E 2012E 2013E CAGRRevenue 7,166 7,310 7,346 7,346 0.8% Stock Rating 3-UNDERWEIGHTEBITDA 781 658 681 704 -3.4% Sector View 2-NEUTRALEBIT 363 219 220 220 -15.3% Price (05-Oct-2011) 1.4Pre-tax income 420 294 300 305 -10.1% Price Target 1.2Net income 331 226 229 230 -11.5% Ticker 3336 HK/3336.HKEPS (HK$ cents) 29.6 20.0 20.2 20.3 -11.8%Diluted EPS (HK$ cents) 28.4 19.8 20.0 20.1 -10.9% Investment case

Shares (mn) 1,119 1,133 1,133 1,133 0.4%Dividend per share (HK$ cents 8.0 2.0 2.0 2.0 -36.7%

Margin and return data (%) AverageGross margin 12.0 8.5 8.0 8.0 9.1EBITDA margin 10.9 9.0 9.3 9.6 9.7EBIT margin 5.1 3.0 3.0 3.0 3.5Pre-tax margin 5.9 4.0 4.1 4.2 4.5Net margin 4.6 3.1 3.1 3.1 3.5 Upside case HK$1.4ROIC 4.1 2.3 2.2 2.1 2.7ROA 3.4 2.2 2.2 2.2 2.5

ROE 6.8 4.2 4.1 4.0 4.8

Balance sheet and cash flow statement (HK$ mn) CAGRTangible fixed assets 4,742 4,979 5,228 5,490 5.0%Intangible fixed assets 38 38 38 38 0.0%Cash and equivalents 884 902 796 713 -6.9% Downside case HK$1.0Total assets 9,912 10,270 10,419 10,578 2.2%Short- and long-term debt 2,113 2,113 2,113 2,113 0.0%Net debt/(funds) 1,230 1,212 1,317 1,400 4.4%Other long-term liabilities 11 11 11 11 0.0%Total l iabilities 4,686 4,841 4,784 4,736 0.4%Shareholders' equity 5,225 5,429 5,635 5,842 3.8%Change in working capital 290 56 (61) (28) NACash from operations 1,039 722 628 685 -13.0% Upside/downside scenarios

Capital expenditure (1,052) (676) (710) (745) NAFree cash flow (12) 46 (82) (60) NA

Valuation and leverage metrics AverageP/E (x) 4.0 6.0 5.9 5.9 5.4 EV/EBITDA (x) 3.3 3.9 3.9 3.9 3.8 FCF yield (%) -0.9 3.4 -6.1 -4.4 -2.0P/B (x) 0.3 0.3 0.3 0.3 0.3

Dividend yield (%) 6.7 1.7 1.7 1.7 2.9Total debt/capital (%) 28.8 28.0 27.3 26.6 27.7 Source: Thomson Reuters Datastream, Barclays Capital est.

Net debt/equity (%) 23.5 22.3 23.4 24.0 23.3 Revenue and EPS, 2010-13E

Selected operating metricsInventory days 54.9 57.8 59.2 59.5Accounts receivable days 145.9 124.7 125.6 126.0Accounts payable days 106.2 88.9 88.7 85.6Cash-conversion cycle 94.6 93.7 96.1 99.9

Source: Company data, Barclays Capital estimates Note: Company data, Barclays Capital

Why a 3-Underweight? Plastic casings leader,Juteng, has been negatively impacted by the 3-yearmaterial cycle and the popularity of metal casingscaused by the tablet PC boom since about 2010.Juteng's efforts to expand capacity could help itimprove its share of metal casings, but not until end-2012E, at the earliest.

If sales are 10% higher than we model on metalcasing share gain in 2012, this could drive the shareprice to HK$1.4, on a P/E of 5x 2012E higher EPS ofHK$0.28

If ultrabook and NB demand in 2012 is lower thanwe model, sales could decline 10%, driving the pricedown to HK$1.0, on P/E of 5x 2012E lower EPS ofHK$0.2.

DownsideCase

HK$0.96(-49.2%) Price

Target

HK$1.2(-36.5%)

UpsideCase

HK$1.44(-23.8%)

0

12

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7.057.1

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7.357.4

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HK$1.2(-15.4%)

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HK$1.4(1.4%)UpsideCase

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5

6

29-Sep-10 27-Sep-11


6 October 2011 42

Near-term prospects

Cost-down pressure from ODM/brands never ends With the BOM more transparent than ever and the continuous cost-cutting pressure from ODM/brands, Ju Teng’s gross margin are significantly exposed. Thanks to its high yield rates (about 95%) on plastic casings, Ju Teng has still been able maintain to its leading position in the plastic casing supply chain.

The customer mix limits Ju Teng’s expansion for metal casings We believe Ju Teng’s leading technology leave it will managed to execute on injections, moulding and painting of NB casings. However, Ju Teng’s metal casing department is growing relative slower than those of other metal casing suppliers, such as those for Foxconn Tech and Catcher (2474.TT, Catcher is covered by Dale Gai as part of his coverage of Asia ex-Japan Wireless Equipment & products) as Foxconn Tech benefits from order allocations from Hon Hai (the major EMS of Apple’s iPhones, iPads and other products), while Ju Teng is in the NB supply chain, it is suffering from the slowdown in NB demand since 2010 from the cannibalization of tablets.

Efforts in metal casings Ju Teng has been making an effort for several years now to catch with its peers on metal casings. However, with the significant increased in demand for metal casings since 2011 –contributed by the iPad/iPhone boom – Ju Teng has become one of the victims of tablet cannibalization.

Apple (iPad and iPhone) has been sourcing from FTC since the beginning, and when it comes to product design such as the ‘unibody’ (the metal casing MacBook Air/Pro use), which requires a lot of CNC machines for mass production, Ju Teng and other key casing suppliers are disadvantaged by not having the scale of FTC. We believe Ju Teng has the necessary injection/molding/casings experience, but it will still take some time to expand its capacity for higher-end metal casings.

Valuation

Our 12-month price target for Ju Teng is HK$1.20. We value the company using a target P/E multiple of 5x, which we apply to our 2012 EPS forecast of HK$0.2. We set our target multiple at 6x, which in line with the stock’s normal trading cycle (2-10x) of 6x because we do not expect Ju Teng’s to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years.

Our price target represents potential downside of 14%, which we estimate is at the bottom end of Ju Teng’s peer group; therefore, we assign a 3-Underweight rating.

Risks

The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1) lower-than-expected demand for metal casings, 2) Ju Teng’s capacity for and experience in metal casing (both die-casting and stamping) catching up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng’s metal casing manufacturing.


6 October 2011 43

Earnings outlook for 2011E-2012

We believe the market/product trend will continue to move toward metal casings for several years. The plastic casing providers will likely suffer from cannibalization and it will also take some time for them to expand capacity. We are conservative on Juteng’s earnings potential for 2011E-12E, as it is currently suffering from tablet cannibalization and weak NB demand.

Figure 61: Ju Teng – sales revenue, 2007-13E

5,276

7,249 7,464 7,166 7,310 7,346 7,346

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Figure 62: Ju Teng – ROE, 2010-13E Figure 63: Ju Teng – EPS, 2010-13E

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Figure 64: Ju Teng – 12M forward P/E (x) Figure 65: Ju Teng – 12M forward P/B (x)

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6 October 2011 44

Sensitivity analysis – sales and operating margins

We analyze the sensitivity of our forecast for Juteng’s 2012 EPS to examine and support our view that its risk-reward profile is positive under various scenarios. We conclude that two major factors affecting EPS are: 1) sales; and 2) operating margins.

Our base-case scenario calls for sales of HK$7bn for 2012 (up 0.5% y/y) and an operating margin of 3% (same as 2011E), representing EPS of HK$0.2. We conclude the following:

Worst-case scenario: Quarterly volumes would remain flat and the operating margin would turn out to be lower than we forecast.

Base-case scenario: On our earnings forecasts, Juteng still follows the pattern of the Apple products and ultrabook boom going forward. We could see further upside to earnings revisions after that.


Figure 66: Ju Teng – sensitivity analysis to Barclays Capital’s EPS forecast for 2012 based on sales and operating margin

Revenue of HK$7bn, 2012E

-10% -5% 0% 5% 10%

+1.5%-pts 0.26 0.28 0.29 0.35 0.32

+1.0%-pts 0.23 0.25 0.26 0.31 0.28

+0.5%-pts 0.20 0.22 0.23 0.27 0.25

Base case 0.18 0.19 0.20 0.23 0.21

-0.5%-pts 0.15 0.16 0.16 0.20 0.18

-1.0%-pts 0.12 0.13 0.13 0.16 0.15

Ope

ratin

g m

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-1.5%-pts 0.09 0.10 0.10 0.12 0.11


Figure 67: Ju Teng – Sensitivity analysis to Barclays Capital price target for 2012 based on sales and operating margin

Revenue of HK$7bn, 2012E

-10% -5% 0% 5% 10%

+1.5%-pts 1.57 1.65 1.74 2.08 1.91

+1.0%-pts 1.40 1.47 1.55 1.85 1.70

+0.5%-pts 1.23 1.29 1.36 1.62 1.49

Base case 1.06 1.12 1.20 1.40 1.28

-0.5%-pts 0.89 0.94 0.98 1.17 1.08

-1.0%-pts 0.72 0.76 0.79 0.95 0.87

Ope

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-1.5%-pts 0.55 0.58 0.61 0.72 0.66



6 October 2011 45

Catalysts

Long-term catalysts We believe Ju Teng may have a better chance than other upcoming competitors to gain market share of metal casings due to: 1) the company’s proven experience in injections/mouldings/casings; 2) close relationships with top-tier brand makers; and 3) growing capacity/facility of CNC machines (for higher end product design – ‘unibody’).

Company profile Ju Teng International Holdings Ltd. was established in 2000 by Li-Yen Cheng, Li-Yu Cheng and Tsai-Chin Horng. As a manufacturer specializing in 3C products, the company’s production facilities are spread across eastern and southern China and Taiwan. Its major customers are worldwide famous brand name companies and OEM/ODM companies. Ju Teng has a leading 31% market share in the global notebook casing market and was listed on the Hong Kong main board in 2005.

Figure 68: Ju Teng – Key historical events

Year Event

2000 Ju Teng International Holdings Ltd was founded by three individuals with extensive industry experience: Li-Yen Cheng, Li-Yu Cheng and Tsai-Chin Horng.

2001 The company’s first production plant in Suzhou, China, was established (Everyday Computer).

2002 The second production plant in Suzhou, China, was established (Suzhou Dazhi).

2003 The second production base (Suzhou Dazhi) began mass production.

2004 Ju Teng Electronics (Shanghai) was acquired to expand the group’s production capacity. In the same year, the group established its own mould department in the Suzhou Dazhi plant.

2005 The mold department commenced production.

2005 In Nov, Ju Teng International Holdings Ltd was listed on the Main Board of Hong Kong Stock Exchange.

2006 Acquisition of a 70% interest in WIS Precision (Kunshan), a joint venture with Wistron, and acquisition of 36.5% interest in Chengyang Precision Mold (Kunshan).

2007 Increase of equity interest in Chengyang Precision to 74%.

2008 Increase of equity interest in Chengyang Precision to 100% and acquisition of 71% interest in Lian-Yi Precision (Zhongshan).

2009 Acquisition of a 53.44% interest in Compal Precision Module (Jiangsu), a joint venture with Compal.

In May, Ju Teng International Holdings Ltd. was listed on the Taiwan Stock Exchange by way of Taiwan depository receipts (TDRs).


COMPANY FACTS 2010 revenue: US$922mn Employees: 31,000 worldwide (June 2011) Headquarters: Taipei, Taiwan Business field: Design and manufacturing of various casings and mechanic parts


6 October 2011 46

Figure 69: Ju Teng – quarterly income statement, 1Q10-4Q13E

FY2009A FY2010A FY2011E FY2012E FY2013E

(HK$mn) 1HA 2HA FYE '10A 1HA 2HA FYE '10A 1HA 2HE FYE '11E 1HE 2HE FYE '12E 1HE 2HE FYE '13E

Sales 3,428 3,821 7,249 3,577 3,590 7,166 3,655 3,655 7,310 3,362 3,984 7,346 3,262 4,085 7,346

COGS (2,568) (3,552) (6,119) (2,976) (3,332) (6,308) (3,346) (3,342) (6,688) (3,060) (3,699) (6,758) (2,994) (3,764) (6,758)

Gross profit 557 788 1,345 600 258 858 308 313 621 303 285 588 267 320 588

Op expenses (195) (241) (436) (240) (255) (495) (243) (160) (402) (222) (145) (367) (206) (161) (367)

Op income 361 547 908 361 3 363 66 153 219 81 140 220 61 159 220

Int & other inc/(exp) 7 19 26 32 25 57 49 26 75 (2) 82 80 3 82 85

Pretax income 368 565 934 393 27 420 115 180 294 79 222 300 64 241 305

Taxes or credits (79) (150) (229) (91) 2 (89) (4) (64) (68) (24) (47) (72) (23) (53) (76)

Net income 290 415 705 302 29 331.19 111 116 226 54 174 229 41 188 230

EPS in HK$ cent 27.66 35.47 63.13 27.02 2.57 29.59 9.77 10.20 19.98 4.78 15.39 20.17 3.66 16.61 20.27

Shares (mn) 1,047 1,171 1,171 1,118 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133 1,133

Margin analysis

Gross margin 17.8% 18.2% 18.0% 16.8% 7.2% 12.0% 8.4% 8.6% 8.5% 9.0% 7.2% 8.0% 8.2% 7.8% 8.0%

Op margin 11.6% 12.6% 12.2% 10.1% 0.1% 5.1% 1.8% 4.2% 3.0% 2.4% 3.5% 3.0% 1.9% 3.9% 3.0%

Pre-tax margin 10.7% 14.8% 12.5% 11.0% 0.8% 5.9% 3.1% 4.9% 4.0% 2.3% 5.6% 4.1% 2.0% 5.9% 4.2%

Net margin 8.4% 10.9% 9.4% 8.4% 0.8% 4.6% 3.0% 3.2% 3.1% 1.6% 4.4% 3.1% 1.3% 4.6% 3.1%

YoY change

Sales 4.3% -6.1% -1.1% 2.2% 1.8% 2.0% -8.0% 9.0% 0.5% -3.0% 2.5% 0.0%

Gross profit 15.9% -6.2% 3.1% -48.6% 21.3% -27.6% -1.9% -8.9% -5.4% -11.6% 12.3% 0.0%

Op income -0.2% -99.5% -60.0% -81.7% 5621.5% -39.6% 22.4% -8.9% 0.5% -24.0% 13.9% 0.0%

Net income 4.3% -93.0% -53.0% -63.3% 297.4% -31.7% -51.1% 50.8% 1.0% -23.5% 8.0% 0.5%

HoH change

Sales 11.5% -6.4% 0.4% 1.8% 0.0% -8.0% 18.5% -18.1% 25.2%

Gross profit 41.5% -23.8% -57.0% 19.6% 21.3% -3.3% -5.8% -6.2% -1180.3%

Op income 51.3% -34.1% -99.3% 2360.8% 5621.5% -47.4% 73.1% -56.1% 159.4%

Net income 43.4% -27.2% -90.4% 280.8% 297.4% -53.1% 221.6% -76.2% 353.7%



6 October 2011 47

Figure 70: Ju Teng – income statement, 2009-13E

Year-end 31 Dec (HK$mn) 2009 2010 2011E 2012E 2013E

Total revenue 7,464 7,166 7,310 7,346 7,346 COGS (6,119) (6,308) (6,688) (6,758) (6,758)Gross profit 1,345 858 621 588 588 Operating expenses (436) (495) (402) (367) (367)EBITDA 1,225 781 658 681 704 Depreciation and amortization (316) (418) (439) (461) (484)EBIT 908 363 219 220 220 Interest expense (net) (49) (35) (35) (35) (35)Net interest income/ expense (49) (35) (35) (35) (35)Gains On disposals - - - - - Net associated profits - - - - - Other net gains/losses 74 92 110 115 120 Profit before tax 934 420 294 300 305 Tax (173) (65) (44) (48) (52)Profit after tax 761 355 250 252 253 Discontinued operation - - - - - Minority interest (56) (24) (24) (24) (24)Net profit 705 331 226 229 230 Average weighted # of ordinary shares 1,065 1,119 1,133 1,133 1,133 Basic EPS (HK$) 0.66 0.30 0.20 0.20 0.20 Diluted EPS (HK$) 0.63 0.28 0.20 0.20 0.20 Source: Company data, Barclays Capital estimates

Figure 71: Ju Teng – balance sheet, 2009-13E


Cash and equivalent 617 884 902 796 713 Short-term investments 0 18 18 18 18 Receivables 3,256 2,473 2,522 2,535 2,535 Inventory 869 1,029 1,091 1,102 1,102 Other current assets 420 436 422 403 383 Total current assets 5,162 4,839 4,955 4,854 4,751 Net fixed assets 4,108 4,742 4,979 5,228 5,490 Intangible assets 38 38 38 38 38 Other assets 158 251 256 257 257 Associates & other LT investments 55 42 42 42 42 Total other assets 4,360 5,073 5,315 5,565 5,827 Total assets 9,521 9,912 10,270 10,419 10,578 Short term debt 883 761 761 761 761 Payables 2,089 1,581 1,677 1,610 1,561 Current portion of LT liabilities - - - - - Other current liabilities 772 980 1,039 1,050 1,050 Total current liabilities 3,745 3,322 3,477 3,420 3,372 Long term debt 1,202 1,353 1,353 1,353 1,353 Other liabilities 14 11 11 11 11 Total other liabilities 1,216 1,364 1,364 1,364 1,364 Total liabilities 4,961 4,686 4,841 4,784 4,736 Share capital 112 113 113 113 113 Share premium and other reserves 3,854 4,276 4,479 4,685 4,892 Minority Interest 595 837 837 837 837 Others - - - Total equity 4,561 5,225 5,429 5,635 5,842 Total liabilities and equity 9,521 9,912 10,270 10,419 10,578 Source: Company data, Barclays Capital estimates


6 October 2011 48

Figure 72: Ju Teng – cash flow statement, 2009-13E


Net profit 705 331 226 229 230 Depreciation 316 418 439 461 484 Associate share of (profits)/ loss - - - - - Total gross cash flow 1,021 749 665 689 713 Change in total working capital 39 290 56 (61) (28)Total operating cash flow 1,061 1,039 722 628 685 Capex less disposals (2,145) (1,052) (676) (710) (745)Change in other assets 76 (93) (5) (1) - Change in associates (22) 14 - - - Total investment cash flow (2,091) (1,131) (681) (711) (745)Change in gross debt 208 28 - - - Change in other long term liabilities 5 (3) - - - Change in equity 874 334 (23) (23) (23)Total financing cash flow 1,087 359 (23) (23) (23)Total cash flow 57 267 18 (106) (83)Cash balance at beginning of the year 559 617 884 902 796 Cash balance at end of the year 617 884 902 796 713 Source: Company data, Barclays Capital estimates


6 October 2011 49

Figure 73: Ju Teng – key financial metrics (2009-13E)


Profitability

Gross margin (%) 18.02 11.98 8.50 8.00 8.00


Pre-tax margin (%) 12.51 5.87 4.03 4.09 4.16

Net margin (%) 9.44 4.62 3.10 3.11 3.13

Financial Cash (HK$ mn) 617 884 902 796 713 ST debt (HK$ mn) 883 761 761 761 761 LT debt (HK$ mn) 1,202 1,353 1,353 1,353 1,353 Net debt (HK$ mn) 1,469 1,230 1,212 1,317 1,400 Net debt/equity (%) 32.2 23.5 22.3 23.4 24.0 Debt/equity (%) 45.7 40.4 38.9 37.5 36.2 Current ratio (x) 1.4 1.5 1.4 1.4 1.4 Quick ratio (x) 1.0 1.0 1.0 1.0 1.0

Economic value

NOPAT (HK$ mn) 736 298 175 172 168

Total capital (Rmb mn) 6,646 7,339 7,543 7,748 7,955


Equity/capital (%) 68.6 71.2 72.0 72.7 73.4

Valuation

P/E (x) 1.8 4.0 6.0 5.9 5.9

P/B (x) 0.3 0.3 0.3 0.3 0.3

P/CFPS (x) 1.2 1.3 1.9 2.1 2.0

EV/sales (x) 0.4 0.4 0.4 0.4 0.4

EV/EBITDA (x) 2.3 3.3 3.9 3.9 3.9

EV/EBIT (x) 3.1 7.1 11.7 12.1 12.5

Performance

ROA (%) 8.5 3.4 2.2 2.2 2.2

ROE (%) 18.7 6.8 4.2 4.1 4.0

ROIC (%) 11.1 4.1 2.3 2.2 2.1

Asset turnover (x) 0.9 0.7 0.7 0.7 0.7




A/P payment days 107.9 106.2 88.9 88.7 85.6

Coverage


Value per share (HK$)



Sales per share 7.0 6.4 6.5 6.5 6.5



Net cash per share (1.4) (1.1) (1.1) (1.2) (1.2)



6 October 2011 50

APPENDIX I: WOA! (WINDOWS ON ARM) – AN OPPORTUNITY FOR NON-APPLE TABLETS/ULTRABOOKS WITH WIN8/ARM

Why we expect component suppliers’ growth momentum to be driven by ultrabooks/tablets For 2012, we are still positive on the growth momentum for tablet PCs. In addition to the iPad series, we believe sales of other tablets (non-Apple camp) will still grow, due to demand from the commercial segment. Although Windows 8 is not a surprising OS – we view it more as a service pack upgrade – it does incorporate together versions of the OS to run tablets, smartphones and PCs, and it offers support for touch solutions. Our checks suggest that Windows 8 will still get a sizable market share in terms of the commercial segment (Windows is still the preferred OS for commercial usages) and that Windows 8 could be regarded as the first Windows OS that fits the ARM-based platform. Some PC makers are trying to avoid the pricier Intel CPU/chipset solutions. However, AMD and ARM are not likely to replace Intel’s solution in the near term, due to various concerns.

Windows 8 + ARM-based platform to win together

Cannot win it alone According to our checks, we believe neither the Windows 8 nor ARM-based platform can go it alone, as Windows 8 does not seem to provide end-users with a surprisingly new OS nor is it competitive with Apple’s iOS (with comprehensive applications and mature users’ adoption on tablets).

As for an ARM-based platform, we know there are several major solution providers (such as nVidia, Samsung and TI) that have been dedicated to this platform for a while, and since the previous Windows version (Windows 7) cannot run smoothly on current ARM-based platforms, this means another Linux-based OS (such as Chrome OS) is being used, often failing in the end because of users’ lower confidence in and experience with these other OS.

Windows 8 + ARM-based platform synergies Windows 8 is the first Widows OS that can be operated smoothly on ARM-based platforms. The benefit of smoothly operating on an ARM-based platform is more than that it offers a new alternative – an ARM-based OS platforms is 50% cheaper in terms of CPUs/chipsets/passive components vs an Intel solution. Indeed, PC makers can now offer clients a reliable, but familiar Windows on a cheaper platform that offers more portability and additional functionality.

Which segment to penetrate? Commercial: Definitely, as we believe the Windows platform is still welcome in terms of usage in medicine, education, office work, etc.

Gray area between Apple iOS and Google: The combination of Windows 8 + ARM might gain market share in the grey area that consists of PC makers and end-users who are hesitant to use the Google platform because of slow responsiveness and ownerships issues (in comparison to well-built Microsfot Windows) if there are any technical bugs or specific tailor-made requests. Google’s Android OS is open source, which provides cost savings, but when any bugs are found and problem solving is needed, there is general concern among end-users and PC makers because the Google platform does not offer the same level of support that Microsoft does.


6 October 2011 51

APPENDIX II: NOTEBOOK, DESKTOP AND TABLET PCS

Figure 74: NB buyer/supplier matrix

Supplier Quanta Compal Wistron Hon Hai Pegatron Inventec Flextronics Others 2011E TotalHP 44.7% 2.4% 3.5% 21.2% 0.0% 18.8% 9.4% 0.0% 100.0%Brand ranking HP #1 HP #5 HP #6 HP #2 HP #3 HP #4Products Low-end and

mainstream consumerCorporate; AMD Corporate, small

consumerCorporate and low-

end consumerCorporate and server AMD Yukon, CULV 9.9%

Brand units 19,000 1,000 1,500 9,000 0 8,000 4,000 0 42,500Acer 7.7% 59.0% 29.5% 0.0% 3.8% 0.0% 0.0% 0.0% 100.0%Brand ranking Acer #3 Acer #1 Acer #2 Acer #4 Acer #4Products Slim NB Netbooks, Consumer,

slim NBConsumer Consumer Corporate 14.4%

Brand units 3,000 23,000 11,500 0 1,500 0 0 0 39,000Dell 11.9% 38.5% 31.8% 9.9% 0.0% 4.0% 4.0% 0.0% 100.0%Brand ranking Dell #3 Dell #1 Dell #2 Dell #4 Dell #5 Dell #5Products CULV (13", 14", 15")

and mainstream consumer

Corporate and Consumer

Consumer Corporate 7.3%

Brand units 3,000 9,695 8,000 2,500 0 1,000 1,000 0 25,195Lenovo 12.9% 42.9% 30.0% 0.0% 4.3% 0.0% 0.0% 9.9% 100.0%Brand ranking Lenovo #3 Lenovo #1 Lenovo #2 Lenovo #4Products IdeaPad Consumer: IdeaPad Corp: ThinkPad; Some

consumer (IdeaPad)Corporate 18.5%

Brand units 3,000 10,000 7,000 0 1,000 0 0 2,300 23,300Toshiba 14.3% 40.5% 0.0% 0.0% 7.1% 33.3% 0.0% 4.8% 100.0%Brand ranking Toshiba #3 Toshiba #1 Toshiba #4 Toshiba #2Products Consumer Consumer Consumer 10.5%Brand units 3,000 8,500 0 0 1,500 7,000 0 1,000 21,000Asustek 25.6% 15.4% 0.0% 2.6% 56.4% 0.0% 0.0% 0.0% 100.0%Brand ranking Asus #2 Asus #3 Asus #4 Asus #1Products K-series Corp, N-series 15.4%Brand units 5,000 3,000 0 500 11,000 0 0 0 19,500Apple 92.3% 0.0% 0.0% 7.7% 0.0% 0.0% 0.0% 0.0% 100.0%Brand ranking Apple #1 Apple #2Products MacBook Pro/Air MacBook 33.7%Brand units 12,000 0 0 1,000 0 0 0 0 13,000Sony 33.3% 0.0% 22.2% 22.2% 0.0% 0.0% 0.0% 22.2% 100.0%Brand ranking Sony #1 Sony #2 Sony #2Products E-series Y-series (CULV) E-series 9.2%Brand units 3,000 0 2,000 2,000 0 0 0 2,000 9,000Fujitsu 36.4% 0.0% 9.1% 0.0% 0.0% 18.2% 0.0% 36.4% 100.0%Brand ranking Fujitsu #1 Fujitsu #3 Fujitsu #2Products 74.4%Brand units 2,000 0 500 0 0 1,000 0 2,000 5,500Others 1,000 500 1,000 3,425 2,500 0 0 18,528 26,953

2011E Total 54,000 55,695 31,500 18,425 17,500 17,000 5,000 14,956 214,0762010E Total 52,100 48,260 27,500 9,600 15,350 16,150 3,000 28,040 200,000

Barclays Capital Asia ex-Japan Technology Hardware Research - 2011E Notebook Buyer/Supplier Matrix (version 2.1)

Quanta Compal Wistron Hon Hai Pegatron Inventec Flextronics Others

HP 35.2% 1.8% 4.8% 48.8% 0.0% 47.1% 80.0% 0.0%

Acer 5.6% 41.3% 36.5% 0.0% 8.6% 0.0% 0.0% 0.0%

Dell 5.6% 17.4% 25.4% 13.6% 0.0% 5.9% 20.0% 0.0%

Lenovo 5.6% 18.0% 22.2% 0.0% 5.7% 0.0% 0.0% 15.4%

Toshiba 5.6% 15.3% 0.0% 0.0% 8.6% 41.2% 0.0% 6.7%

Asustek 9.3% 5.4% 0.0% 2.7% 62.9% 0.0% 0.0% 0.0%

Apple 22.2% 0.0% 0.0% 5.4% 0.0% 0.0% 0.0% 0.0%

Sony 5.6% 0.0% 6.3% 10.9% 0.0% 0.0% 0.0% 13.4%

Fujitsu 3.7% 0.0% 1.6% 0.0% 0.0% 5.9% 0.0% 13.4%

Others 1.9% 0.9% 3.2% 18.6% 14.3% 0.0% 0.0% 51.2%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

2011E Notebook brand as a % of supplier

Note: Brand ranking refers to PC brands’ major supplier, based on company data Source: Company data, Barclays Capital estimates


6 October 2011 52

Figure 75: Barclays Capital’s global PC (NBs + DTs) shipment forecasts Units in (000)Calendar Year 2008 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E 2014EWorldwide 287,945 295,400 81,225 81,250 87,190 90,805 340,470 81,260 83,904 92,885 97,312 355,360 378,603 397,734 416,441

Y/Y 11.0% 2.6% 28.1% 22.2% 11.3% 4.2% 15.3% 0.0% 3.3% 6.5% 7.2% 4.4% 6.5% 5.1% 4.7%Q/Q -6.8% 0.0% 7.3% 4.1% -10.5% 3.3% 10.7% 4.8%

U.S. 65,560 70,000 17,950 18,600 18,400 19,880 74,830 16,400 17,694 18,537 20,216 72,847 72,867 73,058 73,051Y/Y 2% 7% 20% 14% 2% -4% 7% -9% -5% 1% 2% -3% 0% 0% 0%Q/Q -13% 4% -1% 8% -18% 8% 5% 9%

% of Total 23% 24% 22% 23% 21% 22% 22% 20% 21% 20% 21% 20% 19% 18% 18%

Western Europe 65,850 65,150 17,500 15,350 16,515 19,100 68,465 14,500 12,100 14,175 17,355 58,130 56,646 56,514 56,184Y/Y 18% -1% 17% 16% 1% -7% 5% -17% -21% -14% -9% -15% -3% 0% -1%Q/Q -15% -12% 8% 16% -24% -17% 17% 22%

% of Total 23% 22% 22% 19% 19% 21% 20% 18% 14% 15% 18% 16% 15% 14% 13%

Japan 14,245 13,505 4,525 3,650 3,650 3,825 15,650 3,760 3,785 3,758 3,893 15,196 16,288 16,603 16,893Y/Y 6% -5% 24% 13% 18% 9% 16% -17% 4% 3% 2% -3% 7% 2% 2%Q/Q 29% -19% 0% 5% -2% 1% -1% 4%

% of Total 5% 5% 6% 4% 4% 4% 5% 5% 5% 4% 4% 4% 4% 4% 4%

Asia Pacific 72,815 82,840 23,500 25,800 27,250 25,450 102,000 27,000 30,150 32,215 30,183 119,548 133,523 143,028 151,670Y/Y 12% 14% 41% 30% 16% 11% 23% 15% 17% 18% 19% 17% 12% 7% 6%Q/Q 2% 10% 6% -7% 6% 12% 7% -6%

% of Total 25% 28% 29% 32% 31% 28% 30% 33% 36% 35% 31% 34% 35% 36% 36%

Rest of World 69,475 63,905 17,750 17,850 21,375 22,550 79,525 19,600 20,175 24,199 25,665 89,639 99,281 108,531 118,644Y/Y 14% -8% 34% 28% 23% 16% 24% 10% 13% 13% 14% 13% 11% 9% 9%Q/Q -8% 1% 20% 5% -13% 3% 20% 6%

% of Total 24% 22% 22% 22% 25% 25% 23% 24% 24% 26% 26% 25% 26% 27% 28%Note: NB = notebooks; DT = desktops Source: IDC, Gartner, Barclays Capital estimates

Figure 76: Barclays Capital’s global NB shipment forecasts Units in (000)Calendar Year 2008 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E 2014EWorldwide 143,050 168,305 47,750 46,375 51,775 54,100 200,000 47,700 48,400 56,750 59,824 212,674 232,745 252,538 273,114

Y/Y 33% 18% 41% 28% 13% 3% 19% 0% 4% 10% 11% 6% 9% 9% 8%Q/Q -9% -3% 12% 4% -12% 1% 17% 11%

U.S. 34,255 42,550 11,100 11,100 11,350 12,850 46,400 10,200 10,800 11,988 13,666 46,654 48,319 50,316 51,982Y/Y 15% 24% 33% 17% 0% -4% 9% -8% -3% 6% 6% 1% 4% 4% 3%Q/Q -17% 0% 2% 13% -21% 6% 11% 14%

% of Total 24% 25% 23% 24% 22% 24% 23% 21% 22% 21% 23% 22% 21% 20% 19%

Western Europe 42,725 45,300 12,200 10,550 11,500 13,500 47,750 9,900 8,200 9,963 12,553 40,616 41,522 42,688 43,452Y/Y 39% 6% 21% 16% -1% -7% 5% -19% -22% -13% -7% -15% 2% 3% 2%Q/Q -16% -14% 9% 17% -27% -17% 22% 26%

% of Total 30% 27% 26% 23% 22% 25% 24% 21% 17% 18% 21% 19% 18% 17% 16%

Japan 8,595 8,705 2,950 2,325 2,200 2,400 9,875 2,400 2,400 2,304 2,511 9,615 10,375 10,932 11,515Y/Y 16% 1% 28% 12% 11% 2% 13% -19% 3% 5% 5% -3% 8% 5% 5%Q/Q 26% -21% -5% 9% 0% 0% -4% 9%

% of Total 6% 5% 6% 5% 4% 4% 5% 5% 5% 4% 4% 5% 4% 4% 4%

Asia Pacific 27,400 38,630 11,800 12,300 13,700 11,750 49,550 13,600 14,750 16,815 14,629 59,794 67,755 75,406 83,378Y/Y 40% 41% 64% 38% 20% 6% 28% 15% 20% 23% 25% 21% 13% 11% 11%Q/Q 6% 4% 11% -14% 16% 8% 14% -13%

% of Total 19% 23% 25% 27% 26% 22% 25% 29% 30% 30% 24% 28% 29% 30% 31%

Rest of World 30,075 33,120 9,700 10,100 13,025 13,600 46,425 11,600 12,250 15,680 16,464 55,994 64,774 73,196 82,786Y/Y 52% 10% 61% 51% 40% 23% 40% 20% 21% 20% 21% 21% 16% 13% 13%Q/Q -13% 4% 29% 4% -15% 6% 28% 5%

% of Total 21% 20% 20% 22% 25% 25% 23% 24% 25% 28% 28% 26% 28% 29% 30%Source: IDC, Gartner, Barclays Capital estimates


6 October 2011 53

Figure 77: Barclays Capital’s global DT shipment forecasts Units in (000)Calendar Year 2008 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E 2014EWorldwide 144,895 127,095 33,475 34,875 35,415 36,705 140,470 33,560 35,504 36,135 37,487 142,686 145,858 145,196 143,327

Y/Y -5% -12% 14% 15% 8% 6% 11% 0% 2% 2% 2% 2% 2% 0% -1%Q/Q -4% 4% 2% 4% -9% 6% 2% 4%

U.S. 31,305 27,450 6,850 7,500 7,050 7,030 28,430 6,200 6,894 6,549 6,549 26,193 24,547 22,742 21,069Y/Y -8% -12% 4% 10% 5% -4% 4% -9% -8% -7% -7% -8% -6% -7% -7%Q/Q -7% 9% -6% 0% -12% 11% -5% 0%

% of Total 22% 22% 20% 22% 20% 19% 20% 18% 19% 18% 17% 18% 17% 16% 15%

Western Europe 23,125 19,850 5,300 4,800 5,015 5,600 20,715 4,600 3,900 4,212 4,802 17,514 15,124 13,826 12,731Y/Y -8% -14% 8% 15% 5% -7% 4% -13% -19% -16% -14% -15% -14% -9% -8%Q/Q -12% -9% 4% 12% -18% -15% 8% 14%

% of Total 16% 16% 16% 14% 14% 15% 15% 14% 11% 12% 13% 12% 10% 10% 9%

Japan 5,650 4,800 1,575 1,325 1,450 1,425 5,775 1,360 1,385 1,454 1,382 5,581 5,913 5,671 5,378Y/Y -7% -15% 16% 15% 29% 22% 20% -14% 5% 0% -3% -3% 6% -4% -5%Q/Q 35% -16% 9% -2% -5% 2% 5% -5%

% of Total 4% 4% 5% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%

Asia Pacific 45,415 44,210 11,700 13,500 13,550 13,700 52,450 13,400 15,400 15,400 15,554 59,754 65,767 67,622 68,293Y/Y 0% -3% 24% 24% 13% 15% 19% 15% 14% 14% 14% 14% 10% 3% 1%Q/Q -2% 15% 0% 1% -2% 15% 0% 1%

% of Total 31% 35% 35% 39% 38% 37% 37% 40% 43% 43% 41% 42% 45% 47% 48%

Rest of World 39,400 30,785 8,050 7,750 8,350 8,950 33,100 8,000 7,925 8,519 9,201 33,645 34,507 35,335 35,857Y/Y -4% -22% 12% 7% 4% 8% 8% -1% 2% 2% 3% 2% 3% 2% 1%Q/Q -3% -4% 8% 7% -11% -1% 8% 8%

% of Total 27% 24% 24% 22% 24% 24% 24% 24% 22% 24% 25% 24% 24% 24% 25%Source: IDC, Gartner, Barclays Capital estimates

Figure 78: Barclays Capital’s tablet PC shipment forecasts Units in (000) 2Q10 3Q10 4Q10 2010 1Q11 2Q11 3Q11E 4Q11E 2011E 1Q12E 2Q12E 3Q12E 4Q12E 2012E 2013EApple iPad Forecast 3,270 4,188 7,331 14,789 4,694 9,246 11,927 14,313 40,180 8,588 11,164 12,727 17,818 50,296 62,229 q/q change - 28% 75% -36% 97% 29% 20% -40% 30% 14% 40% y/y change - - - - 183% 185% 95% 172% 83% 21% 7% 24% 25% 24% % Unit Share 93% 88% 75% 82% 73% 68% 66% 59% 64% 60% 67% 64% 64% 64% 66%Other Tablets 230 562 2,419 3,211 1,750 4,365 6,243 10,131 22,489 5,833 5,454 7,130 9,947 28,364 31,835 q/q change - 144% 330% -28% 149% 43% 62% -42% -6% 31% 40% y/y change - - - - 1798% 1011% 319% 600% 233% 25% 14% -2% 26% 12%Total Tablet Forecast 3,500 4,750 9,750 18,000 6,444 13,611 18,170 24,444 62,669 14,421 16,618 19,857 27,765 78,660 94,065 q/q change - 36% 105% -34% -24% 182% 80% -41% -73% 38% 67% y/y change - - - - - 289% 283% 151% 248% 124% 22% 9% 14% 26% 20%Apple iPhone Forecast 8,398 14,102 16,235 47,487 18,647 20,338 17,897 30,784 87,666 28,937 26,043 35,939 44,924 135,843 q/q change -4% 68% 15% 15% 9% -12% 72% -6% -10% 38% 25% y/y change 113% 142% 27% 90% 85% 55% 28% 101% 46% 55%Apple MacBook series Forecast 2,468 2,643 2,907 9,814 2,751 2,792 3,504 3,854 12,901 3,469 3,712 4,306 4,629 16,115 q/q change 37% 7% 10% -5% 1% 26% 10% -10% 7% 16% 8% y/y change 53% 13% 33% 33% 31% 26% 33% 23% 20% 25% Source: IDC, Gartner, Barclays Capital estimates

Figure 79: Barclays Capital’s worldwide PC shipment forecasts – tablet PC impact Units in (000) 2009 2010 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E 2014EApple iPad Forecast - 14,789 4,694 9,246 11,927 14,313 40,180 50,296 62,229 72,773 Other Tablets - 3,211 1,750 4,365 6,243 10,131 22,489 28,364 31,835 34,078 Total Tablet Forecast - 18,000 6,444 13,611 18,170 24,444 62,669 78,660 94,065 106,850 y/y change - - - 289% 283% 151% 248% 26% 20% 14%

Total Notebooks (includes netbooks) 168,305 200,000 47,700 48,400 56,750 59,824 212,674 232,745 252,538 273,114 y/y change 17.7% 18.8% -0.1% 4.4% 9.6% 10.6% 6.3% 9.4% 8.5% 8.1%

Notebooks INCLUDING Tablets 168,305 218,000 54,144 62,011 74,920 84,268 275,343 311,405 346,602 379,964 y/y change 17.7% 29.5% 13.4% 24.3% 32.5% 32.0% 26.3% 13.1% 11.3% 9.6%

Total Netbooks 32,000 31,000 5,700 6,200 6,050 6,500 24,450 22,600 21,300 20,300 y/y change 204.5% -3.1% -36.7% -11.4% -16.6% -16.1% -21.1% -7.6% -5.8% -4.7%

CORE Notebooks Excluding Netbooks & Tablets Entire 136,305 169,000 42,000 42,200 50,700 53,324 188,224 210,145 231,238 252,814 y/y change 2.8% 24.0% 8.4% 7.2% 13.9% 15.0% 11.4% 11.6% 10.0% 9.3%

Total PC Unit Forecast (includes netbooks) 295,400 340,470 81,260 83,904 92,885 97,312 355,360 378,603 397,734 416,441 y/y change 2.6% 15.3% 0.0% 3.3% 6.5% 7.2% 4.4% 6.5% 5.1% 4.7%

Total PCs INCLUDING Tablets 295,400 358,470 87,704 97,515 111,055 121,755 418,030 457,264 491,798 523,291 y/y change 2.6% 21.4% 8.0% 15.1% 20.8% 21.1% 16.6% 9.4% 7.6% 6.4%

CORE PCs Excluding Netbooks & Tablets Entirely 263,400 309,470 75,560 77,704 86,835 90,812 330,910 356,003 376,434 396,141 y/y change -5.1% 17.5% 4.6% 4.7% 8.6% 9.3% 6.9% 7.6% 5.7% 5.2%Source: IDC, Gartner, Barclays Capital estimates


6 October 2011 54

Figure 80: Barclays Capital’s mobile products shipment forecasts Mobility Products - UnitsUnits in (000) 2005 2006 2007 2008 2009 2010 2011E 2012EeReaders - - - 100 3,012 12,306 24,268 30,554 Tablets - - - - - 18,000 62,669 78,660 Notebooks 63,150 80,375 107,425 143,050 168,305 200,000 212,674 232,745 Smartphones 54,000 82,000 122,000 140,000 189,000 282,000 420,000 567,000

iPhone - - 3,704 15,765 25,105 47,487 87,666 135,843 Total 117,150 162,375 229,425 283,150 360,317 512,306 719,612 908,959 Y/Y Growth 39% 41% 23% 27% 42% 40% 26%

Source: IDC, Gartner, Barclays Capital estimates

Figure 81: Barclays Capital’s tablet PC shipment targets by NB ODM/PC brand

Company Shipment targets from compan y (2011E) OEM customersNB ODMs

Compal 3mn units Acer, Lenovo, Dell

Quanta "couple of "million units Acer, RIM

Wistron 1mn units Acer, Lenovo, Dell

Inventec less than 1mn units HP

Pegatron 1.5-2mn units Asustek, HTC, Dell

PC vendors Shipment targets from company (2011E) NoteAcer 2-2.5mn units

Asustek 1.5-2mn unitsOver 10% market share in non-Apple platform

Lenovo* 1mn units

HTC* 1.8mn units

Samsung* 5mn units

Apple* 40mn units

RIM* 1.1mn units For FY12 (Feb year-end)

MOTO* 1.5-2mn units * Shipments are based on Barclays Capital estimate, not company guidance. Source: Company data, Barclays Capital estimates


6 October 2011 55

Figure 82: Customer-supplier sales matrix (2011E)

Hon Hai Quanta Compal Wistron Inventec PegatronCheng

Uei Simplo Dynapack AAC BYDE Largan Unimicron CatcherYoung

Fast Silitech FIH Tripod Wistron NeWeb

Apple 26% 33% 13% 35% 30% 40% 35% 3% 27% 10% 30% 6%

HP 20% 23% 3% 4% 59% 15% 45%

Dell 3% 4% 10% 23% 6% 18% 10% 5% 10% 6%

Lenovo 4% 15% 20% 3% 8% 2% 11%

Acer 3% 7% 32% 18% 7% 7%

Asustek 1% 6% 4% 32% 20%

Toshiba 2% 22% 30% 9%

Sony 11% 4% 18% 8%

IBM 3%

Cisco 2%

PC

Microsoft 3% 20%

Nokia 3% 24% 40% 21% 15% 40% 45%

Motorola 1% 20% 4% 18% 6% 5% 15%

RIM 5% 4% 11% 2% 8% 25% 3%

HTC 5% 20% 5% 30% 30% 15%

Sony Ericsson 3% 15%

Samsung 15% 12% 15% 6%

LG Electronics 15%

Sharp 5%

ZTE 5% 3%

Huawei 25% 3%

Handset

TCL 2%

DIRECTV 30%

Sirius XM 14%

AUO 6%

Kingston 8%

Other

Tech

Others 24% 17% 14% 12% 5% 28% 25% 2% 5% 25% 14% 15% 63% 22% 40% 8% 25% 49% 21%

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%



6 October 2011 56

Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research – Tablet PC buyer/supplier matrix

Company Product ODM Display Op System CPU Memory Storage Weight Battery Life Price Other features Launch time

Acer ICONIA Tab A500/Picasso

Compal 10.1", 1280x800

Android 3.0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core

1GB RAM 16/32GB Flash

760g 8 hours US$395(16G+WiFi); US$499 (32G+WiFi)

Dual camera: 5MP (rear); 2MP (front); HDMI port

end-Mar'11

Acer ICONIA Tab A100

Wistron 7", 1024x600 Android 3.0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core

512MB RAM 8GB Flash N/A N/A US$349 Dual camera: 5MP (rear); 2MP (front)

Jul’11

Acer ICONIA Tab W500

Pegatron 10.1", 1280x800

Windows 7 AMD Fusion C-50 APU 1.0GHz

2GB RAM 32GB Flash 970g 3-cell US$499-699 Camera: 1.3MP (front); HDMI port

Mar'11

Acer ICONIA Compal 14"(Dual touchscreen)

Windows 7 Intel Core i5 4GB RAM 320- 750 GB HDD

2.8kg 3 hours US$1,199 HDMI port Mar'11

Apple iPad Hon Hai 9.7", 1024x768

Apple iOS 4.2

Apple A4 (ARM) 1GHz 256MB RAM 16/32/64GB SSD

680-730g 10 hours US$399-729 (cut US$100 after iPad 2 launch)

3 Apr'10

Apple iPad 2 Hon Hai 9.7", 1024x768

Apple iOS 4.3

Apple A5 (ARM) 1GHz Dual Core

512MB RAM 16/32/64GB SSD

601-613g 10 hours Wi-Fi: US$499-699; 3G: US$629-829

Dual camera, 33% thinner, 15% lighter, Smart cover

11 Mar'11

Amazon Kindle Fire Quanta 7", 1024x600 Android 2.3 TI OMAP 4 (ARM) 1GHz 512MB RAM 8GB 413g 8 hours US$199 Free cloud storarage Nov'11 Amazon Kindle Touch Hon Hai 6", 800x600 E

Ink Linux Freescale i.MX515 (ARM)

800MHz 256MB RAM 4GB 213g

(WiFi); 221g (3G+WiFi)

2 months US$99 (WiFi-only); US$149 (3G+WiFi)

Nov'11

Amazon Kindle Hon Hai 6", 800x600 E Ink

Linux Freescale i.MX515 (ARM) 800MHz

256MB RAM 2GB 170g 1 months US$79 Sep'11

Amazon Kindle Keyboard Hon Hai 6", 800x600 E Ink

Linux Freescale i.MX353 (ARM) 532MHz

256MB RAM 4GB 247g 2 months US$99 (WiFi-only); US$139 (3G+WiFi)

Aug'10

Asustek EeeSlate EP121 Pegatron 12.1", 1280x800

Windows 7 Intel Core i5 1.33GHz Dual Core

2GB/4GB RAM

32/64GB SSD

1.16kg 10 hours US$999-1,099 2MP camera; Support Adobe Flash

Jan'11

Asustek EeePad Slider Pegatron 10.1", 1280x800

Android 3.0 NVIDIA Tegra 2 (ARM) 512MB/ 1GB RAM

16/32GB Flash

886g N/A US$499-799 Dual camera: 5MP (rear); 1.2MP (front); Support Adobe Flash

Aug'11

Asustek EeePad Transformer

Pegatron 10.1", 1280x800

Android 3.0 NVIDIA Tegra 2 (ARM) Dual Core


675g up to 16 hours (on dock)

Pad only: US$399; With keyboard dock: US$499

Dual camera: 5MP (rear); 1.2MP (front); optional keyboard set; Support Adobe Flash

Apr'11

Asustek EeePad MeMO Pegatron 7", 1024x600 Android 3.0 NVIDIA Tegra 2 (ARM) 512MB SDRAM

8GB-64GB Flash

N/A N/A US$499-699 Dual camera: 5MP (rear); 1.2MP (front); 3D

4Q11

Barnes and Noble

Nook Color Inventec/Pegatron 10", 1024x600 Android 2.2 TI OMAP3621 (ARM) 800MHz

512MB 8GB 450g 8 hours US$249 N/A 4Q10

BenQ R100 Qisda 10", 1024x600 Android 2.2 Samsung 667MHz (ARM) N/A 4GB Flash 700g 12 hours N/A 0.3MP front camera 1Q11 Dell Streak 5 Qisda 5", 800x480 Android 2.2 Qualcomm Snapdragon

(ARM) QSD8250 1 GHz 512MB ROM512MB RAM

16GB Flash 220g 1,530mAh US$550 5MP camera Aug'10

Dell Streak 7 Qisda 7", 800x480 Android 2.2 NVIDIA Tegra 2 (ARM) 4GB SDRAM 16/32GB Flash

500g 2,100mAh US$399 Dual camera: 5MP (rear); 1.3MP (front)

1Q11

Dell Streak 10 Pegatron 10.1" Android 3.0 N/A N/A N/A N/A N/A N/A N/A 2H11 Hanwang TouchPab B10 Pegatron 10.1",

1024x600 Windows 7 Intel Celeron 1.3GHz 2GB RAM 250GB HDD 900g N/A US$305 1.3MP camera 4Q10



6 October 2011 57

Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research – Tablet PC buyer/supplier matrix (continued)


HP TouchPad Inventec 9.7", 1024x768 WebOS 3.0 Qualcomm Snapdragon

(ARM) 1.2GHz Dual Core 512MB RAM 16/32GB 740g 6,300mAh US$99 (16G) Camera: 1.3MP (front) Jul'11

HTC Jetstream N/A 10.1", 1280x768

Android 3.1 Qualcomm Snapdragon (ARM) 1.5GHz Dual Core

N/A N/A 708g 7,300mAh US$699 Dual camera: 8MP (rear); 1.3MP (front); 4G/LTE

Sep'11

HTC Flyer Pegatron 7", 1024x600 Android 2.4 Qualcomm Snapdragon (ARM) 1.5GHz

1GB RAM 32GB Flash 415g 4000mAh 6 hours

US$499 Dual camera: 5MP (rear); 1.3MP (front); With stylus

Apr'11

Lenovo LePad A1 Compal/Wistron 7", 1024x600 Androd 2.3 TI OMAP3622 (ARM) 1GHz

512MB RAM 2GB/16GB 400g N/A US$156 for 2GB; US220 for 16GB

Dual camera: 3MP (rear); VGA (front)

Aug'11

Lenovo IdeaPad A1 Compal/Wistron 7", 1024x600 Androd 2.3 TI OMAP3622 (ARM) 1GHz

512MB RAM 8GB/16GB 400g N/A US$199 for 8GB; US249 for 16GB

Dual camera: 3MP (rear); VGA (front)

Sep'11

Lenovo LePad Compal/Wistron 10.1", 1280x800

Android 2.2/LeOS 2.0/Win 7

Qualcomm Snapdragon (ARM) 1.3GHz/ Intel Core i5 1.2GHz (Dock)

1GB RAM 16/32/64GB Flash

760g 8 hours Wi-Fi only: RMB3,499/US$532 (16G)

2MP camera; SIM card slot; Support Adobe Flash; Turn into Win 7 when connected to a dock

Mar'11 in China

Lenovo ThinkPad Tablet Compal/Wistron 10.1", 1280x800



750g 10 hours US$479(16G); (US$509 with digitizer pen)

Dual camera: 5MP (rear); 2MP (front); digitizer pen; USB

Aug'11

Lenovo IdeaPad K1 Compal/Wistron 10.1", 1280x800



750g 10 hours US$499 (32G) Dual camera: 5MP (rear); 2MP (front); HDMI port

Jul'11

Lenovo IdeaPad P1 Compal/Wistron 10.1", 1280x800

Windows 7 Intel Oak Trail Z670 1.5GHz


900g 6 hours N/A 2MP camera (front); USB 4Q11

Lenovo IdeaPad U1 Hybrid

Compal/Wistron 10.1", 1280x800

Windows 7/ Android 2.2

Intel Core i5 1.2GHz (Dock)/Qualcomm Snapdragon 1.3GHz (Tablet)


N/A N/A US$1,000 2MP camera; SIM card slot; Turn into Windows 7 OS when connected to a stationing dock

4Q11 in China

LG G-Slate/ Optimus Pad

In-house 8.9", 1280x768

Android 3.0 NVIDIA Tegra 2 (ARM) Dual Core

N/A 32GB Flash 650g 6,400mAh 7.5 hours

US$750 Dual camera: 5MP (rear); 2MP (front); 3D video recording; HDMI port

Apr'11 in US

MOTO Xoom In-house 10.1", 1280x800


1GB RAM 32GB Flash N/A N/A US$699 (3G); US$499 (Wi-Fi)

Dual camera: 5MP (rear); 2MP (front), HDMI, USB

22 Feb'11 in US

MSI WindPad Enjoy 7 MSI 7", 800x480 Android 2.3 NVIDIA Tegra 2 (ARM) 1GHz Dual Core

512MB RAM 4GB Flash 395g 7 hours US$230 2MP front camera, and rear camera, HDMI port

Sep'11

MSI WindPad 100A MSI 10.1", 1024x600

Android 3.0 NVIDIA Tegra 2 (ARM) 512MB RAM 8/16GB Flash

800g 8-10 hours Below US$500 1.3MP front camera, and rear camera, HDMI port

Jul'11

MSI WindPad 110W MSI 10.1", 1024x600

Windows 7 AMD Brazos APU Dual Core

2GB RAM 32GB HDD 800g 5-6 hours US$700 1.3MP front camera, and rear camera, HDMI port

Jul'11

RIM PlayBook Quanta 7'', 1024x600 RIM OS (QNX)

ARM, Dual-core Cortex A9 1GB RAM 16/32/64GB Flash

400g N/A US$499 (16G), 599 (32G), 699 (64G)

Dual camera: 5MP (rear); 3MP (front); Support Adobe Flash

19 Apr'11

Samsung Galaxy Tab In-house 7", 1024x600 Android 2.2 1GHz Cortex A8 512MB RAM 16GB Flash 380g 4,000mAh 7 hours

US$499 (lowered from US$599)

Dual camera: 3MP (rear); 1.3MP (front); up to 32GB SD card

Nov'10 in US

Samsung Galaxy Tab In-house 8.9", 1280x800


N/A 16/32GB Flash

467g 6000mAh 10 hours

US$469(16G); US$569(32G)

Dual camera: 3MP (rear); 2MP (front); 8.6mm thin

Jun'11



6 October 2011 58

Figure 83: Barclays Capital Asia ex-Japan Technology Hardware Research – Tablet PC buyer/supplier matrix (continued)


Samsung Galaxy Tab In-house 10.1", 1280x800


N/A 16/32GB Flash

595g 6860mAh 10 hours

US$499(16G), US$599(32G)

Dual camera: 3MP (rear); 2MP (front); 8.6mm thin

May'11

Sony S1 Hon Hai 9.4", 1280x800 Android 3.0 NVIDIA Tegra 2 (ARM) 1GHz Dual Core

N/A N/A N/A N/A N/A Dual camera, USB port, 4G Fall 2011

Sony S2 N/A 5.5", dual screen, 1024x480


N/A N/A N/A N/A N/A Dual camera, USB port, 4G Fall 2011

Toshiba Folio 100 Compal 10.1", 1024x600

Android 2.2 NVIDIA Tegra 2 (ARM) N/A 16GB Flash 760g 1,020mAh 7 hours

€ 399 1.3MP camera, SD card reader

4Q10 in Europe

Toshiba Regza AT300 Compal/Pegatron 10.1", 1280x800

Android 3.0 NVIDIA Tegra 2 (ARM) 1GB RAM 16GB Flash N/A N/A N/A HDMI port, USB, SD card reader

2Q11

ViewSonic ViewPad 7 Hon Hai 7”, 800x480 Android 2.2 Qualcomm Scorpion (ARM) MSM 600MHz

512MB RAM 16/32GB Flash

410g 12WHr, 6.5 hours US$349 Dual camera: 3MP (rear); 0.3MP (front)

Nov’10

ViewSonic ViewPad 10 Hon Hai 10.1", 1024x600

Dual OS (Win 7/Android 1.6)

Intel Atom N455 1.66GHz 1GB RAM 16/32GB Flash

875g 3,200mAh US$599(16G); US$679 (32G)

1.3MP camera, HDMI port, USB, SD card reader, Adobe Flash

Feb'11

ViewSonic ViewPad 10s Hon Hai 10.1", 1024x600


512MB RAM 512MB Flash 730g 3,300mAh 7.5 hours

US$430 1.3MP camera, HDMI port, USB, SD card reader, Adobe Flash

Feb'11

ViewSonic ViewPad 10pro Hon Hai 10.1", 1024x600

Dual OS (Win 7/Android 2.2)

Intel Oak Trail Z670 1.5GHz 2GB RAM 32GB Flash 800g 6 hours US$629 1.3MP camera, HDMI port, USB, SD card reader, Adobe Flash

May'11

Vizio Via Tablet Hon Hai 8", 1024x768 Android 2.2 Qualcomm Snapdragon (ARM) QSD8250 1 GHz

512MB RAM 2GB Flash N/A N/A N/A Dual camera: 5MP (rear); 0.3MP (front)

Mar'11

ZTE Light 2 N/A 7", 1024x600 Android 2.2 Qualcomm Snapdragon (ARM) QSD8250 1 GHz

4GB RAM 32GB Flash 403g 10 hours N/A Dual camera 2Q11


Figure 84: Barclays Capital Asia ex-Japan Technology Hardware Research – China white-box tablet PCs


Aigopad Aigopad N700 In-house 7" Android 2.1 NVIDIA Tegra 2 (ARM) 1GHz Dual Core

512MB RAM 4/16/32GB HDD

465g 3,120mAh N/A MicroSD, USB port, HDMI, 1.3MP camera

Launched in China

AINOL V8000HDX In-house 7", 800x480 N/A N/A N/A 16GB HDD N/A N/A RMB930 (US$142)

MicroSD, USB port, HDMI Launched in China

AINOL V5000G In-house 5" N/A N/A N/A 8GB HDD N/A N/A RMB499 (US$76)

MicroSD Launched in China

ALEO A802 In-house 8", 1280x768 N/A N/A N/A 4GB HDD N/A N/A RMB599 (US$91)

MicroSD, USB port Launched in China

EPAD Android WiFi 8650

In-house 7" Android 2.2 600MHz N/A 2GB HDD N/A N/A RMB799 (US$122)

Wi-Fi, USB port, Support Adobe Flash

Launched in China

EPAD Android WiFi 803 In-house 8" Android 2.2 1.0GHz 512MB RAM 4GB HDD N/A N/A RMB1,380 (US$210)

Wi-Fi, USB port, Support Adobe Flash

Launched in China

MicroBee Android WiFi 7100

In-house 7" Android 2.1 1.2GHz Dual Core N/A 8GB HDD N/A N/A RMB1,198 (US$182)

Wi-Fi, USB port, HDMI port, Support Adobe Flash

Launched in China



6 October 2011 59

Figure 85: Tablet PC pricing in China

Company Product Storage Price (RMB) Price (USD)

Lenovo LePad 16G 3,499 547

LePad 32G 3,999 625

Apple iPad1 16G 2,888 451

iPad1 32G 3,688 576

iPad1 64G 4,488 701

iPad2 16G 3,688 576

iPad2 32G 4,488 701

iPad2 64G 5,288 826

Motorola Xoom 32G 4,999 781


Figure 86: Barclays Capital Asia ex-Japan Technology Hardware Research – ultrabook buyer/supplier matrix

Company Product ODM Display OS CPU Memory Storage Weight Thickness Battery Life Price Other Features Launch Time

Apple 11.6" MacBook Air Quanta

11.6" (1366x768) Mac OS Core i5-2467M 1.6GHz

2GB DDR3 / 4GB DDR3 64GB or 128GB SSD 1.08kg 17mm

5 hours / 30 days standby / 35Wh

US$999 / US$1,199 Thunderbolt port Jul-11

Apple 13.3" MacBook Air Quanta

13.3" (1440x900) Mac OS Core i5-2557M 1.7GHz 4GB DDR3

128GB or 256GB SSD 1.35kg 17mm

7 hours / 30 days standby / 50Wh

US$1,299 / US$1,599

Thunderbolt port, SD Card Jul-11

Acer Aspire 3951 (S3)

Wistron, Compal, Quanta

13.3" (1366x768) Win 7

Core i3 / i5-2467M 1.6GHz / Core i7-2637M 1.7GHz 4GB DDR3

240GB SSD or 320/500GB HDD 1.4kg 13mm

7 hours / 50 days standby

US$1134-1709 (EUR799-1199) HDMI, SD Card Sep-11

Asustek UX21 Pegatron 11.6" (1366x768) Win 7

Core i5-2557M 1.7GHz / Core i7 4GB DDR3 64GB or 128GB SSD 1.09kg 17mm

5 hours / 10 days standby US$899 (TBD)

min-DisplayPort, mini-HDMI, USB 3.0 Sep-11

Asustek UX31 Pegatron 13.3" (1600x900) Win 7

Core i5-2557M 1.7GHz / Core i7 4GB DDR3 128GB 1.32kg 17mm

7hours / 10 days standby TBD

min-DisplayPort, mini-HDMI, USB 3.0 4Q11

Lenovo U300s Wistron 13.3" (1366x768) Win 7

Core i5-2467M 1.6GHz / Core i7-2667M 4GB DDR3 256GB SSD 1.34kg 14.9mm

8 hours / 30 days standby US$1195

HDMI, VGA, USB 3.0, 1.3MP cam Oct-11

Toshiba Protege Z830 / Z835 Compal

13.3" (1366x768) Win 7

Core i3 / i5-2467M 1.6GHz / Core i7-2637M 1.7GHz 6GB DDR3 128GB SSD 1.13kg 15.8mm 8 hours / 47Wh US$1000

HDMI, VGA, USB 3.0, 1.3MP cam Nov-11



6 October 2011 60

Figure 87: Barclays Capital Asia ex-Japan Technology Hardware Research – China’s smartphone line-up

Brand Product Display Op System CPU Memory Storage Camera Batteries Other Features Launch time Price

Huawei U8500 / C8500 3.2" 480x320 TFT Android 2.1 Qualcomm MSM7227 600 MHz 256MB 512MB 3MP (rear); 0.3MP

(front) 1150mAh WiFi, Bluetooth, GPS 4Q10 RMB850 (Sep 11)

Huawei U8800 (IDEOS X5) 3.8" 800x480 TFT Android 2.2 Qualcomm MSM7227 600 MHz 512MB 2GB 5MP (rear); 0.3MP

(front) 1500mAh WiFi, Bluetooth, GPS 4Q10 RMB1,480

ZTE V880 3.5" 800x480 TFT Android 2.2 Qualcomm MSM7227 600 MHz 256MB 512MB 3MP (rear); 0.3MP


Samsung i5508 (Galaxy 5) 2.8" 320x240 TFT Android 2.2 Qualcomm MSM7227 600 MHz 256MB 170MB 2MP (rear); 0.3MP


Samsung i579 3.5" 480x320 TFT Android 2.2 Qualcomm MSM7227 600 MHz 100MB 384MB 5MP (rear); 0.3MP

(front) 1350mAh WiFi, Bluetooth, GPS 1Q11 RMB1980 (when launched); RMB1885

(Sep 11)

Lenovo O3 3.5" 800x480 AMOLED OMS 2.0 (Android) Marvell PXA310 624MHz 512MB 512MB 5MP (rear); 0.3MP

(front) 1500mAh CMMB, GPS, WiFi, Bluetooth 4Q10 RMB2200 (Sep 11)

Lenovo LePhone 3.7" 800x480 AMOLED LeOS (Android 2.1) Qualcomm QSD8250 1GHz 512MB 512MB 5MP (rear); 0.3MP

(front) 1500mAh WiFi, Bluetooth, GPS May-10 RMB2899 (when launched); RMB1700

(Sep 11)

Lenovo LePhone S1 3.61" 800x480 TFT LeOS 2.5 (Android 2.2) Qualcomm QSD8250 1GHz

512MB 512MB 5MP (rear); 0.3MP (front)

1500mAh WiFi, Bluetooth, GPS

Jun-11 RMB2599 (when launched); RMB2300 (Sep 11)

Lenovo A60 3.5" 480x320 TFT Android 2.3 MediaTek MT6573 650MHz


1500mAh Dual-sim, WiFi, Bluetooth, GPS

Aug-11 RMB999 (Sep 11)

Lenovo P70 3.5" 480x320 TFT Android 2.3 MediaTek MT6573 650MHz

512MB 2GB 5MP (rear); 0.3MP (front)

2000mAh Dual-sim, WiFi, Bluetooth, GPS

Sep-11 RMB1600 (when launched)

HTC Wildfire S 3.2" 480x320 TFT Android 2.2 Qualcomm MSM7227 600 MHz



May-11 RMB1,840 (Sep 11)

Xiaomi M1 4.0" 854x480 TFT Android 2.3 Qualcomm MSM8260 1.5GHz dual core

1GB 4GB 8MP (rear); 0.3MP (front) 1930mAh WiFi, Bluetooth,

GPS Oct-11 RMB1,999 (when launched)

Meizu M9 3.5" 960x640 TFT Android 2.3 Samsung-Intrinsity S5PC110 1GHz



Jan-11 RMB2,009 (Sep 11)

Motorola Defy 3.7" 854x480 TFT Android 2.2 TI OMAP3610 800 MHz

512MB 2GB 5MP (rear); 0.3MP (front)


4Q10 RMB2420 (when launched); RMB2,189 (Sep 11)



6 October 2011 61

APPENDIX II: INTEL MICROPROCESSOR ROADMAP

2007 2008 2009 2010

1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 2011/2012 2013

Technology 45nm process 32nm process 22nm process

Intel Core Microarchitecture Nehalem Microarchitecture Sandy Bridge Microarchitecture

Haswell Micro-architecture

(22nm)

"Tick" Penryn on 45nm "Tick" Westmere (Nehalem on 32nm)

"Tick" Ivey Bridge (Sandy

Bridge on 22nm)

Micro-architecture

"Tock" Nehalem "Tock" Sandy Bridge "Tock" Haswell

Desktops

Yorkfield (3Q07)

Wolfdale (3Q07)

Bloomfield (4Q08)

Lynnfield (45nm Nehalem) 3Q09

Clarkdale (32nm Westmere) 4Q09

Gulftown (32nm

Westmere) Sandy Bridge (32nm)

1Q11 Future processor

Santa Rosa (2Q07)

Santa Rosa

Refresh (1Q08)

Menlow Netbook platform

Montevina NB platform

(3Q08)

Montevina NB

platform Refresh

(2Q)

Calpella NB platform

Pine Trail Netbook platform

Moorestown MID platform

CULV Nehalem

based

Oak Trail tablet

platform

Huron River NB platform

Cedar Trail-M

Netbook platform

Chief River NB platform

NBs Intel Core 2

Duo (Merom, Penryn)

Stealey (3Q07)

Gilo (4Q07)

Atom

Silverthorne (2Q08)

2nd gen Intel Core 2 Duo

Clarksfield (45nm

Nehalem) 3Q09

Arrandale (32nm

Westmere) 4Q09

Pineview (45nm) 4Q09

Atom (45nm)

Arrandale (32nm) Lincroft

Sandy Bridge

(32nm) 1Q11

Atom Medfield (32nm) 2H11

Ivy Bridge (22nm Sandy Bridge) 2H11

Future processor

Servers

Xeon (1Q07) Core 2 Quad &

Duo

Caneland (3Q07) Penryn (4Q07)

Harpertown (UP, DP, 4Q07)

Harpertown (MP, 1H08)

Dunnington (3Q08)

Nehalem 1P (4Q08)

Nehalem EP (1Q09) Nehalem EX (4Q09)

Westmere 1P (1Q10) /

Westmere EP (1H10)

Westmere EX (1H11) Sandy Bridge 1P

(1Q11) Sandy Bridge EP

(2H11)

Future processor



6 October 2011 62

APPENDIX III: APPLE BUYER/SUPPLIER MATRIX

iPad 2 (9.7'') supply chain iPhone 4 supply chainComponents Company Components CompanyHardware Accerlerometer STMicroelectronics (STM.US)Accelerometer STMicroelectronics (STM.US) Application processor Samsung (005930.KS)Assembly, connectors Hon Hai (2317.TT) Assembly Hon Hai (2317.TW)Battery packs Dynapack (3211.TT) Assembly ** Pegatron (4938.TW)Battery packs Simplo (6121.TT) Audio codec Cirrus (CRUS.US)Camera module * Largan (3008.TT) Baseband processor, RF Infineon (IFX.GY)Camera module * Genius (3406.TT) Baseband processor, RF ** Qualcomm (QCOM.US)Camera module * Asia Optical (3019.TT) Bluetooth Broadcom (BRCM.US)Casing Foxconn Tech (2354.TT) Camera module (20%) Genius Electronic Optical (3406.TT)Casing Catcher Tech (2474.TT) Camera module (80%) Largan (3008.TT)Coaxial cables, connectors, power cords Wanshih Electronic (6134.TT) Casing Foxconn Tech (2354.TW)Computer components United Alloy (3162.TT) Casing Catcher (2474.TW)Connector Cheng Uei (2392.TT) Compass sensor STMicroelectronics (STM.US)Cover glass G-Tech (3149 TT) Cover glass G-Tech (3149 TT)Flexible copper clad laminates and cover layers (foTaiflex Scientific (8039.TT) CPU core ARM (ARMH.US)FPCB Flexium Interconnect (6269.TT) FM Broadcom (BRCM.US)FPCB Career Technology (6153.TT) GPS Broadcom (BRCM.US)Gyroscope * Lingsen Precision (2369.TT) Gyroscope STMicroelectronics (STM.US)Gyroscope * STMicroelectronics IC substrate Kinsus (3189.TT)Heat pipes, heat sinks, thermal module Chaun-Choung (6230.TT) Image sensor Omnivision (OVTI.US)Inductor series Mag Layers (3068.TT) LCD Panel Chimei Innolux (3481.TW)Optical fiber connector Jarllytec (3548.TT) LCD Panel LG Display (034220.KS)Passive components Yageo (2327.TT) LCD Panel Toshiba (6502.JP)PCB Unimicron (3037.TT) LCD Panel Samsung (005930.KS)PCB NY PCB (8046.TT) Magnetic sensor AKM Semiconductors (3407.JP)PCB Tripod (3044.TT) NAND Flash Samsung (005930.KS)PCB Compeq (2313.TT) NAND Flash Toshiba (6502.JP)PCB (double sides/multi-sides) Gold Circuit (2368.TT) Power amplifier Skyworks (SWKS.US)Power supply Delta (2308.TT) Power amplifier Triquint (TQNT.US)Quartz Crystal for oscillators for PC TXC (3042.TT) Power management Dialog (DLG.GY)Speaker AAC Technology (2018 HK) Quartz Crystal (45%) TXC (6042.TW)USB connectors, cable connectors Advanced Connectek (5491.TT) SDRAM Elpida (6665.JP)

Speaker AAC Technology (2018 HK)Semi Touch Panel TPK (3673.TW)Application processor Samsung (005930.KS) Touch Panel Wintek (2384.TW)Battery power management Linear (LLTC.US) Touch Panel Chimei Innolux (3481.TW)GPS Broadcom (BRCM.US) Touch Panel AUO (2409.TW)LCD backlight Radiant Opto (6176.TT) Touch Panel Sintek (3049.TT)LCD backlight Coretronic (5371.TT) Touch screen controller Texas Instruments (TXN.US)LCD driver Novatek (3034.TT) VGA sensor Omnivision (OVTI.US)LCD glasses G Tech Optoelectronics (3149.TT) WiFi Broadcom (BRCM.US)LCD panel LG Display (034220.KS) ** for CDMA version onlyLCD panel Samsung (005930.KS)LCD panel * Chimei Innolux (3481.TT) iPhone 5Memory, A4 processor Samsung (005930.KS) Assembly Hon Hai (2317.TT)RF, handset baseband Infineon (IFNNY.US) Assembly Pegatron (4938.TT) RF, handset baseband (CDMA version) * Qualcomm (QCOM.US) Casing Foxconn Tech (2354.TT)System power mgmt NXP (NXPI.US) Casing Catcher Tech (2474.TT)TFT-LCD color filters Sintek (3049.TT) Cover glass G-Tech (3149 TT)Touch Panel Wintek (2384.TT) NAND Flash Samsung (005930.KS)Touch Panel TPK (3673.TT) NAND Flash Toshiba (6502.JP)Touch Panel * Sintek Photronic (3049.TT) Speaker AAC Technology (2018 HK)Touch Panel * Cando (8056.TT) Touch panel TPK (3673.TT)Touch Panel * Chimei Innolux (3481.TT) Touch panel Wintek (2384.TT)Touchscreen controllers, WiFi, Bluetooth Broadcom (BRCM.US) Touch panel Chimei Innolux (3481.TT)WiFi Broadcom (BRCM.US) Touch panel Cando (8056.TT)* New supply chain/features in additional to iPad 1

Apple Buyer/Supplier Matrix



6 October 2011 63

APPENDIX IV: BILLS OF MATERIALS

Figure 88: Bill of materials for a typical notebook PC (estimated, US$)

Figure 89: Bill of materials for a typical desktop PC (estimated, US$)

Component Cost Range % of Total

Display $51 - $63 11.4% - 8.2%CPU 45 - 200 10.0% - 25.9%Hard Disk Drive 42 - 61 9.4% - 7.9%DRAM 23 - 29 5.1% - 3.7%Battery 26 - 48 5.8% - 6.3%Casing 30 - 45 6.8% - 5.9%Optical drive 27 - 42 6.1% - 5.5%Chipset (data processing / ASP) 36 - 44 8.1% - 5.7%Connectors 21 - 29 4.6% - 3.8%Circuit Board 15 - 15 3.2% - 1.9%Power adapter 6 - 7 1.4% - 0.9%WLAN 6 - 24 1.3% - 3.1%Keyboard 4 - 6 0.9% - 0.8%Others 12 - 23 2.6% 3.0%

Software 75 - 75 16.7% - 9.7%Warranty 30 - 60 6.7% - 7.8%

Total $449 - $772

Component Cost Range % of Total

Monitor $63 - $116 16.4% - 15.3%CPU 40 - 162 10.5% - 21.3%Hard Disk Drive 42 - 71 11.1% - 9.3%DRAM 29 - 53 7.5% - 7.0%Power source / casing 33 - 54 8.5% - 7.1%Chipset (data processing / ASP) 25 - 44 6.6% - 5.8%Connectors 19 - 26 4.9% - 3.4%Circuit Board 6 - 7 1.6% - 1.0%Optical drive 21 - 79 5.5% - 10.4%Keyboard 4 - 6 1.0% - 0.8%Others 6 - 17 1.5% 2.3%

Software 75 - 75 19.6% - 9.9%Warranty 20 - 50 5.2% - 6.6%

Total $382 - $760

Source: Gartner, Barclays Capital estimates Source: Gartner, Barclays Capital estimates

Figure 90: Example of bill of materials for an iPad 2 (US$)

Figure 91: Bill of materials for a typical ultrabook (NB)

32 GB 3G Wireless Version Pricing % of TotalNAND flash & DRAM $65.00 19.3%Display & Touch screen 127.00 37.8%Baseband RF/PA 19.00 5.6%A5 Processor 14.00 4.2%User Interface 12.00 3.6%Battery 25.00 7.4%BT/FM/GPS/WLAN 9.00 2.7%Electromechanical & mechanical 35.00 10.4%Power Management 10.00 3.0%Camera Modules 4.30 1.3%Box Contents 6.00 1.8%Manufacturing 10.00 3.0%Total $336.30 100.0%

Component Cost (US$) % of TotalDisplay $67 9%CPU (Intel Core i3) $173 22%SSD (128G) $150 19%DRAM $26 3%Battery (polymer) $47 6%Metal casing $55 7%Optical drive $0 0%Chipset $40 5%Connectors $25 3%Circuit Board $15 2%Power adapter $7 1%WLAN $15 2%Keyboard $5 1%Others $17 2%Assembly $20 3%Software $75 10%Warranty $45 6%Total $781

Source: iSuppli, Barclays Capital estimates Source: Barclays Capital estimates


6 October 2011 64

Valuation Methodology and Risks

Asia ex-Japan IT Hardware

Foxconn Technology Co., Ltd. (2354 TT / 2354.TW)

Valuation Methodology: Our 12-month PT for FTC is NT$120 based on a target P/E multiple of 13x our 2012 EPS forecast of NT$9.23. FTC's historical P/E for 2007-11E was 10-40x, averaging 13.5x in 2009-11E. We conservatively value the stock, due to the volatile sales contribution from game consoles and the downward trend of thermal sales and their gross margin, and so view a P/E of 13x as justified. Going forward, however, we believe FTC may deserve a premium because of its promising metal casing business for iPad, iPhone and ultrabooks. We would consider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue.

Risks which May Impede the Achievement of the Price Target: The risks that could prevent our NT$120 PTfrom being achieved are: 1) demand for Apple products, such as the iPad and iPhone, proving to be lower than we expect; 2) demand for ultrabooks also lower than expected; and 3) FTC's capacity proves insufficient to meet demand for metal casings (for unibody types, in particular, which require FTC to operate numerous CNC machines).

Ju Teng International Co., Ltd. (3336 HK / 3336.HK)

Valuation Methodology: Our HK$1.20 PT Ju Teng is based on P/E using a target P/E multiple of 5x our 2012 EPS forecast of HK$0.2. We set our target multiple at 6x, which in line with the stock's normal trading cycle (2-10x) of 6x, because we do not expect Ju Teng's to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years.

Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could prevent our HK$1.20 PT for Ju Teng from being achieved are: 1) lower-than-expected demand for metal casings, 2) Ju Teng's capacity for and experience in metal casing (both die-casting and stamping) catchs up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng's metal casing manufacturing.

Shin Zu Shing Co., Ltd. (3376 TT / 3376.TW)

Valuation Methodology: Our NT$58 PT for Shin Zu SHing is based on P/E using a target P/E multiple of 12x (with a normal trading cycle (10-24x) of 12x, We apply our target multiple for our 2012 EPS forecast of NT$4.85. We believe a P/E of 12x is justified (the mean is 18x) until we see a clearer adoption rate of higher-end hollow-type hinges for ultrabooks. Although tablet cannibalization could negatively impact growth of NB hinge sales, we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E.

Risks which May Impede the Achievement of the Price Target: The risks that our NT$58 PT for Shin Zu Shing will not be achieved include the following. Upside risks: The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1) higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum.




6 October 2011 65

ANALYST(S) CERTIFICATION(S)

I, Allen Chang, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related tothe specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED

For current important disclosures, including, where relevant, price target charts, regarding companies that are the subject of this research report,please send a written request to: Barclays Capital Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer tohttp://publicresearch.barcap.com or call 1-212-526-1072.

The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities.

Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA.These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst’saccount.

Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise.

Primary Stocks (Ticker, Date, Price)

Foxconn Technology Co., Ltd. (2354.TW, 05-Oct-2011, TWD 96.8), 1-Overweight/2-Neutral

Ju Teng International Co., Ltd. (3336.HK, 05-Oct-2011, HKD 1.40), 3-Underweight/2-Neutral

Shin Zu Shing Co., Ltd. (3376.TW, 05-Oct-2011, TWD 60.4), 2-Equal Weight/2-Neutral

Guide to the Barclays Capital Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the “sector coverage universe”).

In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3-Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating

1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.

2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.

3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.

RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable orto comply with applicable regulations and/or firm policies in certain circumstances including when Barclays Capital is acting in an advisorycapacity in a merger or strategic transaction involving the company.

Sector View

1-Positive - sector coverage universe fundamentals/valuations are improving.

2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

3-Negative - sector coverage universe fundamentals/valuations are deteriorating.

Below is the list of companies that constitute the "sector coverage universe":

Asia ex-Japan IT Hardware

Acer Inc. (2353.TW) Asustek Computer Inc. (2357.TW) Cheng Uei Precision Industry Co., Ltd. (2392.TW)

Chicony Electronics (2385.TW) Compal Electronics Inc. (2324.TW) Darfon Electronics (8163.TW)

Digital China Holdings Ltd. (0861.HK) Dynapack International Technology Corp. (3211.TW)

Foxconn Technology Co., Ltd. (2354.TW)

Hon Hai Precision Industry Co., Ltd. (2317.TW)

Inventec Inc. (2356.TW) Ju Teng International Co., Ltd. (3336.HK)


6 October 2011 66


Lenovo Group Ltd. (0992.HK) Pegatron Corp. (4938.TW) Quanta Computer Inc. (2382.TW)

Shin Zu Shing Co., Ltd. (3376.TW) Simplo Technology Co., Ltd. (6121.TW) Skyworth Digital Holdings Ltd. (0751.HK)

Sunrex Technology (2387.TW) Synnex Technology International Corp. (2347.TW) TPV Technology Ltd. (0903.HK)

Wistron Corporation (3231.TW)

Distribution of Ratings:

Barclays Capital Inc. Equity Research has 1815 companies under coverage.

44% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 59% ofcompanies with this rating are investment banking clients of the Firm.

42% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 51% ofcompanies with this rating are investment banking clients of the Firm.

12% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 36% ofcompanies with this rating are investment banking clients of the Firm.

Guide to the Barclays Capital Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's pricetarget over the same 12-month period.

Barclays Capital offices involved in the production of equity research:

London

Barclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London)

New York

Barclays Capital Inc. (BCI, New York)

Tokyo

Barclays Capital Japan Limited (BCJL, Tokyo)

São Paulo

Banco Barclays S.A. (BBSA, São Paulo)

Hong Kong

Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)

Toronto

Barclays Capital Canada Inc. (BCC, Toronto)

Johannesburg

Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)

Mexico City

Barclays Bank Mexico, S.A. (BBMX, Mexico City)

Taiwan

Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)

Seoul

Barclays Capital Securities Limited (BCSL, Seoul)

Mumbai

Barclays Capital Securities (India) Private Limited (BSIPL, Mumbai)

Singapore

Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)


6 October 2011 67


Foxconn Technology Co., Ltd. (2354 TT / 2354.TW) Stock Rating Sector View

TWD 104.00 (04-Oct-2011) 1-OVERWEIGHT 2-NEUTRAL

Rating and Price Target Chart - TWD (as of 04-Oct-2011) Currency=TWD

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Link to Barclays Capital Live for interactive charting

Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Foxconn Technology Co., Ltd. or one of its affiliates.

Barclays Bank PLC and/or an affiliate trades regularly in the securities of Foxconn Technology Co., Ltd..

Valuation Methodology: Our 12-month PT for FTC is NT$120 based on a target P/E multiple of 13x our 2012 EPS forecast of NT$9.23. FTC's historical P/E for 2007-11E was 10-40x, averaging 13.5x in 2009-11E. We conservatively value the stock, due to the volatile sales contributionfrom game consoles and the downward trend of thermal sales and their gross margin, and so view a P/E of 13x as justified. Going forward,however, we believe FTC may deserve a premium because of its promising metal casing business for iPad, iPhone and ultrabooks. We wouldconsider adjusting our target multiple once the sales contribution of metal casings accounts for more than 50% of total revenue.

Risks which May Impede the Achievement of the Price Target: The risks that could prevent our NT$120 PTfrom being achieved are: 1) demandfor Apple products, such as the iPad and iPhone, proving to be lower than we expect; 2) demand for ultrabooks also lower than expected; and 3)FTC's capacity proves insufficient to meet demand for metal casings (for unibody types, in particular, which require FTC to operate numerousCNC machines).

https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6801779&legend=Foxconn Technology Co., Ltd.&shortlegend=2354.TW&currency=TWD&enddate=20111004&begindate=20101004&userId=changall&appName=RPS�


6 October 2011 68


Ju Teng International Co., Ltd. (3336 HK / 3336.HK) Stock Rating Sector View

HKD 1.40 (04-Oct-2011) 3-UNDERWEIGHT 2-NEUTRAL

Rating and Price Target Chart - HKD (as of 04-Oct-2011) Currency=HKD

Closing Price


0.75

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Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Ju Teng International Co., Ltd. or one ofits affiliates.

Barclays Bank PLC and/or an affiliate trades regularly in the securities of Ju Teng International Co., Ltd..

Valuation Methodology: Our HK$1.20 PT Ju Teng is based on P/E using a target P/E multiple of 5x our 2012 EPS forecast of HK$0.2. We set ourtarget multiple at 6x, which in line with the stock's normal trading cycle (2-10x) of 6x, because we do not expect Ju Teng's to trade at as a high multiple as in the past given that metal casings are approaching full adoption in the next two years.

Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could prevent our HK$1.20 PT for Ju Teng frombeing achieved are: 1) lower-than-expected demand for metal casings, 2) Ju Teng's capacity for and experience in metal casing (both die-casting and stamping) catchs up with that of other major competitors before 2Q12E and 3) higher-than-expected recognition and confidence from customers in terms of Ju Teng's metal casing manufacturing.

https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=B0N6Y91&legend=Ju Teng International Co., Ltd.&shortlegend=3336.HK&currency=HKD&enddate=20111004&begindate=20101004&userId=changall&appName=RPS�


6 October 2011 69


Shin Zu Shing Co., Ltd. (3376 TT / 3376.TW) Stock Rating Sector View

TWD 61.00 (04-Oct-2011) 2-EQUAL WEIGHT 2-NEUTRAL

Rating and Price Target Chart - TWD (as of 04-Oct-2011) Currency=TWD

Closing Price


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Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Shin Zu Shing Co., Ltd. or one of itsaffiliates.

Barclays Bank PLC and/or an affiliate trades regularly in the securities of Shin Zu Shing Co., Ltd..

Valuation Methodology: Our NT$58 PT for Shin Zu SHing is based on P/E using a target P/E multiple of 12x (with a normal trading cycle (10-24x) of 12x, We apply our target multiple for our 2012 EPS forecast of NT$4.85. We believe a P/E of 12x is justified (the mean is 18x) until we seea clearer adoption rate of higher-end hollow-type hinges for ultrabooks. Although tablet cannibalization could negatively impact growth of NBhinge sales, we believe the upward growth trend we forecast for MacBook Air/Pro products should allow SZS to maintain its sales growth momentum and gross margin in 2012E.

Risks which May Impede the Achievement of the Price Target: The risks that our NT$58 PT for Shin Zu Shing will not be achieved include thefollowing. Upside risks: The key risks to the upside that could prevent our price target from being achieved, in our view, are the following: 1)higher-than-expected hollow-type hinge adoption rate on non-Apple ultrabooks and 2) better-than-expected NB demand in 2012E that might bring SZS a chance to maintain sales and earnings growth momentum.


https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=B02GHN7&legend=Shin Zu Shing Co., Ltd.&shortlegend=3376.TW&currency=TWD&enddate=20111004&begindate=20101004&userId=changall&appName=RPS�

DISCLAIMER:

This publication has been prepared by Barclays Capital, the investment banking division of Barclays Bank PLC, and/or one or more of its affiliates as provided below. It isprovided to our clients for information purposes only, and Barclays Capital makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to any data included in this publication. Barclays Capital will not treat unauthorized recipients ofthis report as its clients. Prices shown are indicative and Barclays Capital is not offering to buy or sell or soliciting offers to buy or sell any financial instrument.

Without limiting any of the foregoing and to the extent permitted by law, in no event shall Barclays Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees have any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savingsor loss of opportunity or other financial loss, even if notified of the possibility of such damages, arising from any use of this publication or its contents.

Other than disclosures relating to Barclays Capital, the information contained in this publication has been obtained from sources that Barclays Capital believes to be reliable, but Barclays Capital does not represent or warrant that it is accurate or complete. The views in this publication are those of Barclays Capital and are subject tochange, and Barclays Capital has no obligation to update its opinions or the information in this publication.

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This communication is being made available in the UK and Europe primarily to persons who are investment professionals as that term is defined in Article 19 of theFinancial Services and Markets Act 2000 (Financial Promotion Order) 2005. It is directed at, and therefore should only be relied upon by, persons who have professionalexperience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons.Barclays Capital is authorized and regulated by the Financial Services Authority ('FSA') and member of the London Stock Exchange.

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