Equity Research 14 November 2025 IT Hardware and Communications Equipment Asia Trip Takeaways: AI Upside, Particularly for Custom ASICs; PCs and Smartphones Stable We spent a few days in Taiwan meeting with companies across the supply chain for Servers, Networking, PC, and Smartphones. The most positive takes were on custom ASICs, which impacts several of our names in the EMS space where we recommend CLS, JBL, and FLEX. We met with a number of companies during our two days in Taiwan. Overall, the takes for ...

Summary of the Conference Call on IT Hardware and Communications Equipment Industry Overview - The focus is on the **IT Hardware and Communications Equipment** industry, specifically the **storage market** and **NAND pricing** trends [1][2]. Key Points and Arguments 1. **Storage Market Growth Projections**: - Total storage estimates for **CY25** have been adjusted upwards, with a forecast of **5% growth** for **CY26** and **2% growth** for **CY27** [2]. - The storage market is expected to grow at a **CAGR of 7%** from **2021 to 2026**, with hardware growing at **6%** and software/SaaS at **15%** [17][18]. 2. **NAND Pricing Impact**: - Recent upward movements in **NAND pricing** are expected to affect storage players' revenues and margins, as NAND can account for up to **50% of COGS** in storage hardware [3][8]. - The correlation between NAND pricing changes and product GM is delayed, typically taking about a quarter to reflect in revenue and margins [8][11]. 3. **Market Dynamics**: - The storage market has shown resilience year-to-date, although there are pockets of weakness, particularly in the public sector and EMEA [2]. - The anticipated recovery in enterprise spending and AI-related demand is expected to begin impacting the market around **CY26** [2][17]. 4. **Vendor Performance**: - **NetApp (NTAP)** and **Pure Storage (PSTG)** are expected to see improvements in product GMs in the second half of the year, aided by strategic pre-buys [16]. - **DELL** and **HPE** are noted for their market share dynamics, with DELL being a consistent share donor and HPE maintaining stable market share [31][37][41]. 5. **Software/SaaS Market Share**: - Software/SaaS revenues are projected to remain a small portion of the overall market, expected to grow from **4%** in **2026** to nearly **5%** by **CY27** [25][28]. 6. **AFA vs. Disc/Hybrid Growth**: - AFA (All-Flash Array) is expected to grow at a **CAGR of 9%**, while Disc/Hybrid is projected to grow at **6%** from **2021 to 2026** [17][18]. Additional Important Insights - The storage market's growth is not correlating with trends in server and DC switching revenues, indicating that external storage is not fully participating in AI-related growth [18][19]. - Historical data shows a decline in the correlation between server revenues and external storage revenues, particularly as AI servers with higher ASPs ramp up [19][21]. - The overall storage market has experienced fluctuations, with an average growth of **6%** over the past five years, and is now expected to average **8% growth** in **2025-2026** [21][24]. Conclusion - The IT Hardware and Communications Equipment industry, particularly the storage segment, is poised for moderate growth driven by enterprise recovery and AI-related demand, despite challenges posed by NAND pricing volatility and market dynamics.