Summary of the Investor Presentation on Greater China Technology Hardware Industry Overview - The presentation focuses on the Greater China Technology Hardware sector, particularly in the context of AI demand leading into 2026 [3][4]. Key Insights - **NVIDIA Supply Chain**: The outlook for downstream rack output has become more optimistic post-Computex, with expectations of approximately 34,000 rack builds for 2025 and at least 60,000 for 2026 [3]. - **Monthly Rack Output**: Major Original Design Manufacturers (ODMs), especially Hon Hai, are experiencing an increase in monthly rack output [3]. - **GB300 Delivery**: The GB300 is on track for delivery by the end of Q3 or early Q4 [3]. - **PC Market Trends**: The PC market is anticipated to see sub-seasonal demand in the second half of the year, influenced by pull-forward demand in the first half if end demand does not significantly improve [3]. - **PC OEM Expectations**: Original Equipment Manufacturers (OEMs) are currently projecting a 2-5% year-over-year growth in PC shipments for 2025 [3]. - **General Server Market**: Strong momentum in the first half of the year is expected to decelerate as the market transitions into the second half [3]. Stock Recommendations - **ODM Preferences**: The preferred order of ODMs is Hon Hai > Wiwynn > Wistron > Quanta [3]. - **AI Component Plays**: Gold Circuit is highlighted as a favorable investment in AI components [3]. - **Enterprise vs. Consumer PCs**: Preference is given to enterprise PC exposure over consumer PCs, with recommended stocks being Lenovo > Asustek > Acer [3]. - **Less Bearish Outlook**: Unimicron is noted as having a less bearish outlook compared to others [3]. Valuation Comparisons - A detailed valuation comparison of various companies within the hardware technology sector is provided, including metrics such as closing price, price target, market cap, EPS, P/E ratio, P/B ratio, and EV/EBITDA for the year 2025 and 2026 [4]. - Notable companies include: - **Compal**: Closing price of 28.10, with a market cap of 4,037 million and a P/E ratio of 12.8 for 2025 [4]. - **Acer**: Closing price of 29.95, with a market cap of 15,429 million and a P/E ratio of 15.3 for 2025 [4]. - **Lenovo**: Closing price of 11.31, with a market cap of 17,584 million and a P/E ratio of 11.1 for 2025 [4]. Additional Insights - The report emphasizes the potential conflicts of interest due to Morgan Stanley's business relationships with covered companies, advising investors to consider this when making investment decisions [1][2]. This summary encapsulates the critical points from the investor presentation, highlighting the current state and future outlook of the Greater China Technology Hardware industry, along with specific stock recommendations and valuation metrics.

Investment Rating - The report maintains an "Overweight" (OW) rating on Lenovo, downgrades Asustek to "Equal Weight" (EW), and downgrades Acer, Compal, and Foxconn to "Underweight" (UW) [1][5]. Core Insights - The report expresses a cautious outlook on the PC market, lowering PC unit assumptions by 3% for 2025-26 due to increased policy uncertainties and recession concerns [2][10]. - There is an expectation of increased inventory building among OEMs for the US market, particularly in the second quarter, as notebooks are currently exempt from tariffs [3][4]. - The report suggests avoiding investments in the PC/NB segment due to the risks associated with policy uncertainties, while preferring commercial over consumer segments due to their resilience [5][12]. Summary by Sections PC/NB Market Outlook - The report indicates a 3% reduction in PC shipment assumptions for 2025-26, reflecting a more conservative stance amid macroeconomic uncertainties [2][10]. - Notebooks are expected to see a 5% quarter-over-quarter increase in builds for Q2, with total builds forecasted at 31.2 million units, which is a 5% increase from Q1 but a 4% decrease year-over-year [3][4]. Inventory and Pricing - Current notebook inventory levels are estimated to be between 7 to 15 weeks, likely closer to 10-12 weeks, with potential for further inventory increases during the tariff pause [4][5]. - Pricing adjustments are not anticipated to significantly impact consumers in the near term due to existing inventory levels [4]. Stock Recommendations - The report recommends avoiding the PC/NB segment, downgrading several stocks including Compal, Acer, Asustek, and Foxconn, while maintaining an OW on Lenovo due to its defensive positioning in the commercial PC market [5][12]. - Lenovo's stock is viewed as largely de-risked following its underperformance compared to the Hang Seng Index [5][12]. Financial Adjustments - Earnings estimates for Lenovo have been adjusted downward by 1%, 9%, and 10% for fiscal years 2025-27, respectively, reflecting a more conservative outlook [36][38]. - The price target for Lenovo has been lowered from HK$13.10 to HK$10.00, driven by decreased earnings estimates [38][40].

Summary of Conference Call Notes Industry Overview - **Industry**: US Semiconductors - **Key Companies**: Advanced Micro Devices (AMD), Intel Corporation (INTC) Core Insights and Arguments 1. **Notebook Shipments Performance**: - March notebook shipments increased by 39% month-over-month, driven by pull-in demand to mitigate tariffs [2][7] - Overall 1Q25 notebook shipments were down 6% quarter-over-quarter, better than the expected decline of 10% and above the normal seasonal decline of 14% [1][8] 2. **Impact of Tariffs**: - The demand driven by tariffs is seen as a near-term positive for notebook-exposed companies like AMD (17% of sales) and INTC (33% of sales) [1][4] - However, there is concern that this demand may lead to a CPU inventory build, especially after a 10% quarter-over-quarter growth in AMD and Intel CPUs in 4Q24, while overall PC units declined by 1% [1][11] 3. **Future Expectations**: - A below seasonal increase of 7% quarter-over-quarter in notebook shipments is expected for 2Q25, which is lower than the normal seasonal increase of 9% [3][9] 4. **Investment Ratings**: - The company maintains a Neutral rating on both AMD and Intel, indicating a cautious outlook despite the recent positive shipment data [1][4][12] Additional Important Points 1. **Market Dynamics**: - The semiconductor market is highly competitive, with AMD directly competing with Intel in the microprocessor market and with NVIDIA in the graphics and AI GPU market [14] - Fluctuations in market share between these companies could significantly impact estimates and valuations [14][20] 2. **Revenue Sources**: - AMD derives approximately 20% of its sales from the PC industry, which is sensitive to IT spending trends [15] - A significant portion of AMD's revenue (15%) comes from major clients like Sony and Microsoft, making it vulnerable to changes in their order volumes [15] 3. **Valuation Metrics**: - AMD's target price is set at $110.00, reflecting a valuation of 28 times the estimated EPS for C26, which is at the lower end of its historical range [13] - Intel's target price is set at $21.00, reflecting a valuation of 13 times the estimated EPS for C26, which is below the average trading range for semiconductor companies [18] 4. **Risks**: - Both companies face risks from competition, customer dependency, and macroeconomic factors that could affect their performance and stock prices [19][21] This summary encapsulates the key points from the conference call, highlighting the current state of the semiconductor industry, the performance of major companies, and the potential risks and opportunities ahead.