November 5, 2007 – Notebook unit sales are on track for a better-than-expected 40% growth this year, and that growth will more than likely keep going through 2008 — which would be great news for several chipmakers, according to an industry analyst.
“We are growing increasingly confident that 2008 has the potential to offer another strong year of notebook growth that will benefit the PC supply chain” with higher average margins and ASPs than desktop systems, according to Doug Freedman of American Technology Research, writing in a research note. “We believe consensus will continue to underestimate the power of this notebook/PC cycle, in a manner similar to how consensus continuously underestimated the potential for 15%+ Y-Y unit growth in handsets over the past few years.”
A number of factors are pointing toward 40% notebook unit growth this year, exceeding general industry consensus of 25%-30%, Freedman claims. First, he cites a slew of quarterly growth data from notebook-centric companies: Apple’s 3Q units were up 37% Y-Y (and 19% Q-Q); Asustek reported similar results; Acer showed 30% Q-Q growth in 3Q and said 4Q would be 10%-20% sequentially higher; Lenovo’s 3Q notebook units rose 78% Y-Y; Compal sees >10% Q-Q notebook growth in 4Q; HP saw 72% Y-Y growth in notebooks in 2Q07 with “similar strong results” expected in 3Q. And finally, Intel’s CPU revenues from notebooks surged 26% Y-Y in 3Q, while AMD saw 68% Y-Y growth.
Sustained demand in 2007 is being supported by three factors, he says: a weak US dollar, low component prices, and a transition from desktop systems to notebooks, spurred by new formfactors and lower prices and shorter notebook upgrade cycles, plus yet-to-be-known new drivers emerging in 2008.
The strong unit growth will result in a big notebook replacement cycle, leading to a crossover point in 2H08 with desktop unit sales, Freedman says. Notebook cycles are shorter than that of PCs, he notes, because of lower prices (now seeing sub-$500 fully functional products) and small formfactors, as well as tendencies for mechanical failure.
Meanwhile, a weak US dollar (even flat with current levels vs. foreign currencies) is expected to drive international growth. “We believe the China Olympics and subsequent spending frenzy likely to ensue in the country will add to Asian demand,” Freedman writes. Also, component pricing in general is still favorable — even DRAM prices are >60% lower than a year ago, and current oversupplies should last well into 2008, offsetting any other component price spikes due to shortages in other areas, e.g. plastic, panels and batteries.
Another factor is added mobile broadband capability, which Freedman says is “reaching critical mass in the US,” and WiMax is gaining adoption internationally. Demand for reliable, inexpensive voice communications drove multiyear unit growth in handsets, Freedman points out, and a similar shift in high-speed data connectivity “may create a similar shift in consumer buying habits in the consumer electronics space, with a focus on all-in-one notebook devices that incorporate GPS/LBS/WiFi-WWAN-WiMax.”
Given all these factors, Freedman is bullish on prospects for Intel and AMD — the former in the mainstream PC market, and the latter in the low-end of the market with rebounding graphics. “Both companies have pros/cons within the enthusiast/server market,” he adds.