Electronic Components Industry Investment Strategy for the 4th Quarter of 2010

In the third quarter, we ended the data for the weak peak season. In August, Taiwan’s electronic data was not good, and passive components, PCB manufacturing, and LEDs appeared to have decreased month-on-month, which was mainly affected by the inventory adjustment of PCs and TFT panels. In September, the market expects that there will be slight recovery in most areas, but in the end LED and passive components, The IC seal test and PCB materials all showed a decrease in the chain ratio, lower than expected. In the third quarter, the historical average growth rate was 17%. This year, only the touch screen and solar energy maintained strong growth. The chain-to-quarter growth of PCB manufacturing, IC packaging and testing, LED and passive components was less than 5%, and the TFT area was declining. The tight supply in the third quarter began to ease in many areas. Mainland manufacturers are more dependent on consumer electronics and mobile phones. The overall situation may be slightly better than Taiwanese manufacturers.

2Q Taiwan's major electronics sector's profitability is significantly higher than the historical average. Among them, the lower than the historical average is EMS, a small margin of over (within 10%) connected devices, LCD-TFT, PCB, and the remaining areas exceed the high range. At 30%, passive components are 118%.

The electronics industry will enter the post-boom era, and the release of production capacity will become the dominant factor. Most of the ROE in the field of electronic components has clearly exceeded the historical average, which has led to the expansion of industry capacity from the beginning of the year and gradually strengthened. It is expected that the release of production capacity and seasonal fluctuations in demand will make the economy begin to decline from the end of the year. Neither inventory nor demand will have a significant negative impact. We expect demand to increase steadily. It is expected that 2011 is still better than normal, but the economy will be lower than 10 years, and the overall performance will slow down significantly.

The EMS sector was not particularly brilliant in 2010, and the pressure on economic adjustment was very small. In the short term, China’s manufacturing advantages have not yet emerged. As long as the local currency still maintains a modest appreciation, companies with strong competitiveness will perform the story “The Left is the King” and continue to develop rapidly. Companies that are worth noting include Goer acoustics, Zhuo Yi Technology, Guangzhou Guoguang. The remaining non-EMS categories include Sunlord Electronics and Tongfu Microelectronics.

In terms of product innovation, tablet PCs (including the iPad-like) are the most important new products in the first half of 2011 and will be accepted more than Netbooks and e-books. Liebherr Hi-Tech who has the opportunity to enter the large-size production system deserves special attention. FPC and HDI are also areas of benefit. The development trend of electronic products is perception and interaction, and their impact remains to be tapped.

Killer applications are more likely to appear in areas related to strategic emerging industries, including LED lighting, electric vehicles, and electronics for various industries, and these areas can be given sustained attention. The sensor field can be concerned with Changjiang Electronics Technology; the electric vehicle field is concerned with the integrated layout of Foshan Lighting.

LED should focus on how the lighting market starts and the expected start-up should be in 2011. It is expected that the cost of illumination will decrease by 50%, which may start the household lighting market. The increase in luminous efficiency and the decrease in chip prices caused by overcapacity can all reduce the cost of LED lighting. It is recommended to pay attention to the packaging and application side of Zhejiang Sunshine and National Star Optoelectronics, and the chip link focuses on profitability. Silan Micro with outstanding capabilities and semiconductor experience.