Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Securities (Taiwan) Corporation Limited View HSBC Global Research at: https://www.research.hsbc.com Votingopens1June–29JulyIf youvalueourserviceandinsightVotenowAsiamoneyBrokersPoll 2022  Expect further downside to market expectations as we cut our FY22e notebook unit growth to -15% YoY (from flat)  Bear-case scenario suggests further share price downside risks for consumer-driven PC brand names  Cut estimates and TPs for all; reiterate Buy on Lenovo (992 HK) but downgrade Acer (2353 TT) from Hold to Reduce Looking for another round of PC shipment data to surprise to the downside: We cut our 2022 global notebook shipment forecast from flat to -15% YoY, lower than the market expectation of around -10% YoY (vs. IDC’s -9%). We continue to lower our consumer and Chromebook shipment forecasts due to tepid demand, as well as slower growth of commercial and gaming models. We lower our shipment forecasts for commercial/gaming models to +7%/+5% YoY in 2022e, vs. our previous forecasts of +16%/+10%. Thus, we expect 2Q22 NB shipments to decline 12% QoQ, followed by a mild rebound of +8% QoQ in 3Q22, weaker than the traditional seasonality of 13% QoQ. We continue to see higher than normal inventory levels in channels (currently above 12 weeks vs. the normal level of 8-12 weeks). Bear-case scenario suggests further downside risk for consumer PC names: Our revised HSBCe NB shipment forecast for 2022e is around 219-220m units, above the pre-COVID level of 160-170m per year. However, we don’t rule out the possibility of further downside as a result of more conservative enterprise spending or worsening consumer demand. We conduct a bear-case analysis in which we assume downstream PC names’ shipments, profitability and valuation revert to pre-pandemic levels. Our analysis suggests that Acer (2353 TT) and Asustek (2357 TT), the brands with greater consumer exposure, would see 24%-46% downside risk to share prices. Reiterate Buy on Lenovo; downgrade Acer to Reduce: We maintain Buy on Lenovo (992 HK) due to its high commercial exposure and improving server profitability coupled with its inexpensive valuation. However, we note more downside risk for consumer-driven PC brands, Asustek (2357 TT, Hold) and Acer (2353 TT, Reduce). We downgrade Acer to Reduce as we believe it will underperform other PC brands in 2022e due to lingering inventory digestion and greater valuation downside. Exhibit 1: Key changes to TP and upside/downside Current _______ TP ________ Rating Upside/ Market cap Company Ticker price Old New Old New downside (USDm) 992 HK Lenovo 7.71 12.6 9.9 Buy Buy 28% 11,836 2357 TT Asustek 340 400 390 Hold Hold 15% 8,593 2353 TT Acer 29 25.9 20.7 Hold Reduce -29% 3,008 Source: Bloomberg, HSBCe, Priced as of 6 June 8 June 2022 Carol Juan* Analyst, Technology HSBC Securities (Taiwan) Corporation Limited carol.cc.juan@hsbc.com.tw +886 2 6631 2862 Jacky Chen* Associate HSBC Securities (Taiwan) Corporation Limited jacky.ky.chen@hsbc.com.tw +886 2 66312865 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Asia Tech Hardware Equities Computers & Peripherals Asia PC Industry: Expecting a second leg of PC correction Equities ● Computers & Peripherals 8 June 2022 2 HSBCe global NB shipment forecast now -15% YoY, below market consensus of -10% YoY 2Q22 trough but tepid post lock-down rebound due to continued inventory digestion We now estimate 2Q22 global NB shipments will decline 12% QoQ (compared to our previous forecast of up 6% QoQ), which will likely be the trough for global NB shipments in 2022e, owing to the production constraints due to China lock-downs, as well as tepid Chromebook and consumer demand. Looking forward, we note that production in Shanghai and Kunshan has been recovering since end-May 2022 and was back to a 90%+ utilization rate in June 2022. However, we also note that in-transit finished goods have been gradually arriving to the channels in 2Q22, post the logistics constraints, which has led to higher than normal inventory levels in channels (currently above 12 weeks vs. the normal level of 8-12 weeks). This implies downside risk for mainstream consumer notebook shipments due to the unclear demand visibility for 2H22. Thus, we expect a weaker rebound and a more flattish seasonality than normal in 3Q22. Overall, we forecast a +8.3% QoQ increase in NB shipments in 3Q22, vs. the average QoQ increase of +12.6% during 2017-19. (Exhibit 7) Exhibit 2: PC brands inventory breakdown Exhibit 3: PC brands finished goods (including in transit) % of inventories Source: Company data, HSBC Source: Company data, HSBC Lower overall PC segment growth with more significant cuts to consumer and Chromebook We further lowe