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Growing Tablet Sales to Boost Hon Hai: Analyst

The craze for tablet computers has started to cannibalize sales of PCs. But with market leader Apple priced at nearly $330 a share, Taiwan's Hon Hai may be a cheaper way to gain exposure to this growth story, suggested a technology analyst.

Chinese workers assemble electronic components at the Taiwanese technology giant Foxconn's factory in Shenzhen.
AFP | Getty Images
Chinese workers assemble electronic components at the Taiwanese technology giant Foxconn's factory in Shenzhen.

Steven Pelayo, the regional head of technology research at HSBC, forecasts tablet sales hitting around 55-60 million this year, a near 3-fold increase from 2010, where sales hit roughly 20 million. He added that Apple would be a key beneficiary of this.

And Hon Hai stands to gain as “roughly one-third of its revenues come from Apple”, Pelayo told CNBC. (Watch video here.)

“They are struggling a little bit right now with duplicate manufacturing costs, as well as some rising wage costs. We think that all (of these will) trough in this quarter... (presenting) an excellent opportunity to get exposed to a name that's growing rapidly.”

Pelayo said he is not that upbeat on PC markers because of “pretty negative revisions” in PC market forecast as we enter into the second quarter.

Pelayo now expects shipments of PC units to fall 1 percent in 2011, a sharp downward revision from his earlier call for growth of up to 8 percent.

His view was echoed by Gartner's latest findings: worldwide PC shipments, excluding tablet computers, fell 1.1 percent to 84.3 million units in the first quarter of 2011, far short of its earlier forecast for 3 percent growth.

Pelayo blamed the decline in PC demand on the arrival of Apple's iPad 2, as well as the deadly Japan earthquake and tsunami, which halted production at major tech component makers such as Toshiba.

Pelayo said those supply disruptions could negatively impact tech firms' second-quarter outlook, and worse, their third-quarter forecasts as well.

Disclosure: HSBC and Pelayo have no holdings in Hon Hai.

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