PC semiconductors may see shipments continue into Q3, but gross margin trends will diverge materially

Overview

This report focuses on demand and gross margin outlook for Greater China PC semiconductor companies in 2H26. The core view is that FOMP may support stable Q3 shipments and procurement, but this does not imply margin recovery is synchronized across all companies. Since the tight supply is mainly spillover demand from server and other non-PC areas rather than a strong PC-led rebound, cost pass-through ability, supply-chain management capability, scale, and customer mix will determine margin direction for each company.

Core views

The report maintains a selective allocation view on PC semiconductors: demand is stronger than feared in the short term, but mid-term valuation support requires new growth drivers. Elan benefits from non-PC businesses such as drones, ADAS, and AI glasses as well as touchpad share opportunities; Parade still has potential share gains in chipsets and high-speed interface growth, but Apple-related gross margin and sales assumptions were reduced; Realtek raised earnings and target price on improving Q3 revenue and gross margin outlook, but the rating remains neutral; Novatek is awaiting new growth from cloud ASIC and related areas, where commercialization may take longer.

Analysis framework

The framework combines demand assessment, cost pass-through, each company’s supply-chain capability, customer mix, non-core contribution, and valuation models. The report first assesses Q3 procurement pace and the source of FOMP, then separates gross margin flexibility between large and small IC design companies, and adjusts company target prices and ratings using a residual income model, scenario-based target prices, and P/E comparisons.

Methodology notes

• Valuation methodResidual income model

  Uses base-case value as the foundation for target price, and updates the target price based on cost of equity, medium-term growth rate, dividend payout ratio, and perpetuity growth rate.

  Parade, Elan, Realtek, and Novatek target prices are all primarily based on the residual income model; the report adjusts model inputs using earnings estimates, gross margin assumptions, and new business outlooks.

• Scenario analysisRisk-reward scenarios

  Maps valuation ranges under bull, base, and bear cases with different growth, margin, and product-rollout assumptions.

  Parade base-case target price is NT$818, bull case is NT$948, and bear case is NT$418; Elan base-case is NT$250, bull case is NT$366, and bear case is NT$131; Realtek base-case is NT$717, bull case is NT$1,117, and bear case is NT$517.

• Relative valuationP/E comparison

  Compares each company’s forward P/E with historical averages, peer valuations, and implied target P/E to assess valuation attractiveness.

  Parade is at about 22x 2026e EPS, considered attractive relative to historical average and new chipset-driven growth potential; Elan is at about 17x 2026e P/E, below IC design peers of roughly 30x; Realtek’s current 2026e P/E is judged as relatively reasonable versus the implied 17x target P/E in the report.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Parade Technologies Ltd (4966.TWO)

  Beneficiary of PC semiconductors and high-speed interfaces; rated Overweight.

  Strengths

  Chipset business has opportunities for share gains, while the high-speed interface business has expansion potential in data centers and automotive markets; the base case still assumes moderate chipset share gains.

  Weaknesses

  About 90% of revenue is PC-exposed, making it sensitive to Apple-related shipment, pricing, and gross margin assumptions.

  Comparison

  Valuation is around 22x 2026e EPS, above historical average, but the report judges it supportable due to new chipset-driven growth.

  Risks

  Apple product shipments and specification upgrades slower than expected, in-house Apple T-Con, delayed server platform launches, and intensified competition in high-speed interfaces.

• Elan Microelectronics Corp (2458.TW)

  Overweight candidate driven by touchpad and non-PC business, rated Overweight.

  Strengths

  High share in notebook accessory ICs, with over 50% share in touchpad, point-stick and related areas; non-PC businesses such as drones, ADAS, and AI glasses have begun to ship.

  Weaknesses

  Still influenced by laptop replacement cycles and pace of accessory IC specification upgrades.

  Comparison

  Around 17x 2026e P/E, below IC design peers of about 30x, and the report views valuation as not expensive.

  Risks

  Laptop shipments below expectations, laptop AI PCs not driving accessory IC specification upgrades as fast as expected, and electronic book control ICs progressing slower than expected.

• Realtek Semiconductor (2379.TW)

  Large IC design company and diversified recovery candidate, rated Equal-weight.

  Strengths

  More complete supply-chain management and product mix, with diversified drivers from Wi-Fi, Ethernet, switch, audio codec, automotive Ethernet, and AI glasses.

  Weaknesses

  PC and consumer tech orders may still be weaker seasonally, and component price increases continue to pressure margins.

  Comparison

  Current valuation is considered reasonable versus the implied 17x target P/E in the report, so target price was raised while rating remains neutral.

  Risks

  Wi-Fi growth slower than expected, slower commercialization of new products, slower gross margin recovery, continued loss of TV SoC in China projects, and slower adoption of automotive Ethernet.

• Novatek (3034.TW)

  Large IC design company but still awaiting verification of new growth drivers, rated Underweight.

  Strengths

  Large IC design peers have strong supply-chain management capabilities; cloud ASIC potential is worth monitoring.

  Weaknesses

  Cloud ASIC may take longer to materialize, while traditional display-related businesses remain affected by terminal demand and price competition.

  Comparison

  Compared with new growth drivers at Elan and Parade, the report is more cautious on Novatek’s wait for new growth.

  Risks

  More intense TDDI price competition, 8K/4K TV growth slower than expected, and foldable product sales lagging.

Key data

• Industry viewAttractiveCoverage universe is Greater China Technology Semiconductors / Asia Pacific.
• 3Q demand viewPC semiconductor client procurement targets may remain broadly flat quarter-on-quarterDriven by FOMP due to tight mature-node wafer foundry and OSAT supply and rising costs.
• Parade earnings revision2027/28 EPS down 14%/14%Primarily reflects downward revisions to Apple-related gross margin assumptions and lower sales assumptions due to weaker pricing of Apple end products.
• Parade target priceNT$818, prior NT$1,000Base-case scenario comes from the residual income model; the mid-term growth rate was reduced from 11.9% to 11.4%.
• Elan earnings revision2026/27/28 EPS up 10%/18%/19%Benefited by non-PC businesses including drones, product mix improvement, and continued supply-chain shortages.
• Elan target priceNT$250, prior NT$180Mid-term growth rate was raised from 8.0% to 10.0%.
• Realtek earnings revision2026/27/28 EPS up 21%/31%/26%Reflects continued improvement in Q3 revenue and gross margin outlook.
• Realtek target priceNT$717, prior NT$570Residual income model parameters remained largely unchanged.
• Elan non-PC contributionMay reach mid-to-high single-digit revenue contribution in 2027Mainly from the drone market; in the base case, non-PC contribution can rise to 15%.
• Parade revenue exposureApproximately 90% of revenue comes from PCMaking it more sensitive to PC market conditions, Apple shipments, and in-house T-Con risks.

Impact & implications

For portfolio implications, stable short-term PC semiconductor shipments should not be interpreted as broad margin recovery. In an environment of higher costs, companies with stronger supply-chain pricing power, more complete product mixes, or clear non-PC growth trajectories are more likely to receive valuation support; highly concentrated on one customer or on PC end-market cycles may still face downward revisions to margin and valuation assumptions even if demand remains temporarily stable.

Risks

• Rising costs in mature-node wafer foundry and OSAT may not be fully passed through to customers.
• Apparent stability in PC semiconductor demand may stem from FOMP and low-inventory concerns rather than a true end-demand rebound.
• If 2027 demand does not materialize, current inventory replenishment could create later inventory digestion risk.
• Parade earnings assumptions are affected by Apple-related shipments, pricing, specification upgrades, and in-house T-Con progress.
• Competition in high-frequency high-speed interface, Wi-Fi, switch, Bluetooth, and TDDI could compress margins.
• Scale-up of growth from server platforms, new products, drones, automotive Ethernet, and AI glasses may be slower than expected.

What to watch

• Whether 3Q PC semiconductor clients keep procurement broadly flat quarter-on-quarter and whether critical components such as CPUs continue to grow quarter-on-quarter.
• Degree of tightness in mature-node wafer foundry and OSAT supply, magnitude of price increases, and the status of cost pass-through.
• Whether PC inventory digestion risk increases once Windows activation exceeds 200 days.
• Changes in Parade shipments and gross margins for chipsets, T-Con, high-speed interfaces, and Apple-related products.
• The pace at which Elan’s revenue contribution from drones, ADAS, AI glasses, and touchpad share gains materializes.
• The commercialization pace of Realtek’s Wi-Fi, Ethernet, automotive Ethernet, AI glasses solutions, and 100G DSP.
• Novatek’s progress on cloud ASIC and pricing competition in display-related businesses.