May Notebook Shipments Miss Expectations; Morgan Stanley Cuts 2Q Estimates and Turns Cautious on H2

Overview

This report is Morgan Stanley's monthly data update for Asia-Pacific tech hardware, focusing on the shipment performance of the top five notebook Original Design Manufacturers (ODMs) in May 2026 and forecasts for subsequent quarters. The key takeaway is that actual May shipments missed the firm's expectations by 7% due to component supply bottlenecks. Based on this, Morgan Stanley has lowered its 2Q26 notebook assembly estimate and introduced a forecast for a slight sequential decline in 3Q. The report maintains a cautious outlook on H2 demand, expecting component shortages to continue impacting shipment mix and driving manufacturers toward higher-end, higher-margin models.

Core views

May shipment performance disappointed, primarily constrained by supply chain bottlenecks. Data shows that notebook shipments from the top five ODMs in May 2026 were 9.3 million units, up 2% MoM but down 12% YoY, falling 7% short of Morgan Stanley's expectations. Restricted component supply has become a critical bottleneck, forcing ODMs to prioritize allocating limited resources to higher-margin premium models to maximize profitability. Quarterly forecast adjustments reflect seasonal weakness and supply constraints. Based on the latest guidance from ODMs, Morgan Stanley has cut its 2Q26 notebook assembly estimate by 3% to 29.3 million units, flat QoQ and down 12% YoY. This flat sequential performance is 12 percentage points lower than the average +12% seasonal growth rate observed in 2Q over the past 15 years. For 3Q, the firm has introduced an initial estimate projecting assembly volume at 29.0 million units, down 1% QoQ and 15% YoY, also below the historical average +5% seasonal performance for 3Q over the past 15 years. June assembly is estimated at 10.9 million units, up 17% MoM, mainly driven by end-of-quarter pull-in effects. Cautious outlook on H2 demand. While it is difficult to predict the exact timing of a demand downturn, Morgan Stanley remains cautious regarding potential downside risks to demand in H2 2026. PC OEM product mixes will continue to shift toward the high end to navigate component constraints and drive higher margins. Actual shipment volumes will remain heavily dependent on component availability and improvements in supply conditions.

Analysis framework

The firm employs a top-down supply-demand tracking framework, combining monthly high-frequency data with seasonal patterns for analysis. First, by tracking monthly shipment data from leading ODMs (top-down tracking), the firm validated actual demand and supply chain conditions, identifying that May data significantly missed expectations and pinpointing 'component constraints' as the core issue. Second, using historical seasonality analysis, the firm compared current quarterly sequential changes against the 15-year historical average to quantify the degree of current underperformance (e.g., flat QoQ in 2Q vs. historical average of +12%), serving as the basis for estimate cuts. Finally, the firm deduced product mix shifts based on the logic of supply chain bottlenecks. The firm judges that when supply is constrained, manufacturers rationally choose to prioritize production of high-margin premium models, thereby inferring a trend toward a higher-end product mix and adjusting expectations for future quarterly shipment volumes and profit structures accordingly.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  Analyzes the alignment between supply-side factors (component supply bottlenecks) and demand-side factors (cautious H2 demand) to assess industry shipment volumes and pricing trends. In this report, supply constraints have become the key factor dominating short-term shipment pace.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Volume-Price Decomposition

  Separates analysis of shipment volume (volume) from product mix/margins (price/profit). The report notes that while total volume is constrained, manufacturers maintain or improve margins by prioritizing premium model production, reflecting a logic of declining volume but optimized structure.

• Cycle & Sentiment FrameworkCycle Inflection Analysis

  Seasonality Analysis

  Uses historical seasonal patterns (e.g., typical +12% QoQ growth in 2Q) as a benchmark to compare against current data (flat QoQ), thereby assessing the extent of deviation from normal industry sentiment levels and aiding forecast revisions.

Asset mapping & comparison

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

• Quanta (2382.TW)

  Benefit/Detriment Logic: As a leading ODM, shipments are impacted by component bottlenecks, but a higher mix of premium models may support margins.

  Strengths

  Report highlights strong potential demand for Apple Watch and servers; accelerating AI server penetration presents upside risk.

  Weaknesses

  Notebook demand weaker than expected; rising labor costs and sales shortfalls could weigh on margins.

  Comparison

  Compared to other ODMs, its diversified exposure to non-PC businesses (e.g., servers, wearables) may provide additional support.

  Risks

  Notebook demand weaker than expected; weak Apple Watch demand; intense price competition in large-scale data center segment.

• Compal (2324.TW)

  Benefit/Detriment Logic: Constrained by component supply; shipments reliant on premium model strategy.

  Strengths

  Further iPad share gains and margin expansion from economies of scale serve as upside drivers.

  Weaknesses

  Notebook and smartphone demand weaker than expected; price competition could lead to margin contraction.

  Comparison

  High reliance on iPad business makes its performance a significant driver of Compal's results.

  Risks

  Notebook demand weaker than expected; iPad shipments below expectations; sales shortfalls and intense price competition causing margin compression.

• Wistron (3231.TW)

  Benefit/Detriment Logic: Progress in divesting consumer electronics business and notebook premiumization are key factors.

  Strengths

  Consumer electronics divestiture proceeding faster than expected; product mix optimization driving margin expansion.

  Weaknesses

  Divestiture slower than expected; weak notebook demand and intense competition leading to margin contraction.

  Comparison

  Business restructuring (divesting consumer electronics) distinguishes it from other pure-play ODMs and is a key focal point.

  Risks

  Consumer electronics divestiture slower than expected; notebook demand weaker than expected; AI server penetration slower than expected.

• Pegatron (4938.TW)

  Benefit/Detriment Logic: Significantly impacted by weak end-market demand for smartphones and PCs.

  Strengths

  iPhone sales better than expected; improved component supply boosting PC shipment recovery.

  Weaknesses

  Weak outlook for smartphone and PC end-market demand; valuation multiples reflect this pessimistic expectation.

  Comparison

  Report uses sum-of-the-parts valuation, assigning lower PE multiples to core businesses to reflect end-demand weaknesses.

  Risks

  Weak iPhone demand; improper resource planning eroding margins; reduced contribution from non-PC products.

Key data

• May Top 5 ODM Notebook Shipments9.3mn units+2% MoM, -12% YoY, missed expectations by 7%
• Jun 2026 Notebook Assembly Est.10.9mn units+17% MoM, -16% YoY, driven by end-of-quarter pull-in
• 2Q26 Notebook Assembly Est.29.3mn unitsCut by 3%, flat QoQ, -12% YoY
• 3Q26 Notebook Assembly Est.29.0mn unitsNew estimate introduced, -1% QoQ, -15% YoY

Impact & implications

For ODMs, near-term shipment growth is capped, shifting earnings drivers from 'volume growth' to 'product mix optimization.' As component shortages force prioritization of premium models, ODMs with stronger capabilities in high-end manufacturing or closer client relationships may deliver better margins, though overall revenue growth could face pressure due to volume constraints. For investors, key variables to monitor include the timeline for easing component supply and whether H2 demand sees a sharper-than-expected decline, both of which will be critical determinants of stock price volatility.

Risks

• Notebook demand weaker than expected
• Persistent component supply tightness constraining shipments
• Intense price competition leading to margin contraction
• H2 demand downside risk exceeding expectations

What to watch

• Progress in improving component supply conditions
• Changes in premium model shipment mix and margins among ODMs
• Deviation between actual 3Q26 shipments and estimates
• Specific performance of PC OEM demand in H2