PC demand remains strong in the short term, but Acer remains one of the least preferred hardware OEMs

Overview

This report is Morgan Stanley's 1Q26 earnings preview for Greater China technology hardware OEMs, focusing on PC demand, rising memory costs, product up-tiering, pricing pass-through, and potential 2H26 demand and margin risks. In the near term, it acknowledges strong PC demand, better-than-expected 1Q revenue, and that OEMs have delayed margin pressure through price increases and reduced discounting; over the medium term, it remains cautious, arguing that pulled-in demand will unwind in 2H26, with rising memory costs leading to margin compression and earnings downgrade risk.

Core views

The core view is that hardware OEMs may still outperform before the 1Q26 reports because PC demand is robust, Taiwanese OEM monthly revenue has shown outperformance, and product up-tiering and price hikes support margins. After the report period, caution should return because once markets absorb stronger revenue and margin trends, upside catalysts may be limited, potentially followed by weaker 3Q build commentary, cautious 2Q guidance on the 3Q outlook during earnings calls, and an earnings estimate downgrade. Acer and Compal are listed as the least preferred stocks due to higher exposure to consumer and lower-priced segments, while Lenovo is relatively preferred because of stronger exposure to enterprise and premium PCs and server demand.

Analysis framework

The report combines company-level monthly revenue, supply-chain research, product mix changes, PC pricing and memory/CPU cost trends, market consensus expectations, forward P/E, scenario valuation, and a stock-specific risk-return framework to assess pre-earnings positioning for Lenovo, Asustek, Acer, Giga-Byte, and other hardware OEMs.

Methodology notes

• Valuation methodsResidual income model / P/E / SOTP

  Derive target prices using valuation frameworks suitable for each company.

  Lenovo uses the residual income model and references an implied P/E from F2027 EPS; Asustek uses sum-of-the-parts valuation and includes Pegatron and Advantech equity stake value; Acer's target price is based on raised earnings expectations and inclusion of 2028 estimates.

• Cycle analysisThree-stage memory cost cycle

  Rising input costs first drive pulled-in demand, then turn into margin and demand damage.

  The report views the current period as stage two: memory costs continue to rise, but price hikes and supply tightness have pushed customers to buy early, so margins have not yet come under obvious pressure; stage three may arrive in 2H26, when margin compression and greater earnings downgrade risk are likely.

• Fundamental trackingMonthly revenue versus consensus comparison

  Use Taiwanese company monthly revenue to pre-empt 1Q earnings calls.

  Asustek, Acer, and Giga-Byte have disclosed monthly revenue, with 1Q unaudited revenue beat consensus by roughly 3%, 7%, and 8%, supporting the conclusion that 1Q revenue is ahead of expectations.

Asset mapping & comparison

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

• Acer Inc. (2353.TW)

  Key covered name / one of the least preferred stocks

  Strengths

  1Q unaudited revenue was around 7% above market expectations, indicating near-term PC demand remains strong.

  Weaknesses

  Higher exposure to consumer and lower-priced segments, higher customer price sensitivity, and more severe component constraints.

  Comparison

  Compared with Lenovo, Acer lacks higher exposure to enterprise and premium PCs and lacks clear AI server revenue support.

  Risks

  2H26 PC demand rollover, rising memory costs, margin compression, and earnings estimate cuts.

• Lenovo (0992.HK)

  Relatively most preferred within the peer set

  Strengths

  The world's largest PC OEM, with procurement scale advantages; over 60% of PC business is enterprise-facing, giving stronger ability to pass through costs; growing server demand provides support.

  Weaknesses

  Still cannot fully avoid rising memory costs, and IDG PTI margin is expected to decline to 6.5%-7.0% over the next two years.

  Comparison

  The report is relatively more constructive on Lenovo than on Acer and Compal.

  Risks

  Unexpectedly sharp memory price increases, weaker-than-expected PC or server demand, and continued ISG losses.

• Asustek (2357.TW)

  Covered name / Underweight

  Strengths

  1Q revenue was about 3% above consensus; stronger-than-expected AI server and PC demand could ease cost pass-through pressure; an approximately 7% dividend yield may support the stock.

  Weaknesses

  About 80% of PC exposure is consumer-facing, making it sensitive to price adjustments; rising memory costs and low-margin AI server structure may compress margins.

  Comparison

  Compared with Lenovo, Asustek has higher exposure to consumer electronics, and its server scale is still insufficient to fully offset PC and peripherals pressure.

  Risks

  Unexpectedly higher memory prices, weakening PC demand, AI server demand below expectations, and compressed valuation multiples.

• Giga-Byte Technology (2376.TW)

  Peer comparison name

  Strengths

  1Q unaudited revenue beat consensus by about 8%, partly benefited by strong AI server demand.

  Weaknesses

  Still a hardware OEM that pays memory costs, and may face margin and demand pressure in 2H26.

  Comparison

  AI server exposure relatively helps revenue performance, superior to Acer, which has less AI server exposure.

  Risks

  AI server demand volatility, rising memory and component costs, and hardware valuation compression.

• Compal

  One of the least preferred stocks

  Strengths

  The report does not provide clear positive fundamentals.

  Weaknesses

  Higher exposure to consumer and lower-priced segments, strong price sensitivity, and more severe component constraints.

  Comparison

  Listed as one of the least preferred OEM stocks along with Acer.

  Risks

  Weakness in lower-priced PC demand, component supply constraints, and margin compression.

Key data

• Taiwanese OEM 1Q revenue beatAsustek +3%, Acer +7%, Giga-Byte +8%Based on unaudited actual revenue versus market consensus.
• Acer target priceNT$21.0012-month target price was slightly raised from NT$20.00.
• Lenovo target priceHK$10.30Raised from HK$9.80, implying approximately 9.5x F2027e P/E.
• Asustek target priceNT$525.00Raised by about 2% from NT$515, with rating retained at Underweight.
• Asustek consumer PC exposurearound 80%The consumer segment is more vulnerable to price hikes and demand deceleration.
• Lenovo commercial PC exposure60%+The report believes commercial demand can more easily pass through higher costs.
• Asustek dividend yieldaround 7%May support the stock, but not enough to offset memory-cost pressure.

Impact & implications

In the short term, hardware OEMs may continue to show relative strength due to 1Q revenue beat, margin resilience, and relatively firm 2Q guidance. Over the medium term, investors should watch for demand pull-in unwinding after 2H26, rising memory costs, constrained lower-end PC supply, and weakening price-sensitive demand. For Acer specifically, higher exposure to consumer and lower-price segments increases sensitivity to post-hike demand elasticity, so the view remains negative despite a small target price increase.

Risks

• Memory prices keep rising, increasing input-cost pressure.
• After the 1Q PC price hikes, 2H26 may see demand destruction and unwind of pulled-in demand.
• Low-priced PC is constrained by CPU and memory supply, making consumer demand more fragile.
• NB ODM commentary on 3Q builds starting in June may weaken.
• The 2Q earnings calls starting late July may deliver a cautious 3Q outlook.
• Earnings downgrades and valuation multiple compression could weigh on hardware OEM shares.

What to watch

• Whether 1Q26 revenue continues to beat expectations.
• OEM commentary on 2Q and 3Q demand, margins, and inventories.
• NB ODM statements on 3Q build starting in June.
• Spot and contract price movements in DRAM/NAND.
• Whether PC ASP gains can still outpace cost increases.
• Differences in demand between consumer and commercial PCs.
• Whether AI server orders can offset pressure on PC and consumer electronics.