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INDUSTRY NOTE
USA | Technology
Semiconductors November 6, 2012
SemiconductorsWeekly: Moore Stress Evidence?
EQU
ITY R
ESEARC
H A
MERIC
AS
Mark Lipacis *Equity Analyst
(415) 229-1438 [email protected] Bajikar *
Equity Analyst(415) 229-1552 [email protected]
Jonnathan Lee *Equity Associate
(415) 229-1503 [email protected]
* Jefferies & Company, Inc.
Key TakeawayReports from BRCM, ALTR, CAVM, SNDK, MU and SKHynix are consistent withour "Moore Stress" thesis that transistor costs are inflecting at the leadingedge after 40 yrs of consistent declines. Stocks we identified as Moore Stressbeneficiaries have outperformed the SPX as well as those we identified as MooreStress Challenged by 5% QTD. We remain buyers of Moore Stress beneficiariesMXIM, TXN, NXPI and BRCM.
Moore Stress Evidence? There were several datapoints that we think are consistentwith our Moore Stress thesis since we published it on Sep 26: 1) ASML announced itsintention to acquire CYMI for a substantial premium; we think in an attempt to acceleratethe development of EUV lithography tools, 2) on its earnings call, BRCM CEO posited thatcost per transistor on 20nm would not likely decline, and 3) ALTR announced that it lostthree high-volume sockets to ASICs. None is proof of our Moore Stress thesis, but all threeare consistent with our view that cost per transistor is inflecting on leading edge nodes, andis impacting the industry today.
Memory Cost Improvement Slowdown: MU, SNDK and SKHynix discussed their viewthat the memory cost improvements would decelerate from the historical cost curve, due inpart to a slower pace of technology node transitions and less cost improvement from eachtransition - consistent with our Moore Stress Thesis.
Don't Listen to Us - Listen to the Stocks: Of the 7 stocks in our coverage universe thatoutperformed both the SOX and SPX, we had identified 5 as being beneficiaries of MooreStress (SNDK, CAVM, MXIM, NXPI, LSCC). An index of the top 4 stocks we identified as beingbeneficiaries of Moore Stress (MXIM, TXN, NXPI, BRCM), outperformed the SPX, SOX andan index of the top 3 stocks we identified as being challenged by Moore Stress (NVDA, ALTR,XLNX) by 5% QTD.
Inventory Update. Excluding INTC (Hold, $22.06), semiconductor inventory (75% ofsample) dollars increased by 2% QoQ while inventory days decreased by 2 days. Fablesssemiconductor inventory dollars increased by 5% QoQ as inventory days were flat QoQ.Component distributors inventory dollars decreased by 1% while days increased by 2 days.Lastly, system disti companies increased inventories by 4% QoQ on a dollar basis and on adays basis, system disti inventories increased by 1 day QoQ.
Moore Stress Related Notes:10/24/2012: Takeaways from "Moore Stress" Conf Call w/ Dr. Handel Jones10/23/2012: Moore Stress? 3 Volume Sockets Lost to ASICs10/21/2012: Moore Stress in DRAM and NAND = Structural Price Stability10/11/2012: Moore Feedback - EUV Push?9/26/2012: Moore Stress = Structural Industry Shift
Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflictof interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 26 to 29 of this report.
Moore Stress Evidence
Chart 1: QTD Stock Performance
Source: CapIQ, Jefferies
Chart 2: Moore Beneficiary Performance Relative to SOX, SPX, and Moore
Stress Challenged Stocks
Source: CapIQ, Jefferies. Moore Beneficiary stocks are MXIM, NXPI, BRCM, TXN. Moore Stress Challenged are NVDA, ALTR, and XLNX
21
%1
6%
12
%1
1%
8%
7%
5%
4%
3%
0%
-2%
-2%
-3%
-4%
-6%
-6%
-7%
-8%
-9%
-12
%-1
8%
-18
%-1
8%
-28
%-3
5%
-63
%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
SND
KC
AV
MM
XIM
NX
PI
AD
ILS
CC
LLTC
^sp
xTX
NX
LNX
^so
xM
CH
PB
CD
SA
VG
ON
VD
AB
RC
MM
UA
LTR
ON
NN
IPH
IP
MC
SIN
TCEZ
CH
MR
VL
MTS
IA
MD
QTD
Sto
ck P
erf
orm
ance
Moore Stress BeneficiariesOutperforming QTD
0.80
0.90
1.00
1.10
1.20
1.30
1.40
Dec
-11
Jan
-12
Feb
-12
Mar
-12
Mar
-12
Ap
r-1
2
May
-12
May
-12
Jun
-12
Jul-
12
Jul-
12
Au
g-1
2
Sep
-12
Sep
-12
Oct
-12
No
v-1
2
Pe
rfo
rman
ce In
dex
to
12
/31
/20
11
Moore Stress Beneficiaries SOX
SP500 Moore Stress Challenged
Moore Stress BeneficiariesOutperformed SOX and SP500 YTD and QTD
The top four stocks we identified as
being beneficiaries of Moore Stress,
(MXIM, NXPI, BRCM and TXN) have
outperformed the SPX, SOX and the
three stocks we identified as being
challenged by Moore Stress (ALTR,
XLNX and NVDA) both YTD and QTD
Stocks that have outperformed QTD
largely include those we’ve
identified as being beneficiaries of
Moore Stress: SNDK, CAVM, MXIM,
NXPI, LSCC
page 2 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 3: ASML Announced Intention to Acquire CYMI
Source: Company Press and Company website http://www.asml.com/asml/show.do?lang=EN&ctx=5866&rid=47397
Chart 4: ASML and CYMI Management Commentary
Source: Company Press Release and Company Website http://www.asml.com/asml/show.do?lang=EN&ctx=5866&rid=47397
10/17/2012 ASML/CYMI
ASML acquire CYMI for 70% premium ($1.95 billion euros) to
accelerate development of EUV technology
CYMI is a leader in light wavelength of 13.5 nm in EUV lithography
10/17/2012 ASML
CEO Eric Meurice said: We expect the merger to make EUV
technology development significantly more efficient and simplify the
supply chain and integration flow of the EUV modules. We are also
very much encouraged by the opportunities that we expect to create
around Cymer’s growing advanced Immersion systems and dry Deep
Ultraviolet (DUV) Installed Base Products (IBP) business
10/17/2012 CYMI
CEO Bob Akins said: Over the last several years, Cymer has been
investing significant capital towards developing EUV source
technology. We are very encouraged that ASML’s resources will
enable the combined company to continue to develop and
successfully commercialize EUV on an accelerated time frame
The success of EUV is critical to the semiconductor industry, and we
view this merger as very attractive for our shareholders, customers
and employees as well as our industry
We view the 25% investment in
ASML by Intel, Samsung and TSMC
and the subsequent announcement
of ASML’s intention to acquire CYMI
as signals that the industry is
concerned about the delay of EUV
tools necessary to keep it on its 40-yr
cost curve
page 3 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 5: Die Size of NVidia’s Flagship Desktop GPU over Time
Source: CAPIQ, Jefferies Research
Chart 6: Quote from BRCM CEO Scott McGregor
Source: Broadcom 3Q12 Earnings Call. http://www.electronicsweekly.com/blogs/david-manners-semiconductor-blog/2012/05/the-end-of-the-learning-curve.html
111
111 128
142
207
287
225
484(GT80)
324(GT92)
576(GT200)
470(GT200)
529(Fermi1GTX480)
520(Fermi2GTX580)
294(Kepler
GTX680)
0
100
200
300
400
500
600
700
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
NV
DA
Fla
gsh
ip G
PU
Die
Siz
e (
mm
^2
)
Linear Fit
...but a 44% reduction in die size for most recent flagship product "Kepler" supports the thesis that there is a change in the Cost per Transitor curve at the leading edge
10/23/2012 BRCM
CEO said: the price for transistor, cost per transistor is no longer
going down. So I don't think 20-nanometer is going to give you any
cost breaks. It may allow you to design a faster chip but the cost per
transistor will start going up us you start going into these notes.
I think that's going to cause a real change in the industry in that
you're going to stay with some of the older notes longer and for
products that are more focus on cost, especially stay with those older
nodes and try and get the best cost per transistor out of those, rather
than pushing the envelope on geometry.
It used to be in the industry for decades that if you were to push to
geometry, you would find better cost solutions and that's no longer
the case going forward. So we'll start to see sort of a bottoming out
of that eventually, an increase as you go into smaller geometries and
the cost per transistor.
3/9/2012 BRCM
What we're seeing in the industry is the cost of next-generation
nodes rising exponentially
What this means is, unless you need the advanced process because
of performance reasons or die-size reasons, you're not going to get a
cost benefit from converting to the new node"
NVidia’s Kepler Die Size Declined by
44% Compared to Fermi2,
highlighting a departure from the
Historical Trend for Increasing Die
Size
BRCM CEO indicated that advanced
process nodes 28nm and 20nm may
not provide improvements in cost
per transistor
page 4 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 7: Description of ALTR socket losses
Source: Altera 3Q12 Earnings Call
Chart 8: CAVM CEO quote
Source: CAVM 3Q12 Earnings Call
10/23/2012 ALTR
3 Volume Sockets Lost to ASICs:
CEO said: 1) One customer converted a high-volume design last year
to an ASIC 2) The second customer has converted 2 high-volume
designs, one in networking and one in wireless, both mainstream
products from Altera to ASICs. 3) So the customer is in
communications. One of the designs was in wireless, one of the
designs was in networking.
10/29/2012 CAVM
We have started seeing places that our multi-cores is being
deployed...Where in the previous generations, FPGAs used to be
used one classic example, of course, as base stations. But we're also
starting to see a few other designs in the bigger iron, if you will, and
the bigger infrastructure where the value proposition that multi-core
processors is bringing in terms of programmability, functionality, cost
and power is pretty compelling. So we are definitely starting to see it.
Now it's still -- time will tell how much the penetration will be.
ALTR announced 3 high volume
socket losses to ASICs on its Sep-12Q
earnings call. We view this as
evidence that that the most
advanced process nodes are not as
cost effective as they once were –
consistent with our Moore Stress
thesis.
CAVM noted that its merchant
multicore ASSPs have started to take
share from FPGAs
page 5 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 9: NVidia’s Calculation of Cost per Transistor
Crossover Curves
Source: NVIDIA . http://www.extremetech.com/computing/123529-nvidia-deeply-unhappy-with-tsmc-claims-22nm-essentially-worthless
Chart 10: IBS Calculation of Cost per Transistor by Node
Source: IBS. http://embedded.com/discussion/other/4238315/Feature-dimension-reduction-slowdown
Chart 11: Decelerating Cost Reductions in DRAM and NAND
Source: Micron, SanDisk, SKHynix, DRAMeXchange, Jefferies
Cost Reduction YoY Historical Future D
DRAM
Micron ~30% 25-30% -250 bps
SKHynix ~33% 20-30% -800 bps
NAND
Micron ~40% 25-30% -1250 bps
SanDisk 30-55% 25-35% -1250 bps
Micron, Hynix and SanDisk all have
noted a deceleration in the
improvement of cost reductions in
DRAM and NAND.
.
page 6 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 12: Micron’s Commentary on Decelerating DRAM Cost Reductions
Source: Micron’s Fall Analyst Day 2012
Chart 13: SanDisk’s Commentary on Decelerating NAND Cost Reductions
Source: SanDisk 3Q112 Earnings Call
10/12/2012 Micron
There is a slowing in the pace of -- a potential slowing, at least, in the
pace of the cost reduction for both NAND and DRAM. And this -- I put
one graph here that shows at least a perspective of what we think
this may look like going forward. But in terms of a wall, from our
perspective, we have clear visibility into 2-plus more nodes of both of
our primary products, NAND and DRAM, from a technology level. Not
that there aren't significant challenges to make both of those
happen, but we believe we know how we're going to do that.
And really on the second piece of that, on the pace of cost reduction,
the pace of these nodes, depending on how big of a shrink a
company chooses to do, the pace can be moved a little bit. If you can
take a big, aggressive shrink on the technology, that's the thing that is
extending out. Now different people right now are making decisions
to do small 10%, 15% shrinks and try to pull them in time-wise. But if
you look at something compared to a historical pace, we believe that
the technology node migration is going to slow.
10/18/2012 SanDisk
What I said was that we expect that cost reduction next year will be
somewhat less than it was this year. And there's a couple of reasons
for that. One is that the length of the technologies transitions is
getting longer, it's just taking longer between technology transitions.
Another reason is that we are getting less cost reduction from each
successive technology transition. By the way, in addition, we expect
that we will have somewhat less X3 mix next year, given our product
mix, and our product mix itself is moving towards products that tend
to have a higher cost per gigabyte because they, for example, in SSD,
has more non-memory cost in it and that causes a higher cost per
gigabyte but comes with a higher price per gigabyte as well. So there
are many factors that are leading us to believe our cost reduction will
be less next year than it is this year.
Micron’s view is that technology node
migration in DRAM and NAND is
slowing down.
SanDisk highlighted three reasons for
a deceleration in NAND cost
reductions:
1. Increasing length of
technology transitions
2. Less cost reduction from
each node transition
3. Lower mix of X3 (TLC) vs. X2
(MLC)
page 7 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 14: Micron and SanDisk’s Commentary on Slower Node Transitions
Source: Capital IQ, SanDisk 3Q12 Earnings Call
10/12/2012 Micron
Existing capacity is becoming more valuable than it had been
historically … what's different is that because the rate of technology
change is slowing and because lithography is not changing as rapidly
as it -- in fact, it's stagnant right now. At some point, EUV will come
along, and that will change. But today, lithography is really essentially
stagnant ... what that means is that existing in-place capacity has
more longevity and therefore, delivers a better return. You have
more time to amortize that capacity.
... I would add as well on the DRAM side that as some of the scaling
starts to slow down, some of these technologies like through-silicon
vias, like assembly technologies, lower-power transistors, lower-
voltage logic transistors, these become more important, both to the
application, as well as the overall system. So that's a pretty good
piece of our focus right now on the DRAM side. Things may be
slowing down on just the traditional bit shrinking, but there's so
much more that has to happen when you have all of this memory in
that application. You got to get the form factor right, you got to get
the package right and you got to keep the power down.
10/18/2012 SanDisk
I think in terms of the bit growth, the factors there are, that's --
technologies also getting more complex. So the new technologies are
taking longer to develop as well as the gigabytes that you gained
from a technology transition is lessening compared to the past.
1Y nanometer NAND technology development activity is on track to
begin production in mid-2013.
In terms of future technologies, mixed NAND and 3D resistive RAM,
related research and development is progressing well. We continue
to believe that this NAND or any other 3D NAND is 2 to 3 years away
from the start of any meaningful production ramp in the industry.
We also believe that 3D NAND will not start production until
sometime beyond 2015, given its need for EUV lithography, which is
still in development phase.
Micron and SanDisk expect future
technology node transitions in DRAM
and NAND to occur at a slower pace.
New types of memory such as 3D are
a factor in the 2015+ timeframe, and
as such would not help relieve Moore
Stress in the interim.
page 8 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 15: Micron and SanDisk Supply Commentary
Source: Capital IQ, SanDisk’s 3Q12 Earnings Call
Chart 16: Samsung Commentary on NAND
Source: Capital IQ, Samsung 3Q12 Earnings Call
Chart 17: SKHynix DRAM Commentary
Source: Capital IQ, SKHynix 3Q12 Earnings Call
10/12/2012 Micron … [DRAM] supply growth on a go-forward basis is going to be in this
25% to 30% range.
10/18/2012 SanDisk
... we now estimate 2012 industrybased supply growth to be
approximately 60%, down from our previous estimate of
approximately 70%. And for SanDisk, our 2012 captive supply rate
growth is approximately 80%. For 2013, we now expect industry
supply-based growth rate will be in the 30% to 40% range, lower than
the 40% to 50% range we estimated back in July
... we have not yet made a decision as to when we will resume the
ramp of Phase I of Fab 5. And the earliest timeframe for production
ramp would be the second quarter of 2013. However, we do expect
to substantially complete Phase I expansion in 2013.
We expect our 2013 captive supply base growth to be around the low
end of the industry range.
Factors influencing our bit supply growth in 2013 will include greater
X2 mix, a continuing long tail of production of
24-nanometer to support our growing OEM customer requirements
for embedded and SSD products ...
10/25/2012 Samsung
… On the supply side, NAND makers stayed with their conservative
CapEx plans as they had to cut back production and change their
product mixes amid earnings deterioration and increase in
inventories
... On the supply side, we expect the market supply to be tight for the
time being as the improvement in market conditions may lead to
only a limited increase in supply due to conservative CapEx
strategies.
10/23/2012 SKHynix
... For PC DRAM, we expect the environment to continue to be
difficult. But any additional drop in prices would be limited as
there are moves by some suppliers to cut production.
Micron expects DRAM industry supply
growth to be limited to 25-30% per
year going forward.
SanDIsk expects to restart its Fab 5
Phase I ramp in 2Q13 at the earliest.
page 9 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
3Q Earnings Update
Chart 18: Revision of 4Q Guidance and Stock Performance
Source: Jefferies, CapIQ
StockEarnings
Date
4Q Rev Guidance
vs. Consensus
Stock Performance
On Day After
Stock Performance
Since Reporting
CRUS 10/31/12 22% -11% -21%
RFMD 10/23/12 12% 11% 12%
SLAB 10/24/12 4% -2% 0%
DLG 10/28/12 2% -3% -7%
TQNT 10/24/12 1% -13% -6%
CAVM 10/29/12 1% 0% 9%
AMCC 10/25/12 1% 26% 36%
PSMI 10/31/12 1% 3% 0%
EXAR 10/24/12 1% 8% 12%
ISSI 11/01/12 0% 7% 3%
SWKS 11/01/12 0% -17% -13%
SNDK 10/18/12 0% 3% 3%
HITT 10/25/12 -1% 0% 3%
CREE 10/17/12 -1% 0% 8%
INTC 10/16/12 -1% -3% -2%
MXIM 10/26/12 -2% 0% 3%
CODE 10/31/12 -2% 3% 5%
ENTR 10/24/12 -2% -12% -14%
STM 10/23/12 -3% 4% -1%
POWI 10/25/12 -3% 5% 4%
LSCC 10/18/12 -4% 5% 15%
BRCM 10/23/12 -4% -3% -5%
FSL 10/25/12 -6% 3% 5%
CY 10/18/12 -6% -4% 3%
MLNX 10/17/12 -6% -21% -15%
NXPI 10/25/12 -6% 15% 23%
XLNX 10/17/12 -6% -1% -2%
AMKR 10/25/12 -6% -2% 4%
MCRL 10/25/12 -8% 2% 2%
SIMG 10/30/12 -8% -4% -5%
ALTR 10/24/12 -8% 1% 4%
TXN 10/22/12 -8% 0% 6%
LRCX 10/17/12 -8% 7% 10%
LLTC 10/16/12 -8% -1% 1%
VSH 10/30/12 -9% -6% 4%
ONNN 11/01/12 -10% -3% 3%
ISIL 10/24/12 -10% 8% 15%
INVN 10/23/12 -10% -7% -8%
FCS 10/18/12 -11% -5% 2%
GSIT 10/25/12 -11% -5% 1%
PMCS 10/29/12 -11% 0% 3%
AMD 10/18/12 -12% -17% -19%
ASML 10/17/12 -13% 1% 12%
MPWR 11/01/12 -13% -4% -2%
AEIS 10/29/12 -14% 0% 2%
VLTR 10/22/12 -14% 2% 3%
IDTI 10/29/12 -14% 0% 7%
IPHI 11/01/12 -15% 0% -1%
MKSI 10/24/12 -15% -3% 0%
KLAC 10/25/12 -16% 0% 2%
VECO 10/22/12 -20% 7% 9%
TER 10/25/12 -29% -2% 6%
Median -6% 0% 3%
Chart 18 shows 52 semiconductor
companies that have reported 3Q
results. At the median, semis lowered
4Q revenue expectations by 600
bps, and then saw their stocks flat
the day after reporting.
We believe this indicates that
semiconductor stocks are already
discounting worse fundamentals
than are being reported.
page 10 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 19: 4Q Revenue Guidance vs. Consensus vs. Stock Performance on Day
After
Source: Jefferies and Capital IQ
Chart 20: Semis NTM Earnings Forecast vs. Relative Performance
Source: Jefferies and Capital IQ
CRUS
RFMD
SLABDLG
TQNT
CAVM
AMCC
PSMI
EXARISSI
SWKS
SNDK
HITT
CREE
INTC MXIM
CODE
ENTR
STM
LSCC
FSL
CY
MLNX
NXPI
XLNX
AMKR
MCRL
SIMG
ALTR
TXN
LRCX
LLTC
VSH
ONNN
ISIL
INVN
FCSGSIT
PMCS
AMD
ASML
MPWR
AEIS
VLTR
IDTI IPHI
KLACTER
VECO
-30%
-20%
-10%
0%
10%
20%
30%
-30% -20% -10% 0% 10% 20%
Sto
ck P
erf
orm
ance
on
th
e D
ay A
fte
r 3
Q P
rin
t
4Q Revenue Guidance vs. Consensus Est
-7
-2
3
8
13
18
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
No
v-0
1
No
v-0
2
No
v-0
3
No
v-0
4
No
v-0
5
No
v-0
6
No
v-0
7
No
v-0
8
No
v-0
9
No
v-1
0
No
v-1
1
No
v-1
2
Se
mis
NT
M E
arn
ing
s F
ore
ca
st E
x-I
NT
C (
$,b
n)
SO
X/
SP
X (
Re
lati
ve
Pe
rfo
rma
nce
)
Consensus NTM
Earnings Forecast
SOX/SPX
Semis started to underperform at the end of Jan '12, anticipating cuts
that started in May '12.
Vertical lines represent
start of earnings cuts
NTM est cut
by 17% since
May '12
Chart 19 shows a scatterplot of the
data in Chart 1.
NTM earnings estimates have been
cut by 17% since May 2012.
Consensus is forecasting similar NTM
earnings for the group that it was in
2006.
page 11 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Inventory Update
Chart 21: Ex-INTC Semiconductor Devices Inventories (75% of Sample)
Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 12/5/2008, 9/10/2010, and 8/19/2011; Data set includes: AMD, BRCM, PMCS, TXN, STM, LLTC, MXIM, ALTR, XLNX, ONNN, AMCC, ARMH, CAVM, CNXT, LSI, RFMD, SWKS, LSCC, SLAB, CY, IDTI, FCS, ISIL, SMSC, MSCC, IFX, MCRL, CRUS, AATI, IRF, POWI, VSH, ISSI, SIMG, ANAD, MSPD, VLTR, ZRAN, TQNT, NETL, MPWR, CREE
Chart 22: Fabless Semiconductor Devices Inventories (75% of Sample)
Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 11/21/2008, 9/10/2010, and 8/19/2011; Data set includes: BRCM, PMCS, ALTR, XLNX, AMCC, ARMH, CAVM
3 33 3 3 3 3 3
3 44
45
66 6
54
4 4 4 4 5 5 5 55
66 6 6 6 6
6 66
77 7
7 7 78 8 8
7
66 6 6 6
77
78
8 8
8 88 8
8487
0
10
20
30
40
50
60
70
80
90
100
0
2
4
6
8
10
12
14
16
18
3Q
97
3Q
98
3Q
99
3Q
00
3Q
01
3Q
02
3Q
03
3Q
04
3Q
05
3Q
06
3Q
07
3Q
08
3Q
09
3Q
10
3Q
11
3Q
12
Sem
icond
ucto
r In
vento
ry D
ays
Sem
is Inv.
($ b
illio
ns)
Ex-I
NT
C
Inventory$ ex-INTC Inv Days75% of sample set as
of 11/2/12
Inventory $ Increased by 2% QoQ
Semi inventory peaks have historically marked SOX troughs
00000000000
0
1
1
1
1
1
000000000
0
11101
11111
1111111
11
111
11
11
1
111
111
1
65
6760
6970 71
(80)
(30)
20
70
120
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3Q
97
2Q
98
1Q
99
4Q
99
3Q
00
2Q
01
1Q
02
4Q
02
3Q
03
2Q
04
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
Fa
ble
ss S
em
i In
vento
ry D
ays
Fable
ss S
em
i In
v. (
$ b
illio
ns)
Total Fabless Semi Inventory $s Fabless Semis Inv Days 75% of sample set as of 10/31/12
Inventory days were flat QoQ, and were 5 days above 5-year avg.
Inventory $ increased by 5% QoQ
Semiconductor (excluding Intel)
inventories increased by 2% QoQ on a
dollar basis, and decreased by 2 days
QoQ (9 days above 5-yr avg);
Historically, peaking semiconductor
inventories marked cycle troughs
Including only fabless
semiconductor, inventory dollars
increased by 5% QoQ. On a days
basis, Semis inventory days were
flat QoQ and are 5 days above the
5-year average.
page 12 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 23: Component Disti (100% of Sample)
Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 12/5/2008, 9/10/2010, and 8/19/2011; Data set includes: Arrow (ARW), Avnet (AVT), Nu Horizons (NUHC) acquired by ARW (1/1/2011), Bell Micro (BELM) acquired by Avnet (7/6/2010)
Chart 24: System Distributor (60% of Sample)
Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 11/21/2008, 9/10/2010, 8/19/2011 Data set includes: Ingram Micro(IM), Synnex (SNX), Insight Enterprise (NSIT)
22323333333
44
65
4
4333
333333333333334444444444
44333
344
55555
4544
40 36
43 43 42
(30)
(10)
10
30
50
70
90
0
1
2
3
4
5
6
7
8
9
10
Sep
-97
Jun-9
8
Mar-
99
Dec-9
9
Sep
-00
Jun-0
1
Mar-
02
Dec-0
2
Sep
-03
Jun
-04
Mar-
05
Dec-0
5
Sep
-06
Jun-0
7
Mar-
08
Dec-0
8
Sep
-09
Jun-1
0
Mar-
11
Dec-1
1
Sep
-12
Co
mponen
t Dis
ti Invento
ry D
ays
Co
mpon
ent D
isti Invento
ry $
(bill
ion)
Inventory $ Inventory Days100% of sample set
11/02/12
Inventory days increased by 2 days QoQ, and one day above 5-year avg.
Inventory $ decreased by 1% QoQ
3
4
33332
2222222222
2222
33333333
43334433333
3334444444444
28
32 33
-
5
10
15
20
25
30
35
40
45
0
2
4
6
8
10
12
Sep-9
9M
ar-
00
Sep-0
0M
ar-
01
Sep-0
1M
ar-
02
Sep-0
2M
ar-
03
Se
p-0
3M
ar-
04
Sep-0
4M
ar-
05
Sep-0
5M
ar-
06
Sep-0
6M
ar-
07
Sep-0
7M
ar-
08
Sep-0
8M
ar-
09
Sep-0
9M
ar-
10
Sep-1
0M
ar-
11
Sep-1
1M
ar-
12
Sep-1
2
Syste
m D
isiti In
vento
ry D
ays
Syste
m D
isti Invento
ry $
(bill
ions)
Inventory $ Inventory Days
Inventory days increased by 1 day QoQ, and 4 days above 5-year avg.
Inventory$ increased by 4% QoQ
60% of sample set as of 11/2/12
Component disti companies
inventory dollars decreased by 1%
QoQ while on a days basis,
component distis inventories
increased by 2 days QoQ, and are 1
day above the 5-yr average
System Disti companies increased
inventories by 4% QoQ on a dollar
basis. On a days basis, system disti
inventories increased by 1 day QoQ,
and are 4 days above the 5-yr
average for the SepQ.
page 13 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Mercury 3Q12 MPU Final Update
Chart 25: INTC Server MPU
Source: Mercury, Jefferies Research
Chart 26: AMD Server MPU
Source: Mercury, Jefferies Research
$300
$350
$400
$450
$500
$550
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
INT
C S
erv
er
MP
U A
SP
($
)
INT
C Q
ua
rte
rly S
erv
er
MP
U U
nit
s
INTC Quarterly Server Units
INTC Server ASP ($)
Linear (INTC Quarterly Server Units)
$290
$340
$390
$440
$490
$540
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
AM
D S
erv
er
MP
U A
SP
($
)
AM
D Q
ua
rte
rly S
erv
er
MP
U U
nit
s
AMD Quarterly Server Units
AMD Server ASP ($)
Linear (AMD Quarterly Server Units)
We estimate that Intel’s unit share of
Server MPU increased by ~100 bps
to ~95.5% in 3Q12.
We continue to believe Intel is well
positioned to grow Server revenues
as the worldwide communications
infrastructure, including Cloud and
Data Center, undergo an upgrade.
We estimate that AMD’s Server MPU
shipments decreased by ~1700bps
QoQ.
page 14 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 27: INTC PC MPU
Source: Mercury, Jefferies Research
Chart 28: AMD PC MPU
Source: Mercury, Jefferies Research
70
80
90
100
110
120
130
140
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
INT
C P
C M
PU
AS
P (
$)
INT
C P
C M
PU
un
its
INTC PC MPU units INTC PC MPU ASP
40
45
50
55
60
65
70
75
80
85
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
AM
D P
C M
PU
AS
P (
$)
AM
D P
C M
PU
un
its
AMD PC MPU units AMD PC MPU ASP
We estimate that Intel’s PC MPU
units decreased by ~220 bps QoQ
(Desktop and Notebook combined)
in 3Q12.
We estimate INTC gained ~140bps of
PC unit market share.
We estimate that AMD’s PC MPU
shipments declined by 1100bps
QoQ.
We think AMD’s product cycle in the
mainstream (Trinity) and low-end
(Brazos 2.0) should translate to more
notebook MPU share gains and
upside to ASPs.
page 15 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 29: INTC Mobile MPU
Source: Mercury, Jefferies Research
Chart 30: AMD Mobile MPU
Source: Mercury, Jefferies Research
$65
$85
$105
$125
$145
$165
$185
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
INT
C M
ob
ile
MP
U A
SP
($
)
INT
C Q
ua
rte
rly M
ob
ile
MP
U U
nit
s
INTC Quarterly Mobile Units INTC Mobile ASP ($)
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
AM
D P
C M
PU
AS
P (
$)
AM
D P
C M
PU
un
its
AMD Mobile MPU units AMD Mobile MPU ASP
We estimate that Intel’s Mobile MPU
units decreased by ~500bps QoQ in
3Q12.
We estimate INTC gained ~30bps of
Mobile MPU unit market share.
We estimate that AMD’s Mobile MPU
shipments declined by 800bps QoQ
in 3Q12.
We think AMD’s product cycle in the
mainstream (Trinity) and low-end
(Brazos 2.0) should translate to more
notebook MPU share gains and
upside to ASPs.
page 16 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 31: INTC Desktop MPU
Source: Mercury, Jefferies Research
Chart 32: AMD Desktop MPU
Source: Mercury, Jefferies Research
$75
$85
$95
$105
$115
$125
$135
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
INT
C D
es
kto
p M
PU
AS
P (
$)
INT
C Q
ua
rte
rly D
es
kto
p M
PU
Un
its
INTC Quarterly Desktop Units INTC Desktop ASP ($)
$44
$49
$54
$59
$64
$69
$74
$79
$84
$89
1Q
05
4Q
05
3Q
06
2Q
07
1Q
08
4Q
08
3Q
09
2Q
10
1Q
11
4Q
11
3Q
12
AM
D D
eskto
p M
PU
AS
P (
$)
AM
D D
es
kto
p M
PU
un
its
AMD Desktop MPU units AMD Desktop MPU ASP
We estimate that Intel’s Desktop
MPU units increased by ~200 bps
QoQ in 3Q12.
We estimate INTC gained ~300bps of
Desktop unit market share.
We estimate that AMD’s Desktop
MPU shipments declined by
1500bps QoQ in 3Q12.
We estimate AMD’s Desktop ASP
declined by 200bps in 3Q12.
page 17 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 33: SOX vs. NDX/SOX
Source: Jefferies and Capital IQ
-800
-300
200
700
1200
2
4
6
8
10
12
14
No
v-9
9
No
v-0
0
No
v-0
1
No
v-0
2
No
v-0
3
No
v-0
4
No
v-0
5
No
v-0
6
No
v-0
7
No
v-0
8
No
v-0
9
No
v-1
0
No
v-1
1
No
v-1
2
SO
X I
nd
ex
ND
X/S
OX
Rati
o
SOX bottomed at 370 on 04/30/99 and ran 260% trough-to-peak
SOX bottomed at 307.5 on 08/31/10
and ran 54% trough-to-peak
SOX bottomed at 171 on 11/20/08
and ran 134% trough-to-peak
Historical Maximum Negativity
for SOX relative to NDX is 6.0
NDX/SOX
SOX
SOX is above historical level of
maximum negativity
page 18 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 34: Relative SOX/SPX Values in 2004 and 2012
Source: Capital IQ, Jefferies
Chart 35: Relative SOX/SPX Values in 2008 and 2012
Source: Capital IQ, Jefferies
Chart 36: Relative SOX/SPX Values in 2006 and 2012
Source: Capital IQ , Jefferies
Chart 37: Relative SOX/SPX Values in 2010 and 2012
Source: Capital IQ, Jefferies
28
-Fe
b-1
2
28
-Ma
r-1
2
28
-Ap
r-1
2
28
-Ma
y-1
2
28
-Ju
n-1
2
28
-Ju
l-1
2
28
-Au
g-1
2
28
-Se
p-1
2
28
-Oct-
12
28
-No
v-1
2
28
-De
c-1
2
1.0
1.2
1.4
1.0
1.2
1.4
20
-Ap
r-0
4
20
-Ma
y-0
4
20
-Ju
n-0
4
20
-Ju
l-0
4
20
-Au
g-0
4
20
-Se
p-0
4
20
-Oct-
04
20
-No
v-0
4
20
-De
c-0
4
20
-Ja
n-0
5
20
-Fe
b-0
5
SO
X/
SP
X V
alu
es
Ind
ex
ed
on
7/
17
/1
2
SO
X/
SP
X V
alu
es
Ind
ex
ed
on
09
/0
8/
04
SOX bottomed at 352 on
09/08/04 and ran 57%
trough-to-peak
SOX /SPX
(2/12 - 10/12)
SOX /SPX
(4/04 - 2/05)
25
-Feb
-12
25
-Ma
r-1
2
25
-Ap
r-1
2
25
-Ma
y-1
2
25
-Ju
n-1
2
25
-Ju
l-1
2
25
-Au
g-1
2
25
-Sep
-12
25
-Oct
-12
25
-No
v-1
2
25
-Dec
-12
1.0
1.1
1.2
1.3
1.4
1.0
1.1
1.2
1.3
1.4
17
-Au
g-0
8
17
-Sep
-08
17
-Oct
-08
17
-No
v-0
8
17
-Dec
-08
17
-Ja
n-0
9
17
-Feb
-09
17
-Ma
r-0
9
17
-Ap
r-0
9
17
-Ma
y-0
9
17
-Ju
n-0
9
SOX
/SP
X V
alu
es I
nd
exed
on
7/1
7/12
SOX
/SP
X V
alu
es I
nd
exed
on
12
/8/0
8
SOX bottomed at
171 on 11/20/08
and ran 134%
trough-to-peak
SOX /SPX
(2/12 - 10/12)
SOX /SPX
(8/08 - 6/09)
27
-Fe
b-1
2
27
-Ma
r-1
2
27
-Ap
r-1
2
27
-Ma
y-1
2
27
-Ju
n-1
2
27
-Ju
l-1
2
27
-Au
g-1
2
27
-Se
p-1
2
27
-Oct-
12
27
-No
v-1
2
27
-De
c-1
2
1.0
1.1
1.2
1.3
1.0
1.1
1.2
1.3
1-F
eb
-06
1-M
ar-
06
1-A
pr-
06
1-M
ay
-06
1-J
un
-06
1-J
ul-
06
1-A
ug
-06
1-S
ep
-06
1-O
ct-
06
1-N
ov
-06
1-D
ec-0
6
SO
X/
SP
X V
alu
es
Ind
ex
ed
on
7/
17
/1
2
SO
X/
SP
X V
alu
es
Ind
ex
ed
on
07
/2
1/
06
SOX bottomed at 385 on
07/21/06 and ran 42%
trough-to-peak
SOX /SPX
(2/12 - 10/12)
SOX /SPX
(2/06 - 12/07)
26
-Feb
-12
26
-Ma
r-1
2
26
-Ap
r-1
2
26
-Ma
y-1
2
26
-Ju
n-1
2
26
-Ju
l-1
2
26
-Au
g-1
2
26
-Sep
-12
26
-Oct
-12
26
-No
v-1
2
26
-Dec
-12
1.0
1.1
1.2
1.3
1.0
1.1
1.2
1.3
20
-Ap
r-1
0
20
-Ma
y-1
0
20
-Ju
n-1
0
20
-Ju
l-1
0
20
-Au
g-1
0
20
-Sep
-10
20
-Oct
-10
20
-No
v-1
0
20
-Dec
-10
20
-Jan
-11
20
-Feb
-11
SOX
/SP
X V
alu
es I
nd
exed
on
07/
17/1
2
SOX
/SP
X V
alu
es I
nd
exed
on
09/
10
/10
SOX bottomed at 307.5
on 08/31/10 and ran
54% trough-to-peak
SOX /SPX
(2/12 - 10/12)
SOX /SPX
(4/10 - 2/11)
page 19 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Semis Discounting a Worse than Average Trough – In the Chart directly below, we compare the EV/S today to the average EV/S during cycle
troughs over the past half dozen years (’06, ’08, ’10). A stock with a negative reading
indicates that the EV/S today is lower than the average of those previous cycles. Our
interpretation of Chart below is that 46% of our coverage universe is discounting
something worse that the average trough over the past decade.
But Not an ’08-Style Financial Crisis In the Chart directly below, we compare the EV/S today to the EV/S when semis troughed
during the 2008 financial crisis. Here, only AMD, EZCH, MRVL, and MU are close to those
valuation levels. Our take on these slides is that semis are discounting something worse than
the average trough, but not as bad as the 2008 financial crisis.
Chart 38: EV/Sales (trailing) Current vs. Avg at Past Decade Troughs
Source: Capital IQ, Jefferies
Chart 39: EV/Sales (trailing) Current vs. ‘08 Financial Crisis Trough
Source: Capital IQ , Jefferies
NM
NM
53
%
52
%
47
%
43
%
41
%
41
%
38
%
37
%
36
%
12
%
8%
-2%
-3%
-4%
-6%
-17
%
-19
%
-21
%
-23
%
-58
%
-68
%
-73
%
-100%
-50%
0%
50%
100%
BC
DS
MTS
I
AD
I
NX
PI
SND
K
AV
GO
ALT
R
CA
VM
XLN
X
TXN
MX
IM
LSC
C
LLTC
INTC
BR
CM
PM
CS
NV
DA
MC
HP
EZC
H
ON
NN
MU
AM
D
IPH
I
MR
VL
EV/S
vs.
Avg
EV
/S a
t C
ycle
Tro
ugh
s
46% near or below the average EV/S at cycle troughs over the past half-dozen years('06, '08 and '10).
NM
NM
NM
NM
NM
23
6%
19
3%
14
0%
12
6%
12
2%
11
2%
10
4%
82
%
70
%
45
%
41
%
25
%
18
%
11
%
-6%
-6%
-10
%
-53
%
-100%
0%
100%
200%
300%
400%
500%
AV
GO
BC
DS
IPH
I
MTS
I
NX
PI
SND
K
LSC
C
MX
IM AD
I
NV
DA
TXN
BR
CM
CA
VM
XLN
X
ALT
R
PM
CS
LLTC
INTC
MC
HP
ON
NN
EZC
H
MU
MR
VL
AM
D
EV/S
, C
urr
en
t vs
@ 2
00
8 T
rou
gh
17% near or below EV/S at the financial crisis('08) trough including AMD, MU, MRVL and EZCH
page 20 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 40: EV/S (trailing): Current and vs. Cycle Troughs over ’06, ‘08 and ‘10
Source: Jefferies, company data, CAPIQ
CoP/E
TTM
P/E
NTMP/TB
Current
EV/S2002 2004 2006 2008 2010
Avg
Trough
EV/S
('06, '08,
% Diff
Current vs
Min
% Diff Current
EV/S vs. '08
Trough EV/S
% Diff Current
EV/S vs. Avg
Trough EV/S
('06, '08, '10)ADI 19.1 17.0 3.3 3.4 3.2 3.9 2.8 1.4 2.4 1.4 2.2 143% 143% 55%
ALTR 17.4 17.5 3.1 4.2 3.3 4.8 3.4 2.5 3.1 2.5 3.0 67% 67% 39%
AMD NM NM 4.5 0.4 0.5 1.2 1.2 0.8 0.7 0.5 0.9 -25% -53% -58%
AVGO 15.4 11.7 5.0 3.1 2.2 2.2 2.2 43% NM 43%
BCDS NM 8.2 0.6 0.3 NM NM NM NM NM
BRCM 24.7 11.3 9.5 2.3 2.4 3.2 3.5 1.1 2.6 1.1 2.4 109% 109% -4%
CAVM NM 38.2 11.5 7.0 3.5 6.6 3.5 5.1 101% 101% 39%
EZCH NM 43.0 5.6 12.2 11.2 21.8 27.6 13.1 5.0 5.0 15.2 143% -7% -20%
INTC 9.5 11.0 3.3 2.0 3.1 3.4 2.4 1.6 2.1 1.6 2.0 23% 23% -4%
IPHI NM NM 1.5 1.5 4.3 4.3 4.3 -65% NM -65%
LLTC 19.6 18.7 9.6 5.7 9.5 10.7 6.3 4.0 5.4 4.0 5.2 42% 42% 9%
LSCC 25.6 21.4 1.5 1.0 1.9 1.4 1.8 0.3 0.6 0.3 0.9 237% 237% 12%
MCHP 20.9 16.1 3.5 3.7 5.3 6.0 6.2 3.1 3.9 3.1 4.4 18% 18% -17%
MRVL 10.4 10.6 1.7 0.7 3.8 5.3 4.9 0.8 2.3 0.8 2.7 -9% -9% -73%
MTSI 5.0 12.7 3.5 1.5 3.4 NM NM NM NM
MU NM NM 0.8 0.9 2.0 1.5 1.6 0.9 1.0 0.9 1.2 -5% -5% -23%
MXIM 24.6 16.2 4.3 3.2 6.2 7.8 3.9 1.1 2.1 1.1 2.4 195% 195% 37%
NVDA 17.2 9.9 2.3 1.2 0.4 0.5 2.1 0.5 1.0 0.4 1.2 201% 141% 0%
NXPI NM 11.6 NM 2.3 1.5 1.5 1.5 52% NM 52%
ONNN 75.4 12.3 2.9 1.1 1.2 1.5 1.8 1.0 1.4 1.0 1.4 12% 12% -20%
PMCS NM 13.7 4.3 1.6 1.6 3.6 1.8 1.1 2.1 1.1 1.7 49% 49% -1%
SNDK 22.5 14.6 1.6 1.9 1.1 1.2 2.2 0.3 1.4 0.3 1.3 540% 540% 47%
TXN 19.3 18.6 8.0 2.6 3.1 2.5 2.5 1.2 2.1 1.2 1.9 120% 120% 37%
XLNX 18.1 18.4 3.4 3.6 4.5 5.5 3.2 2.0 2.7 2.0 2.6 81% 81% 37%
Median 19.2 14.6 3.4 2.1 3.1 3.5 2.7 1.1 2.2 1.4 2.2 59% 67% 5%
Average 21.5 16.8 4.1 2.8 3.6 4.8 4.4 2.1 2.6 1.9 3.0 94% 32% -6%
EV/S at Stock Trough
Min
EV/S
page 21 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 41: WTD Stock Performance
Source: Capital IQ, Jefferies
Chart 42: QTD Stock Performance
Source: Capital IQ, Jefferies
Chart 43: YTD Stock Performance
Source: Capital IQ, Jefferies
Chart 44: 2011-12 Stock Performance
Source: Capital IQ, Jefferies
9%
8%
7%
7%
6%
5%
5%
5%
5%
4%
4%
3%
3%
3%
3%
2%
2%
2%
2%
2%
1%
0%
-1%
-1%
-2%
-5%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%C
AV
MN
VD
AN
XP
IM
ULS
CC
ON
NN
MR
VL
SND
KB
CD
SA
DI
LLTC
MX
IMP
MC
S^s
ox
ALT
RM
CH
PA
MD
TXN
XLN
XEZ
CH
AV
GO
^sp
xIN
TCB
RC
MM
TSI
IPH
I
WTD
Sto
ck P
erf
orm
ance
21
%1
6%
12
%1
1%
8%
7%
5%
4%
3%
0%
-2%
-2%
-3%
-4%
-6%
-6%
-7%
-8%
-9%
-12
%-1
8%
-18
%-1
8%
-28
%-3
5%
-63
%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
SND
KC
AV
MM
XIM
NX
PI
AD
ILS
CC
LLTC
^sp
xTX
NX
LNX
^so
xM
CH
PB
CD
SA
VG
ON
VD
AB
RC
MM
UA
LTR
ON
NN
IPH
IP
MC
SIN
TCEZ
CH
MR
VL
MTS
IA
MD
QTD
Sto
ck P
erf
orm
ance
Moore Stress BeneficiariesOutperforming QTD
68
%1
9%
15
%1
4%
14
%1
3%
10
%1
0%
8%
5%
4%
4%
1%
-6%
-7%
-8%
-10
%-1
0%
-12
%-1
6%
-16
%-3
0%
-32
%-3
7%
-41
%-6
1%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
NX
PI
AV
GO
EZC
H
CA
VM
AD
I
^sp
x
MX
IM
LLTC
BR
CM
BC
DS
XLN
X
^so
x
TXN
NV
DA
MU
PM
CS
INTC
SND
K
MC
HP
ALT
R
ON
NN
IPH
I
LSC
C
MTS
I
MR
VL
AM
D
YTD
Sto
ck P
erf
orm
ance
84
%2
2%
21
%1
6%
15
%1
3%
8%
4%
-5%
-5%
-8%
-9%
-11
%-1
2%
-14
%-1
5%
-27
%-2
7%
-31
%-3
3%
-35
%-3
7%
-41
%-5
6%
-60
%-7
4%
-100%
-50%
0%
50%
100%
NX
PI
MX
IM
AV
GO
EZC
H
XLN
X
^sp
x
AD
I
INTC
LLTC
MC
HP
^so
x
TXN
SND
K
ALT
R
CA
VM
NV
DA
MU
BR
CM
IPH
I
LSC
C
ON
NN
MTS
I
PM
CS
MR
VL
BC
DS
AM
D
20
11
-20
12
Sto
ck P
erf
orm
ance
page 22 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 45: P/E TTM
Source: Capital IQ, Jefferies
Chart 46: P/E NTM
Source: Capital IQ , Jefferies
Chart 47: P/Tangible BV
Source: Capital IQ, Jefferies
Chart 48: EV/Sales TTM
Source: Capital IQ, Jefferies
NM
NM
NM
NM
NM
NM
NM
NM
NM
26
25
24
22
21
19
19
19
18
18
17
15
10
10
5
0
10
20
30
40
50
60
70
80
AM
D
BC
DS
CA
VM
EZC
H
IPH
I
MU
NX
PI
PM
CS
ON
NN
LSC
C
BR
CM
MX
IM
SND
K
MC
HP
LLTC
TXN
AD
I
XLN
X
ALT
R
NV
DA
AV
GO
MR
VL
INTC
MTS
I
P/E
TTM
NM
NM
NM
44
21
19
18
18
18
17
16
16
15
13
13
12
12
11
11
11
10
9
8
0
5
10
15
20
25
30
35
40
45
50
AM
D
CA
VM
MU
IPH
I
EZC
H
LSC
C
LLTC
XLN
X
TXN
ALT
R
AD
I
MC
HP
MX
IM
SND
K
PM
CS
MTS
I
NX
PI
AV
GO
BR
CM
INTC
MR
VL
NV
DA
ON
NN
BC
DS
P/E
NTM
NM
11
.4
9.4
9.4
7.7
5.6
5.0
4.7
4.2
4.2
3.5
3.4
3.3
3.2
3.1
3.0
2.7
2.2
1.7
1.6
1.5
1.5
0.8
0.6
0
2
4
6
8
10
12
14
NX
PI
CA
VM
BR
CM
LLTC
TXN
EZC
H
AV
GO
AM
D
MX
IM
PM
CS
MTS
I
MC
HP
INTC AD
I
XLN
X
ALT
R
ON
NN
NV
DA
MR
VL
SND
K
LSC
C
IPH
I
MU
BC
DS
P/Ta
ngi
ble
BV
12
.3
7.1
5.6
4.2
3.7
3.6
3.4
3.2
3.2
2.7
2.3
2.3
2.0
1.9
1.6
1.5
1.4
1.1
1.1
1.0
0.9
0.7
0.4
0.3
0
2
4
6
8
10
12
14
EZC
H
CA
VM
LLTC
ALT
R
MC
HP
XLN
X
AD
I
MX
IM
AV
GO
TXN
BR
CM
NX
PI
INTC
SND
K
PM
CS
MTS
I
IPH
I
NV
DA
ON
NN
LSC
C
MU
MR
VL
AM
D
BC
DS
EV/S
ale
s T
TM
page 23 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 49: EV/FCF (2012)
Source: Capital IQ, Jefferies
Chart 50: Dividend Yield (%)
Source: Capital IQ Jefferies
Chart 51: 2012 FCF Yield (%)
Source: Capital IQ Jefferies
Chart 52: Net Cash/Share
Source: Capital IQ Jefferies
NM
NM
NM
NM
NM
NM
34
34
17
16
16
15
14
14
14
12
12
12
11
10
10
10
10
4
0
5
10
15
20
25
30
35
40
BC
DS
CA
VM
EZ
CH
LS
CC
PM
CS
SN
DK
IPH
I
AM
D
NX
PI
INT
C
AV
GO
ON
NN
AD
I
LLT
C
MX
IM
TX
N
XLN
X
ALT
R
MU
MT
SI
BR
CM
NV
DA
MC
HP
MR
VL
EV
/FC
F 2
012
4.3
%
4.1
%
3.3
%
3.0
%
2.9
%
2.9
%
2.6
%
2.3
%
1.7
%
1.3
%
1.3
%
0%
1%
2%
3%
4%
5%
MC
HP
INT
C
MX
IM
LL
TC
MR
VL
AD
I
XL
NX
TX
N
MU
AL
TR
BR
CM
Div
ide
nd
Yie
ld (
%)
13%
10
%
9%
9%
8%
8%
8%
8%
8%
7%
7%
6%
6%
6%
6%
5%
4%
2%
1%
1%
0%
0%
5%
10%
15%
MR
VL
MU
BR
CM
TX
N
NX
PI
MT
SI
MC
HP
ON
NN
XLN
X
MX
IM
LLT
C
ALT
R
INT
C
NV
DA
AV
GO
AD
I
AM
D
CA
VM
IPH
I
EZ
CH
BC
DS
SN
DK
PM
CS
LS
CC
2012 F
CF
Yie
ld (
%)
$9.5
$7.7
$6.4
$5.2$5.2$4.3$3.9$3.8$3.7
$2.9$2.2$2.1$2.1$1.6$1.6
$0.8$0.7$0.7$0.6
-$0.7-$0.9-$1.0-$1.8
-$11.4
-$15
-$10
-$5
$0
$5
$10
AD
I
ALT
R
MC
HP
NV
DA
EZ
CH
IPH
I
AV
GO
SN
DK
MR
VL
XLN
X
LLT
C
BC
DS
MX
IM
MT
SI
LS
CC
BR
CM
PM
CS
CA
VM
INT
C
MU
ON
NN
AM
D
TX
N
NX
PI
Net
Cash
Per
Sh
are
($)
page 24 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Chart 53: Semi Valuation Table
Source: Jefferies estimates, company data, Capital IQ
Price Market EV/S EV/FCF
5-Nov-12 Cap 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012
Large Cap*
ADI 40.77 $12,449 Hold $44.0 $2.19 $2.56 $2.22 $2.59 $2,141 $2,887 $2,751 $2,992 19 16 3.3 5% 6% 15
ALTR 31.21 $10,098 Hold $36.0 $1.74 $1.82 $1.74 $1.89 $1,799 $1,969 $1,799 $1,989 18 17 4.0 6% 15% 12
AMD 2.11 $1,572 Buy $5.0 -$0.04 -$0.02 -$0.20 -$0.24 $5,409 $4,813 $5,422 $4,868 NM NM 0.4 4% -12% 34
AVGO 34.32 $8,580 Buy $43.0 $2.79 $3.08 $2.82 $3.12 $1,665 $1,572 $2,408 $2,691 12 11 3.1 6% 9% 16
BRCM 31.58 $18,285 Buy $40.0 $2.89 $2.93 $2.87 $2.93 $7,992 $8,861 $7,975 $8,708 11 11 2.3 9% 11% 10
INTC 21.84 $112,537 Hold $24.0 $2.20 $2.17 $2.21 $2.13 $53,464 $54,647 $53,439 $54,702 10 10 2.0 6% 10% 16
LLTC 32.92 $7,769 Hold $35.0 $1.79 $1.93 $1.75 $1.85 $1,288 $1,357 $1,288 $1,358 18 17 5.6 7% 6% 14
MCHP 32.39 $6,598 Buy $38.0 $1.89 $2.27 $1.91 $2.18 $1,519 $1,809 $1,528 $1,823 17 14 3.6 8% 8% 10
MRVL 8.14 $4,642 Hold $9.0 $0.87 $1.02 $0.86 $0.88 $3,178 $3,356 $3,146 $3,231 9 8 0.7 13% 12% 4
MTSI 12.04 $569 Buy $21.0 $0.14 $0.18 $0.96 $1.16 $302 $322 $304 $326 NM NM 1.5 8% 8% 10
MXIM 28.72 $8,581 Buy $33.0 $1.66 $1.99 $1.66 $1.87 $2,409 $2,593 $2,410 $2,577 17 14 3.2 7% 7% 14
NVDA 13.02 $8,113 Hold $16.0 $1.15 $1.28 $1.13 $1.28 $4,415 $4,594 $4,367 $4,734 11 10 1.1 6% 9% 11
NXPI 25.82 $6,534 Buy $28.0 $1.62 $2.44 $1.69 $2.49 $4,334 $4,602 $4,344 $4,640 16 11 2.3 8% 12% 17
ONNN 6.46 $2,947 Buy $8.0 $0.47 $0.69 $0.46 $0.64 $2,885 $2,990 $2,886 $3,015 14 9 1.1 7% 9% 15
TXN 29.47 $33,625 Buy $33.0 $1.84 $2.05 $1.64 $1.73 $12,796 $13,103 $12,784 $12,680 16 14 2.6 8% 8% 13
XLNX 33.44 $9,038 Hold $36.0 $1.79 $1.96 $1.79 $1.96 $2,213 $2,266 $2,213 $2,302 19 17 3.6 8% 6% 12
Small-Mid Cap & Memory **
BCDS 4.16 $76 Buy $8.0 $0.32 $0.42 $0.45 $0.63 $144 $168 $143 $157 13 10 0.3 0% 20% NM
CAVM 32.48 $1,626 Buy $39.0 $0.40 $1.05 $0.39 $1.02 $235 $320 $235 $310 NM 31 6.9 2% 2% NM
EZCH 32.65 $941 Hold $33.0 $0.77 $0.86 $0.78 $1.27 $51 $61 $51 $75 NM 38 12.1 1% 2% NM
IPHI 8.34 $238 Buy $11.0 $0.16 $0.24 $0.23 $0.53 $92 $111 $92 $109 NM 35 1.5 1% 2% 34
LSCC 4.03 $471 Buy $5.0 -$0.01 $0.30 -$0.03 $0.25 $284 $308 $284 $308 NM 13 1.0 -7% 7% NM
MU 5.84 $5,917 Buy $10.0 -$1.11 $0.11 -$0.24 $0.55 $8,056 $9,410 $8,212 $9,046 NM 53 0.9 10% 3% 11
PMCS 5.05 $1,058 Hold $5.5 $0.35 $0.40 $0.33 $0.41 $528 $540 $528 $548 14 13 1.6 0% 0% NM
SNDK 44.31 $10,821 Buy $51.0 $2.02 $3.38 $2.02 $3.40 $5,011 $6,290 $5,042 $5,983 22 13 1.9 0% 7% NM
Median 16 14 2.1 6% 8% 13 Average 15 18 2.8 5% 7% 15 Total $122,210 $128,951 $123,651 $129,173* Mark Lipacis
** Sundeep Bajikar
FCF YieldTicker Rating PT
JEF EPS JEF RevenuesStreet EPS Street Revenues P/E
page 25 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 26 - 29 of this report.
Technology
Semiconductors
November 6, 2012
Analyst CertificationI, Mark Lipacis, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Sundeep Bajikar, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Jonnathan Lee, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.
For Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.
Meanings of Jefferies RatingsBuy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more withina 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock priceconsistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperformrated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12-month period.NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions onthe investment merits of the company are provided.
Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of marketrisk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.
Conviction List Methodology
1. The aim of the conviction list is to publicise the best individual stock ideas from Jefferies Global Research2. Only stocks with a Buy rating are allowed to be included in the recommended list.3. Stocks are screened for minimum market capitalisation and adequate daily turnover. Furthermore, a valuation, correlation and style screen
is used to ensure a well-diversified portfolio.4. Stocks are sorted to a maximum of 30 stocks with the maximum country exposure at around 50%. Limits are also imposed on a sector basis.5. Once a month, analysts are invited to recommend their best ideas. Analysts’ stock selection can be based on one or more of the following:
non-Consensus investment view, difference in earnings relative to Consensus, valuation methodology, target upside/downside % relativeto the current stock price. These are then assessed against existing holdings to ensure consistency. Stocks that have either reached theirtarget price, been downgraded over the course of the month or where a more suitable candidate has been found are removed.
6. All stocks are inserted at the last closing price and removed at the last closing price. There are no changes to the conviction list duringthe month.
7. Performance is calculated in US dollars on an equally weighted basis and is compared to MSCI World AC US$.8. The conviction list is published once a month whilst global equity markets are closed.9. Transaction fees are not included.
10. All corporate actions are taken into account.page 26 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
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November 6, 2012
Risk which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report• Advanced Micro Devices, Inc. (AMD: $2.11, BUY)• Altera Corp (ALTR: $31.21, HOLD)• Audika (ADI FP: €8.97, BUY)• Avago Technologies (AVGO: $34.32, BUY)• BCD Semiconductor Manufacturing Ltd. (BCDS: $4.19, BUY)• Broadcom Corporation (BRCM: $31.58, BUY)• Cavium Inc. (CAVM: $32.48, BUY)• EZchip Semiconductor Ltd. (EZCH: $32.65, HOLD)• Inphi Corporation (IPHI: $8.34, BUY)• Intel Corporation (INTC: $21.84, HOLD)• Lattice Semiconductor Corporation (LSCC: $4.03, BUY)• Linear Technology (LLTC: $32.92, HOLD)• M/A-COM Technology Solutions Holdings, Inc. (MTSI: $12.04, BUY)• Marvell Technology Group Ltd. (MRVL: $8.14, HOLD)• Maxim Integrated Products, Inc. (MXIM: $28.72, BUY)• Microchip Technology Inc. (MCHP: $32.39, BUY)• Micron Technology, Inc. (MU: $5.84, BUY)• NVIDIA Corporation (NVDA: $13.02, HOLD)• NXP Semiconductors NV (NXPI: $25.82, BUY)• ON Semiconductor Corporation (ONNN: $6.46, BUY)• PMC-Sierra, Inc. (PMCS: $5.05, HOLD)• SanDisk Corporation (SNDK: $44.31, BUY)• Texas Instruments Incorporated (TXN: $29.47, BUY)• Xilinx Corp (XLNX: $33.44, HOLD)
Distribution of RatingsIB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY 747 47.34% 115 15.39%HOLD 709 44.93% 82 11.57%UNDERPERFORM 122 7.73% 0 0.00%
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Please see important disclosure information on pages 26 - 29 of this report.
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November 6, 2012