5 January 2017

Asia Pacific/Taiwan
Equity Research
Semiconductor Devices

Asia Semiconductor Sector

Research Analysts
THEME
Randy Abrams, CFA
886 2 2715 6366
randy.abrams@credit-suisse.com Mature volumes, but still maturing content
Jerry Su
886 2 2715 6361 drivers
jerry.su@credit-suisse.com
Sam Li Figure 1: CS smartphone estimates—high single-digit growth in 2017/18
852 2101 6775 2013 2014 2015E 2016E 2017E 2018E
sam.li@credit-suisse.com
New Estimate 1,019,432 1,303,395 1,437,414 1,457,378 1,555,406 1,681,478
Kyna Wong YoY 41% 28% 10% 1% 7% 8%
852 2101 6950 Old Estimate 1,019,432 1,303,395 1,438,029 1,503,503 1,559,379 1,614,111
kyna.wong@credit-suisse.com
YoY 41% 28% 10% 5% 4% 4%
Haas Liu Revision (%) 0.0% 0.0% 0.0% -3.1% -0.3% 4.2%
886 2 2715 6365
haas.liu@credit-suisse.com Source: Credit Suisse estimates

■ 2017 could see mild units and some ASP stabilisation. Our global
hardware team in its annual wireless preview on 6 Dec 2016 adjusted 2016
down from +5% to +1% (based on IDC's actuals through 3Q16), but off a
lower base increased 2017/18 growth from +4%/4% to 7%/8% YoY to
reflect the rebound from Apple's iPhone 8 in 2H17 and some upgrade
demand in emerging markets. Smartphone revenue is projected to grow
1%/5% YoY in 2017/2018 as ASP declines moderate from -7% YoY toward
-3% YoY by 2018.
■ Content and spec upgrades offer some upside in a slow growth
market. Despite only mild smartphone unit growth, the leaders in the tech
supply chain should continue to benefit from the continued innovation in
handsets through spec upgrade. We expect key content drivers in 2017 to
include: fingerprint sensor (non-Apple rising from 30% to 47%), OLED
display (rising from 21% to 26%), dual camera (vendors seeing orders for
20-25%, though CS at 10-15% based on supply constraints), USB Type-C,
continued memory capacity growth and CAT 7+ modem upgrades in China.
■ Competitive pressure persists in mobile processors. We stay
conservative on Mediatek as market share gains reverse and units slow
from high 2016 rates. We expect Mediatek to track the low-end of 4Q16
guidance and lower 1Q17 sales from -2% QoQ to -12% QoQ off the lower
base. Margins may stabilise but cost improvement needs to wait until 2H17.
We maintain NEUTRAL and our NT$225 target price is based on 14x
2017E EPS of $16.
■ Some opportunities still in Foundry, RF and components. We are still
conservative on the smartphone opportunity but see investment opportunities
where content gains continue and margins are protected by innovation and
competitive advantage. Our top picks in the chain include: (1) foundry
(TSMC, Win Semi), (2) back-end (Powertech, Chipbond), (3) IC design (Egis,
FocalTech), (4) components (Sunny Optical, Lens Tech and AAC Acoustics).

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
 5 January 2017

Focus tables and charts

Figure 2: Summary of Credit Suisse's smartphones estimates
(in millions, unless otherwise stated)
CS Global Model 2012 2013 2014 2015 2016 2017 2018 16-18 CAGR 12-15 CAGR
Mobile subscribers 6,155 6,545 6,890 7,215 7,538 7,861 8,141 3.9% 5.4%
Smartphone subscribers 1,191 1,836 2,593 3,321 3,838 4,370 4,862 12.5% 40.8%
% penetration 19.3% 28.1% 37.6% 46.0% 50.9% 55.6% 59.7% 55.4% 32.8%
Net additions 430 645 757 729 517 531 493
Replacements 295 374 547 709 940 1,024 1,189 12.5% 33.9%
Replacement rate 2.6 3.2 3.4 3.7 3.5 3.7 3.7
Smartphone units 725 1,019 1,303 1,437 1,457 1,555 1,681 7.4% 25.6%
YoY 46.7% 40.5% 27.9% 10.3% 1.4% 6.7% 8.1%
ASPs $329 $283 $249 $252 $233 $221 $215 -4.0% -8.5%
YoY -8.9% -14.0% -12.1% 1.2% -7.4% -5.0% -3.0%
Revenue $238.6 $288.4 $324.2 $361.7 $339.4 $344.1 $360.9 3.1% 14.9%
Smartphone Revenue YoY 33.7% 20.9% 12.4% 11.6% -6.1% 1.4% 4.9%
Source: Credit Suisse estimates
Figure 3: China 4G ramp up nearly over by late 2017 Figure 4: Non-Apple smartphone fingerprint
penetration to reach 65% by 2018E
China 4G subscriber base (mn) China 4G penetration
1,500 100%
1,350 90%
1,200 80%
1,050 70%
900 60%
750 50%
600 40%
450 30%
300 20%
150 10%
0 0%
Jul-14

Jul-15

Jul-16

Jul-17
Mar-17
Mar-14
May-14

Mar-15
May-15

Mar-16
May-16

May-17
Sep-14
Nov-14

Sep-15
Nov-15

Sep-16
Nov-16

Sep-17
Nov-17
Jan-14

Jan-15

Jan-16

Jan-17

Total 4G subscribers 4G penetration

Source: Gartner Source: Credit Suisse estimates
Figure 5: OLED penetration in global smartphones Figure 6: China has gained, but watch iPhone in 2H
(mn unit) Units: mn YoY (%)
1,800 35% 150 225%
1,750 135 200%
30%
120 175%
1,700
25% 105 150%
1,650
90 125%
1,600 20%
75 100%
1,550 15% 60 75%
1,500 45 50%
10%
30 25%
1,450
5% 15 0%
1,400
- -25%
1,350 0%
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16

2016E 2017E 2018E 2019E

Total units (lhs) OLED penetration rate China ex-AAPL/SEC Samsung units Apple units
YoY Ex-AAPL/SEC YoY
Source: Gartner Source: Company data, Credit Suisse estimates
Figure 7: Helio declines in 4Q on a shift to exports Figure 8: Mediatek's stock pressured by lower GMs
Revenue (NT$bn) Helio % of Mediatek sales Mediatek Stock GM / OpMs (%)
$50 40% Price (NT$)
$45 $700 70%
35%
$40 $600 60%
30%
$35 $500 50%
$30 25%
$400 40%
$25 20%
$300 30%
$20 15% $200 20%
$15
10% $100 10%
$10
$5 5% $0 0%
2Q02

1Q15
3Q01

1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
3Q13
2Q14

4Q15
3Q16

$0 0%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E 4Q16E
3G 4G Mainstream 4G Helio 4G Helio Share price Corporate GM % Corporate OpM %
Source: Company data, Credit Suisse estimates Source: Qorvo, Credit Suisse

Asia Semiconductor Sector 2

 5 January 2017

China smartphone supply chain valuation

Figure 9: Valuation summary of Credit Suisse's smartphone supply chain coverage
(in millions, unless otherwise stated)
Price Target Investment Target Mkt Cap EV/Sales (x) P/E Multiple (x) P/B Multiple (x) ROE Trou
Company Ticker 1/3/2017 Local Curcy Rating Upside (US$mn) 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017
Fabless
MediaTek 2454.TW 218.0 225.0 Neutral 3% $10,588 0.9 0.7 0.6 13.0 15.0 13.6 1.4 1.4 1.3 10.8 9.1 9.7
Qualcomm QCOM 65.4 NA Restricted NA $96,588 4.0 4.4 4.3 14.0 15.2 12.6 3.4 3.3 3.2 24.3 21.7 25.2
Realtek 2379.TW 100.5 133.5 Outperform 33% $1,572 -0.5 -0.5 -0.5 20.9 15.7 12.0 2.3 2.3 2.1 10.9 14.8 17.9
Novatek 3034.TW 107.0 131.0 Outperform 22% $2,027 -0.3 -0.3 -0.3 10.2 13.3 11.5 2.3 2.9 2.7 22.6 21.9 23.7
Focaltech 3545.TW 35.8 45.0 Outperform 26% $323 0.0 -0.3 -0.3 44.4 63.2 12.0 1.0 1.0 0.9 2.1 1.5 7.5
Himax HIMX 6.2 12.0 Outperform 93% $1,069 1.5 1.3 1.3 42.5 16.9 14.1 2.4 2.2 2.1 5.6 13.2 15.0
Elan 2458.TW 35.0 31.0 Underperform -11% $465 -0.1 -0.2 -0.3 18.7 18.9 16.1 2.1 2.1 2.1 11.2 11.5 12.9
Egistec 6462.TWO 253.5 300.0 Outperform 18% $513 -0.2 -0.1 0.0 NA 135.2 12.7 12.9 11.6 6.1 -6.7 8.6 47.6
Foundry
TSMC 2330.TW 183.0 205.0 Outperform 12% $147,019 -0.2 -0.2 -0.2 16.5 14.5 13.5 3.9 3.4 3.1 23.5 23.8 22.8
UMC 2303.TW 11.4 13.0 Neutral 14% $4,439 0.8 0.9 0.9 10.6 15.5 16.2 0.6 0.6 0.6 5.9 4.1 3.9
SMIC 0981.HK 11.6 10.9 Neutral -6% $6,374 2.7 2.4 2.2 22.6 16.1 16.2 1.7 1.5 1.4 7.6 9.6 8.5
Hua Hong 1347.HK 8.7 11.0 Outperform 26% $1,147 1.3 1.3 1.1 10.3 9.7 10.0 0.8 0.8 0.7 7.5 7.8 7.3
Win Semi 3105.TWO 89.5 103.7 Outperform 16% $1,129 3.0 2.8 2.3 13.8 11.8 11.0 2.1 2.1 1.9 15.5 17.5 17.2
IDM
Intel INTC 36.6 40.0 Outperform 9% $173,447 3.0 3.0 2.8 15.7 13.8 12.9 2.8 2.6 2.3 18.4 19.5 18.4
Samsung 005930.KS 1824000.0 2400000.0 Outperform 32% $210,902 1.2 1.2 1.0 13.9 11.9 8.8 1.4 1.2 1.1 10.0 10.4 12.6
Back-end packaging
Amkor AMKR 10.7 8.5 Neutral -20% $2,531 1.2 0.9 0.8 43.9 19.5 16.3 2.1 1.8 1.6 4.8 9.4 10.1
Chipbond 6147.TWO 46.8 55.0 Outperform 18% $939 2.1 1.8 1.6 14.7 15.9 11.9 1.3 1.3 1.2 8.8 8.1 10.2
Panel
AUO 2409.TW 12.0 16.0 Outperform 33% $3,563 0.4 0.6 0.5 23.4 26.1 8.7 0.6 0.6 0.6 2.7 2.5 6.9
Innolux 3481.TW 12.1 15.0 Outperform 24% $3,746 0.4 0.5 0.4 11.1 N/A 6.7 0.5 0.5 0.5 4.7 -1.4 7.5
LG Display 034220.KS 31750.0 25800.0 Neutral -19% $9,331 0.5 0.5 0.5 12.0 28.2 21.5 0.9 0.9 1.0 7.6 3.4 4.7
Japan Display 6740.T 333.0 220.0 Neutral -34% $1,797 0.2 0.2 0.3 N/A N/A -11.4 0.5 0.5 0.6 -3.0 -8.3 -2.9
Sharp 6753.T 270.0 120.0 Underperform -56% $12,336 0.8 0.8 0.8 N/A N/A -34.3 2.4 15.2 -10.6 -197.4 -299.7 -34.8
Smartphone brands
Coolpad 2369.HK 0.8 0.6 Underperform -24% $513 0.2 0.2 0.2 N/A -6.5 -18.1 0.5 0.7 0.8 -4.5 -11.2 -4.2
ZTE 0763.HK 12.9 12.7 Neutral -2% $9,724 0.8 0.7 0.5 16.7 14.2 13.2 1.8 1.7 1.5 10.8 11.7 11.6
Lenovo 0992.HK 4.8 7.0 Outperform 46% $7,013 0.2 0.2 0.2 8.0 N/A 12.4 1.6 2.3 2.5 20.3 -4.0 20.3
Smartphone components
Largan 3008.TW 3795.0 4100.0 Outperform 8% $15,709 8.3 9.6 7.1 21.1 22.1 16.0 8.0 7.4 5.5 38.1 33.4 34.4
Catcher 2474.TW 225.5 295.0 Outperform 31% $5,305 1.6 1.8 1.3 6.9 9.2 8.6 1.5 1.5 1.4 21.7 16.3 15.7
AAC 2018.HK 70.6 86.9 Outperform 23% $2,437 6.6 5.2 4.1 27.9 22.2 17.5 7.7 6.3 5.2 27.5 28.5 29.7
VPEC 2455.TW 48.5 46.5 Neutral -4% $278 3.1 3.8 3.3 15.1 17.6 15.7 2.5 4.9 4.8 16.5 27.9 30.7
TXC 3042.TW 40.8 45.0 Neutral 10% $390 1.2 1.2 1.0 13.5 12.5 11.3 1.2 1.2 1.2 8.7 9.7 10.4
Merry 2439.TW 122.5 120.0 Neutral -2% $700 1.7 1.3 1.1 35.3 16.5 15.0 3.9 3.7 3.4 11.0 22.6 22.8
Sunny Optical 2382.HK 34.1 44.6 Outperform 31% $4,642 3.2 2.3 2.0 48.4 32.3 24.1 9.6 7.8 6.3 19.9 24.3 26.0
Tongda 0698.HK 2.0 2.2 Neutral 8% $1,528 2.1 1.7 1.4 17.2 13.3 10.9 3.0 2.7 2.4 17.3 20.5 21.7
O-Film 002456.SZ 32.2 40.7 Neutral 27% $4,579 2.1 1.5 1.0 69.3 42.1 26.3 5.5 3.7 3.3 7.9 8.7 12.4
Truly 0732.HK 2.9 3.3 Neutral 13% $1,091 0.6 0.7 0.6 10.0 11.6 10.6 1.2 1.1 1.1 11.9 9.7 9.9
FIH Mobile 2038.HK 2.5 2.8 Neutral 12% $2,603 0.1 0.2 0.2 11.0 28.9 18.1 0.7 0.7 0.7 6.1 2.3 3.7
BYDE 1211.HK 41.4 77.0 Outperform 86% $939 2.0 1.4 1.2 36.3 21.9 27.0 3.2 2.3 2.2 8.7 10.4 8.1
Median 1.2 1.2 1.0 15.4 15.7 12.6 1.8 1.8 1.5 10.8 10.4 12.2
Mean 1.6 1.5 1.3 21.1 18.5 11.5 2.4 2.6 1.7 6.6 3.6 12.7
Source: Company data, Credit Suisse estimates

Asia Semiconductor Sector 3

 5 January 2017

Mature volumes, but still maturing content

drivers
In coordination with our global hardware team's industry smartphone update in December,
we publish our annual smartphone outlook report for the Asia Semiconductor Sector. The
revised estimates are for mild mid-high single digit unit growth and some stabilisation in
blended pricing with a lift from iPhone 8 in 2H17 and a shift from entry level to replacement
smartphone buyers in emerging markets. We remain selective on component and IC picks
given some ongoing margin pressure and provide implications for the Asian supply chain.

2017 smartphones could see mild units but

stabilising ASPs
Our global hardware team revised its smartphone unit estimates for 2016 to 1.457bn (+1%
YoY), down from prior 1.504bn (+5% YoY) which is based on IDC through nine months
and reflects a slowdown in the high-end brands (Apple and Samsung) and may also be
undercounting some of the smaller China smartphone brands. For 2017/2018, our team
maintains near similar estimates, with decent growth from a lower base now at 1.555bn in
2017 (+7% YoY) and 1.681bn in 2018 (+8% YoY), up from prior +4% YoY growth
estimates for both 2017/2018. Our team also projects ASP erosion moderating from -7%
YoY in 2016 toward -3% YoY by 2018 due to a lift from iPhone and replacement upgrades.

Content and specs provide some lift to the outlook

Despite slowing smartphone unit growth, the leaders in the supply chain should continue
to benefit from the continued innovation in handsets through spec upgrades. We highlight
the specs which will be more widely adopted, including (1) fingerprint continuing fast
penetration for non-Apple smartphones from 400mn in 2016 to 610mn in 2017, (2) OLED
continuing to grow from 21% to 26% driven by Apple and Samsung though Chinese
brands may be capped by supply constraints and could adopt more TDDI solutions to
achieve thinner structure, (3) dual camera rising with CS assuming 10-15% but some
Android camera module vendors seeing potential for 20-25% if China brands can secure
supply, (4) LTE shifts toward CAT 7+, benefiting RF content, (5) memory densities
maintain their upward pace, and (6) USB Type C sees more adoption, and VR gains some
more adoption with Google Daydream and low-cost Chinese built models.

Competitive pressure persists in mobile processors

Despite the continuing consolidation in merchant mobile processors, the market remains a
competitive challenge with Qualcomm still controlling the high-end merchant market but
aggressively battling Mediatek in the entry to mainstream, with Spreadtrum still a factor in
the 3G market. We believe Mediatek's share gains are slightly reversing through late
2016. We believe Mediatek only achieved the lower-end of guidance for 4Q16 and trim our
sales estimate from -10% QoQ to -12% QoQ versus -7-15% QoQ guidance due to slower
sales from India and a late-year slowdown in China. We also expect Mediatek to see a
sales decline in 1Q17 that could rival traditional seasonality down 10-15% QoQ, and now
cut our 1Q17 estimate from -1% to -12% QoQ off a lower 4Q base. Margins may stabilise
in the mid-30% level although new chipsets offering cost reductions for the mass market
tier would only launch from the middle of 2017 and cross over volume in 2H17.

Stay selective positioning in the Asian supply chain

We are somewhat muted on the smartphone outlook but see opportunities where content
gains continue and margins are protected by innovation and competitive advantage,
benefiting (1) foundry (TSMC, Win Semi), (2) back-end (Powertech, Chipbond), (3) IC
design (Egis, FocalTech), (4) components (Sunny Optical, Lens Tech and AAC Acoustics).

Asia Semiconductor Sector 4

 5 January 2017

2017 smartphones could see mild units but

stabilising ASPs
CS estimates +7%/+8% In our annual smartphone outlook published in December 2016, our global hardware team
YoY smartphone unit revised its smartphone unit estimates to reflect a lower 2016, though it largely kept
growth in 2017/18 2017/2018 intact and now projects a decent unit growth off a lower base. The revised
estimates have 2016 at 1.457bn (+1% YoY), down from prior 1.504bn (+5% YoY) which is
based on IDC through nine months and reflects a slowdown in the high-end brands (Apple
and Samsung) and may also be undercounting some of the smaller China smartphone
brands. For 2017/2018, our team maintains near similar estimates, with decent growth
from a lower base now at 1.555bn in 2017 (+7% YoY) and 1.681bn in 2018 (+8% YoY), up
from prior +4% YoY growth estimates for both 2017/2018.

Figure 10: Revising down our smartphone estimates from 2015-2017

(in millions, unless otherwise stated)
2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
New Estimate 304,681 494,447 725,476 1,019,432 1,303,395 1,437,414 1,457,378 1,555,406 1,681,478
YoY 62% 47% 41% 28% 10% 1% 7% 8%
Old Estimate 304,681 494,447 725,476 1,019,432 1,303,395 1,438,029 1,503,503 1,559,379 1,614,111
YoY 62% 47% 41% 28% 10% 5% 4% 4%
Revision (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -3.1% -0.3% 4.2%
Source: Company data, Credit Suisse estimates

We expect a mild improvement in 2017 unit growth with the launch of iPhone 8 helping the
high-end in 2H17 and also from emerging markets where 4G and overall smartphone
penetration still has room to expand. Our team also projects ASP erosion moderating from
-7% YoY in 2016 towards -3% YoY by 2018 as the iPhone enters another replacement
cycle and some emerging markets move from new smartphone additions to upgrade
smartphone replacements. The total revenue for the industry in this scenario would
rebound from -6% YoY in 2016 to +1% in 2017 and +5% YoY in 2018.

Figure 11: Summary of Credit Suisse's smartphone estimates

(in millions, unless otherwise stated)
CS Global Model 2012 2013 2014 2015 2016 2017 2018 16-18 CAGR
Mobile subscribers 6,155 6,545 6,890 7,215 7,538 7,861 8,141 3.9%
Smartphone subscribers 1,191 1,836 2,593 3,321 3,838 4,370 4,862 12.5%
% penetration 19.3% 28.1% 37.6% 46.0% 50.9% 55.6% 59.7% 55.4%
Net additions 430 645 757 729 517 531 493
Replacements 295 374 547 709 940 1,024 1,189 12.5%
Replacement rate 2.6 3.2 3.4 3.7 3.5 3.7 3.7
Smartphone units 725 1,019 1,303 1,437 1,457 1,555 1,681 7.4%
YoY 46.7% 40.5% 27.9% 10.3% 1.4% 6.7% 8.1%
ASPs $329 $283 $249 $252 $233 $221 $215 -4.0%
YoY -8.9% -14.0% -12.1% 1.2% -7.4% -5.0% -3.0%
Revenue $238.6 $288.4 $324.2 $361.7 $339.4 $344.1 $360.9 3.1%
Smartphone Revenue YoY 33.7% 20.9% 12.4% 11.6% -6.1% 1.4% 4.9%

Upside Penetration 2012 2013 2014 2015 2016 2017 2018 16-18 CAGR
Mobile subscribers 6,155 6,545 6,890 7,215 7,538 7,861 8,141 4.4%
Smartphone subscribers 1,191 1,836 2,593 3,321 3,838 4,443 5,057 15.7%
% penetration 19.3% 28.1% 37.6% 46.0% 50.9% 56.5% 62.1% 51.2%
Net additions 430 645 757 729 517 605 614
Replacements 295 374 547 709 940 1,126 1,303 26.0%
Replacement rate 2.6 3.2 3.4 3.7 3.4 3.4 3.4
Smartphone units 725 1,019 1,303 1,437 1,457 1,731 1,917 9.7%
YoY 46.7% 40.5% 27.9% 10.3% 1.4% 18.7% 10.8%
ASPs $329 $283 $249 $252 $233 $221 $215 -6.2%
YoY -8.9% -14.0% -12.1% 1.2% -7.4% -5.0% -3.0%
Revenue $238.6 $288.4 $324.2 $361.7 $339.4 $382.9 $411.4 2.9%
YoY 33.7% 20.9% 12.4% 11.6% -6.1% 12.8% 7.4%
Source: Company data, Credit Suisse estimates

Asia Semiconductor Sector 5

 5 January 2017

Smartphone units could grow 10% returning to 2014 replacement rates

We would note that global smartphone units are slowing both due to higher penetration of
smartphone users already and a deceleration in the replacement cycle, which has pushed
out from two years in 2010 when demand was limited to high-end consumers to 3.5 years
in 2016. The mix shift to emerging markets, less innovation in high-end smartphones and
purchase of refurbished models has dampened the replacement cycle. While our baseline
smartphone industry model projects a mild improvement in revenue as pricing pressure
eases, rising penetration rates of smartphones in emerging markets outside China and a
reacceleration in global replacement rates would provide shipments upside to our industry
model.
An improvement in In our upside case, we believe the smartphone demand could reaccelerate in 2017 to 19%
replacement rates back growth based on a shorter replacement cycle at 3.4 years back to 2014 levels (vs. base
to 2014 levels would case 3.7 years). New subscriber penetration is also a swing factor, with our global model
maintain 10%+ YoY unit now assuming new additions slowing from ~750mn in 2014-2015 to 531mn in 2017 and
growth 493mn in 2018 from a higher base though we would note it could add 100-200mn units to
the global estimate if emerging market 3G/4G subscriber growth keeps global smartphone
penetration growth at 5.5% a year. A revised scenario of reaccelerating replacement rate
at 3.4 years and 600mn net additions would lift growth to +13%/+7% in 2017/18.
Chipset shipments tracking a bit above the smartphone unit shipments
Our analysis of chipset vendors also points to a more robust +4% YoY increase in
smartphone chipset shipments in 2016 versus the +1% YoY smartphone growth, due to
combination of small vendor undercounting, channel fill inventory and some
unsold/obsolete final product. Asian vendors performed well in 2016, outgrowing again at
+22% YoY growth, well above the industry on strong shipments growth from Mediatek into
entry level LTE and Hi-Silicon into more of Huawei's internal phones.

Figure 12: Asian chipset vendors' growth share now more moderate
(in millions, unless otherwise stated)
Global chipsets 2011 2012 2013 2014 2015 2016E 2017E 2016 share 15-17 CAGR
Mediatek 10.0 109.8 223.2 356.4 395.4 500.1 530.1 32% 16%
Mediatek share (%) 2% 14% 21% 26% 27% 32% 32%
Spreadtrum 0.2 32.0 120.6 160.0 200.0 220.0 230.0 14% 7%
Leadcore 3.0 5.0 12.0 16.0 15.0 13.0 11.0 1% -14%
Hi-Silicon - - 2.6 15.4 48.2 70.0 85.0 5% 33%
Asian suppliers 13.2 146.8 358.4 547.8 658.5 803.1 856.1 52% 14%
YoY Growth 1010% 144% 53% 20% 22% 7%
Share 2% 19% 34% 40% 44% 52% 52%
Qualcomm (80% of MSM to SPs) 416.8 492.8 598.4 735.2 722.4 648.0 680.4 42% -3%
Samsung (integrated) - - - 30.0 70.0 90.0 110.0 6% 25%
Intel 85.5 51.4 26.1 21.0 15.0 5.0 - 0% -100%
Broadcom 8.0 8.0 8.0 5.0 - - - 0% NM
Marvell 37.9 48.0 42.8 40.0 20.0 - - 0% NM
ST-Ericsson 50.0 40.0 20.0 - - - - 0% NM
Overseas suppliers 598.1 640.3 695.3 831.2 827.4 743.0 790.4 48% -2%
YoY Growth 7% 9% 20% 0% -10% 6%
Share 98% 81% 66% 60% 56% 48% 48%
Total Industry chipset sell-in 611.4 787.1 1,053.6 1,379.0 1,485.9 1,546.1 1,646.5 100% 5%
YoY Growth 29% 34% 31% 8% 4% 6%

Industry Smartphone sell-in 494.4 725.5 1,019.4 1,303.7 1,437.4 1,457.4 1,555.4 94% 4%
YoY Growth 47% 41% 28% 10% 1% 7%
Source: Company data, Credit Suisse estimates

Our bottoms up projects near similar +6% YoY growth in 2017, with Mediatek in our
coverage more closely matching the industry as it gains some inroads into low-end
Samsung phones but offset by some share loss to Qualcomm in 1H17 at the mid-high end

Asia Semiconductor Sector 6

 5 January 2017

of the China market from brands launching super-regional models or satisfying China
Mobile's CAT 7 LTE baseband requirement for their premium models.
China units based on
MIIT and China Mobile's
Emerging market focus shifts from China to other
projections may have developing markets
topped 500mn units,
setting up a tough Following strong 4G upgrades in China in 2016, that market should now mature from a
compare for 2017 higher base. Our global model projects China at 447mn, although chipset shipments
topped 500mn and carrier feedback also suggests a higher estimate. China Mobile
recently indicated to its supply chain it sold 400mn units in 2016 and planned similar
shipments in 2017, giving the market over 500mn units factoring in China Telecom and
China Unicom paced over 100mn 4G subscriber additions. China's MIIT (Ministry of
Industry and Information Technology) also indicated total smartphone shipments grew
+13% YoY with LTE +18% YoY through November, also ahead of IDC and our global
model based on those figures.
Figure 13: China smartphone shipments up mid-
teens Figure 14: China 4G additions +10% YoY in 2016
China smartphones (mn) YTD YoY % China 4G subscriber net adds YTD (Mn) Net adds YTD (%)
500 20% 400 100%
400 15% 360 90%
300 320 80%
10%
200
280 70%
100 5%
240 60%
- 0%
200 50%
(100) -5% 160 40%
(200)
-10% 120 30%
(300)
-15% 80 20%
(400)
40 10%
(500) -20%
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec - 0%
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
2014 2015 2016
2014 YTD YoY 2015 YTD YoY 2016 YTD YoY 2014 2015 2016 2016 YTD YoY

Source: Company data, Credit Suisse Source: Company data, Credit Suisse

4G penetration has one year left to ramp up in China, further room in

other emerging markets
Off a higher base, however, China growth should moderate in 2017. China subscriber
penetration of 3G and 4G is now much higher and leaves less room for growth from new
smartphone subscribers. Following last year's surge in 4G addition, we would note 3G+4G
penetration in China has increased from 64% at the end of 2015 to 80% at the end of 2016
and we expect it will reach 98% by the end of 2017 (3G 20% and 4G 78%). The market
LTE shipments have also now stabilised the past six months already at 90%+ of
shipments, leaving less room now for 3G to 4G conversion of units in China.
Figure 16: China has gained, though iPhone 8 could
Figure 15: China 4G crosses over 3G this year repeat the modest gains seen with iPhone 6 in 4Q14
Subscriber base (mn) Penetration (%) Units: mn YoY (%)
1,500 100% 150 225%
1,350 90% 135 200%
1,200 80% 120 175%
1,050 70% 105 150%
900 60% 90 125%
75 100%
750 50%
60 75%
600 40%
45 50%
450 30%
30 25%
300 20%
15 0%
150 10%
- -25%
0 0%
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16

2009 2010 2011 2012 2013 2014 2015 2016E 2017E

2G subscriber base 3G subscriber base 4G subscriber base China ex-AAPL/SEC Samsung units Apple units
YoY Ex-AAPL/SEC YoY
2G penetration 3G penetration 4G penetration
Source: Company data, Credit Suisse Source: Company data, Credit Suisse

Asia Semiconductor Sector 7

 5 January 2017

The China market (over 500mn units in 2016) was fueled by a 4G upgrade cycle that could
be near complete in 2017. After that growth, the market will largely be replacements, and
over 500mn units is already a reasonable 2.5-year replacement rate for the country's
1.3bn subscription plans, implying modest growth after the 4G upgrade cycle is complete.
China brands dominate locally, though may partially reverse in 2H17

Figure 17: China’s smartphone market growth remain modest through 2017E
(in millions, unless otherwise stated)
China Smartphone Market 2011 2012 2013 2014 2015 2016E 2017E 15-17 CAGR
Samsung 14.6 37.1 65.5 50.9 33.4 27.6 25.0 -13%
Apple 8.5 20.8 23.1 34.3 55.7 39.9 45.0 -10%
Nokia/Microsoft 25.2 7.9 2.9 2.4 0.1 0.1 0.0 -100%
HTC 2.5 7.5 6.3 4.3 2.2 2.3 2.2 0%
Motorola 5.1 4.0 0.8 0.3 0.2 0.2 0.0 NM
Sony 0.0 0.9 1.5 2.2 0.7 0.2 0.2 -45%
BlackBerry 0.2 0.0 0.0 0.0 0.0 0.0 0.0 NM
Traditional Tier One's 56.2 78.3 100.2 94.3 92.3 70.4 72.4 -11%
YoY Growth 39% 28% -6% -2% -24% 3%
Share 62% 37% 29% 22% 21% 16% 16%
Huawei 9.9 18.5 32.4 41.3 62.9 71.7 73.1 8%
Xiaomi 0.2 6.6 18.4 52.8 64.9 39.7 38.5 -23%
Lenovo 3.7 23.5 41.6 47.3 21.8 5.2 6.4 -46%
Oppo 0.2 3.0 11.5 25.9 35.3 71.9 74.3
VIVO 0.0 2.2 11.6 27.9 35.1 63.3 71.5
Meizu 0.0 2.2 2.9 5.2 24.4 13.3 12.0
ZTE 10.2 19.4 21.8 20.6 19.4 14.4 14.4 -14%
Coolpad 3.9 18.5 37.6 39.4 25.5 13.2 13.7 -27%
Top Chinese Brands 28.1 94.0 177.8 260.4 289.3 292.6 303.8 2%
YoY Growth 235.1% 89.1% 46.5% 11.1% 1.1% 3.8%
Share 31.0% 43.9% 50.7% 62.0% 66.7% 65.4% 65.6%
Other brands/whitebox 6.3 41.9 72.6 65.1 52.4 84.2 87.2 29%
YoY Growth 561% 73% -10% -20% 61% 4%
Share 7% 20% 21% 16% 12% 19% 19%
China Smartphones 90.6 214.2 350.6 419.8 434.1 447.2 463.4 3%
YoY Growth 136% 64% 20% 3% 3% 4%
Source: Company data, Credit Suisse estimates

The China brands continue to take market share in the domestic China market. The global
brand’s market share has declined from near 40% in 2012 to 16% in 2016 as local brands
have established brands on the back of their strategy of offering quality at a reasonable
price, undercutting by over half versus Samsung and Apple's high-end flagships. We
estimate top Chinese brands are gaining share in the mid to high-end segment (Oppo,
Vivo and Huawei) and Whitebox brands are improving in the low to mid-end market to now
command over 80% share of the local China market. The key focus for the 2017 outlook
though should be a slowdown or modest reversal in that trend if Apple can recapture a bit
of share in China with iPhone 8 as it did with the iPhone 6 refresh with larger screen sizes.
Growth shifts from China to emerging markets in 2017
China nearing full
Figure 18: Emerging markets continue to outpace developed markets and China
penetration, growth will
2011 2012 2013 2014 2015 2016 2017E 2018E 16-18 CAGR
need to shift to other China 90.6 214.2 350.6 419.8 434.1 447.2 463.4 470.9 3%
emerging markets YoY 151% 136% 64% 20% 3% 3% 4% 2%
Rest of Asia Pacific 78.8 98.9 149.0 224.8 262.9 278.0 319.1 360.8 14%
Latin America 32.0 53.5 97.8 135.6 143.2 140.3 143.7 159.7 7%
CEMA 55.3 72.2 105.0 171.3 235.7 236.0 259.6 294.9 12%
Other Emerging 166.0 224.6 351.8 531.7 641.7 654.4 722.4 815.4 12%
YoY 62% 35% 57% 51% 21% 2% 10% 13%
Developed 237.9 286.7 317.1 351.9 361.7 355.8 369.6 395.2 5%
YoY 43% 21% 11% 11% 3% -2% 4% 7%
Total industry 494.4 725.5 1,019.4 1,303.4 1,437.4 1,457.4 1,555.4 1,681.5 7%
YoY 62% 47% 41% 28% 10% 1% 7% 8%
Source: Company data, Credit Suisse estimates

We still see lower penetration supporting emerging markets growth continuing and
maintain a 12% CAGR through 2018, owing to still rising penetration in India, the Middle
East, Brazil and Africa. Emerging markets that are key targets for Chinese brands

Asia Semiconductor Sector 8

 5 January 2017

exporting handsets should still grow faster, from 654mn in 2016 to 722mn in 2017 and
815mn by 2018. The key short-term risk to monitor though is India where the smartphone
market in 2016 is only 130mn units vs. over 500mn in China despite near similar
population, but being impacted in the near-term by demonetisation.

China brands growing 7-11% including exports

Emerging markets still While China smartphone brands growth is now slower in the domestic market, the export
can grow at a faster rate channel still has some more penetration ahead. In China, smartphones are already 75% of
due to lower 4G and device shipments and reaching a more stable level, keeping the market growth modest at
overall smartphone 4% to 463mn units in 2017. On the other hand, the export channel for China brands into
penetration other emerging market is still growth with smartphone shipments penetration still only at
64% with 10%+ room for further increase. We estimate the smartphone demand in other
emerging market will witness a 12% CAGR from 654mn in 2016 to 815mn in 2018, lifting
the combined emerging market unit opportunity growing at 7% CAGR through 2018.

Figure 19: Chinese penetration of devices faster than other emerging markets
(in millions, unless otherwise stated)
Penetration of devices 2012 2013 2014 2015 2016E 2017E 2018E 16-18 CAGR
China handsets 510.5 548.2 563.8 583.9 604.5 619.1 628.3 2%
China smartphones 214.2 350.6 419.8 434.1 447.2 463.4 470.9 3%
% of devices 42% 64% 74% 74% 74% 75% 75%
Emerging mkt handsets 955.8 959.5 986.1 1,025.8 1,030.0 1,099.3 1,121.3 4%
Emerging mkt smartphones 225.8 353.8 531.7 641.7 654.4 722.4 815.4 12%
% of devices 24% 37% 54% 63% 64% 66% 73%
Global handsets 1,907.1 1,944.8 1,983.6 2,046.3 2,074.0 2,158.8 2,194.5 3%
Global smartphones 726.7 1,018.7 1,301.7 1,437.4 1,457.4 1,555.4 1,681.5 7%
% of devices 38% 52% 66% 70% 70% 72% 77%

Source: Company data, Credit Suisse estimates

Though upside is limited for China brands in the domestic market, they have been shifting
more focus to the high-growth emerging markets where demand for smartphone is more
on the low to mid-end segment.

Figure 20: Chinese penetration of devices faster than other emerging markets
(in millions, unless otherwise stated)
Asian built smartphones 2011 2012 2013 2014 2015 2016E 2017E 15-17 CAGR
Top Chinese Brands 28.1 94.0 177.8 260.4 289.3 292.6 303.8 2%
Smaller Chinese Brands 6.3 41.9 72.6 65.1 52.4 84.2 87.2 29%
China shipments (mn units) 34.4 135.9 250.4 325.5 341.7 376.8 391.0 7%
YoY Growth 295.2% 84.2% 30.0% 5.0% 10.3% 3.8%
Share 39.0% 54.5% 50.5% 42.5% 39.4% 37.2% 36.4%
Export shipments (mn units) 53.9 113.5 245.2 440.2 526.6 635.1 683.6 14%
YoY Growth 111% 116% 80% 20% 21% 8%
Share 61% 46% 49% 57% 61% 63% 64%
Asian-built smartphones (mn) 88.3 249.4 495.6 765.7 868.3 1,011.9 1,074.6 11%
YoY Growth 183% 99% 55% 13% 17% 6%
Source: Company data, Credit Suisse estimates

We would note smartphone ASPs in emerging markets are slightly lower, around US$207
and US$125 in India (vs. US$238 for China), a segment which China smartphone brands
have advantage over global peers. We would also note 4G penetration is lower in other
emerging markets than China at still less than 50% of smartphones shipped now on 4G,
keeping the growth from upgrade healthy. We estimate China brands could outgrow the
smartphone market slightly at 6% in 2017 and will be able to gain market share modestly
in the next few years with spec upgrades, subsidies from China telco operators and rising
4G penetration in tier-2 and 3 domestic cities and other emerging markets.

Asia Semiconductor Sector 9

 5 January 2017

Figure 21: 4G penetration still lower in other EMs Figure 22: ASPs in other EMs lower than China
Emerging market 4G penetration (%) Smartphone ASPs (US$)
100% 450
90% 400
80% 350
70% 300
60%
250
50%
40% 200
30% 150
20% 100
10% 50
0% 0
3Q13

2Q16
1Q13

2Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16
CEMA Latin America CEMA Latin America
Rest of Asia/Pacific India Rest of Asia/Pacific India
Emerging market excluding China China Emerging market excluding China Series6
Source: Company data, Credit Suisse Source: Company data, Credit Suisse

China brand forecasts for We estimate the top China brands still have room for some share gains as they
2017 again led by consolidate share from whitebox and gain in export channels. We estimate the brands up
Huawei, Oppo and Vivo 7% in 2017 and 11% 2018, with Huawei, Vivo, Oppo, Gionee and Tenco outperforming.
The key factor in the assumption is the ability for Huawei, Oppo and Vivo to maintain their
strong momentum. In 2016, these three vendors drove all of the +17% shipments growth
of the entire China brand shipments from 778mn to 912mn. In 2017, Huawei is projecting
to its suppliers 180-200mn (vs. our in-print 170mn), Oppo 140-150mn (vs. our 135mn) and
Oppo also 130-140mn (vs. our in-print 130mn), accounting for more than 100% of the
China brand shipments growth. Traditionally leadership has changed, with past leaders in
China Xiaomi and Lenovo falling and which would trigger an inventory correction for
components suppliers if another shift or slowdown dampens the leaders’ momentum.

Figure 23: China smartphone brands shipments—unit growth moderates

China brand units (mn) 2011 2012 2013 2014 2015 2016E 2017E 2018E 15-18 CAGR
Huawei 15.6 27.2 52.0 77.0 107.0 140.0 170.0 185.0 20%
Oppo 0.1 3.1 11.0 30.0 40.0 95.0 135.0 160.0 59%
Xiaomi 0.4 7.2 18.7 61.1 72.5 52.0 55.0 60.0 -6%
Vivo 0.0 2.5 11.2 30.0 36.0 75.0 130.0 145.0 59%
ZTE 10.5 26.8 40.0 48.0 50.0 45.0 48.0 50.0 0%
Lenovo 3.7 23.7 45.5 59.4 43.5 30.0 32.0 34.0 -8%
Lenovo's Moto 21.0 22.5 24.0 NM
TCL/Alcatel 0.3 6.5 17.5 39.6 40.8 33.0 35.0 37.0 -3%
Coolpad 3.9 16.1 35.0 43.5 28.7 18.0 19.5 21.0 -10%
Meizu 1.0 2.0 3.0 5.2 24.8 17.5 20.0 23.0 -2%
Gionee 0.0 6.8 11.4 16.0 12.8 30.0 34.0 37.0 42%
Tecno - 1.0 2.0 4.0 7.5 11.0 13.0 15.0 26%
Hisense 0.3 3.4 8.3 11.7 6.0 5.0 4.0 4.0 -13%
Tianyu / K-Touch 0.4 7.4 13.3 11.2 4.3 2.3 1.5 1.0 -39%
Bird 0.0 0.3 2.1 2.5 1.2 0.7 0.8 0.8 -13%
G-Five 0.0 0.0 2.0 5.0 0.5 0.2 0.2 0.2 -26%
Others 51.5 103.3 193.1 278.9 302.0 336.2 259.0 293.0 -1%
China brand units (mn) 87.9 237.2 466.1 723.1 777.6 911.9 979.5 1,090.0 12%
Growth (YoY) 170% 96% 55% 8% 17% 7% 11%
Source: Company data, Credit Suisse estimates

Asia Semiconductor Sector 10

 5 January 2017

Content and spec upgrades offer some

room for optimism in a slow growth market
Content drivers in Despite slowing smartphone unit growth, the leaders in the supply chain should continue
smartphones should stay to benefit from the continued innovation in handsets through spec upgrades. We highlight
on dual camera, the specs which will be more widely adopted into mainstream smartphones below.
fingerprint, OLED
displays, memory, USB ■ Fingerprint penetration continues its fast expansion. We estimate the penetration
Type-C, CAT 7 advanced for smartphone with fingerprint sensors will increase to 40% in 2016E to 600mn units.
modems and VR For the non-Apple smartphone devices, we estimate its fingerprint penetration was only
16% in 2015 but has increased to 30% in 2016 to 500mn+ units, thanks to the push by
Samsung and Chinese brands. We estimate the fingerprint sensor adoption rate for
non-Apple will further increase to 54% in 2017 (722mn) and 65% in 2018 (931mn).

Figure 24: Global smartphone fingerprint Figure 25: Non-Apple smartphone fingerprint
penetration to reach 70% by 2018E penetration to reach 65% by 2018E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

■ OLED continues its growth but likely supply constrained. Our Korea team
forecasts base case of 21%/26% OLED penetration in global smartphones market
mainly driven by Samsung and Apple. Our China tech component team also sees 20%
of top 20 models in China feature with OLED panels and estimates 27/50mn OLED
smartphone shipments from China OEMs in 2017/18. However, we expect the supply
of OLED panel will remain tight through 2017 due to 90%+ OLED which is mainly for
Apple and internal.

Figure 26: OLED penetration in global smartphones Figure 27: OLED on the rise in China smartphones
(mn unit) 100%
1,800 35% 90%
1,750
30% 80%
1,700
70%
25%
1,650
60%
1,600 20%
50%
1,550 15% 40%
1,500
10% 30%
1,450
20%
5%
1,400
10%
1,350 0%
2016E 2017E 2018E 2019E 0%
11/27/2015 1/15/2016 4/19/2016 6/24/2016 8/5/2016 11/4/2016
Total units (lhs) OLED penetration rate TFT AMOLED LTPS Retina

Source: Credit Suisse estimates Source: JD, Tmall, Credit Suisse

Asia Semiconductor Sector 11

 5 January 2017

■ Dual camera penetration still rising. Our tech component team expects some
upsides to CS 2017 penetration rate assumption of 10-15%, vs. 20%+ according to
Android handset camera module vendors. We also see a trend for three cameras
(dual-cam plus a single cam) to become the default setting for some Android phones in
the next few years, and expect to see four-camera models (both front and back are
dual-cams) in the China market in 2017. Several whitebox also at the China electronics
shows are now sampling dual cam models. With the fast adoption of high-end specs
such as 13MP+, OIS, and dual-cam, the complexity of manufacture increased a lot for
supply chain, leading to lower yield and tight supply. CS analyst Sam Li still expects
Sunny Optical to achieve 20%+ lens shipment growth in 2017.

Figure 29: Dual-cam lens to help Sunny shipments

Figure 28: Dual camera model launches continue grow 20%+ in 2017E
Vendor Model Launch time
HTC One M8 2014-Mar
Huawei P9 2016-Apr
Huawei Honor V8 2016-May
Coolpad Cool 1 dual 2016-Aug
360 Q5 2016-Aug
Apple iPhone 7 2016-Sep
Xiaomi Mi 5S/5S Plus 2016-Sep
ZTE Axon 7 Max 2016-Oct
Huawei Mate 9 2016-Nov
Vivo XPlay6 2016-Nov
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

■ LTE shifts toward CAT 7+ speeds, lifting RF suppliers. China Mobile has been
shifting the smartphone subsidies from low-end smartphones to smartphones above
Rmb2,000 supporting CAT 7+ and carrier aggregation which enables faster data
transmission and should move that down to lower price points, with Mediatek and
Qualcomm both moving that baseband feature into the mainstream through 2017. We
believe it will require more frequency bands being supported by smartphone, lifting the
demand for RF filter and PA requirements. RF suppliers should benefit from growing
adoption of CAT 7+ and higher RF content for complex frequency, taking revenue for a
12% CAGR in mobile applications over 2015-17.

Figure 30: 60% CAGR in CA-capable LTE cellular Figure 31: 52% of the LTE mobile device shipments
device shipments in 2015-17 will be CA-capable in 2017
2,000 100%
1,800 90% 17%
1,600 80% 34%
45%
52%
1,400 70%
1,200 885 60%
mn units

1,000 600 50% 100%

800 346 40% 83%
600 30% 66%
55%
48%
400 740 814 20%
669
200 517 10%
345
0 0%
2013 2014 2015E 2016E 2017E 2013 2014 2015E 2016E 2017E

Non-CA LTE devices CA-enabled LTE devices Non-CA LTE devices CA-enabled LTE devices

Source: Navian, Credit Suisse Source: Navian, Credit Suisse

Asia Semiconductor Sector 12

 5 January 2017

■ Memory specs still accelerating in Chinese smartphones. NAND supply remains

tight due to the rising capacities in smartphones on rising proliferation of higher
definition video footage and now adoption of dual camera plus competition from the
higher densities in Apple's iPhone 7. We believe the actual capacity will catch up when
smartphone production corrects in 1Q17 although NAND demand from Chinese
smartphone makers should not decline as much as volumes even in 1Q2017 and the
continued tight supply should keep NAND pricing firm.

Figure 32: Global smartphone NAND capacity Figure 33: China smartphone NAND also shifting to
increasing on Apple's iPhone 7 close to 30GB
Global smartphone mix Average global smartphone NAND capacity (GB) China smartphone mix Average China smartphone NAND capacity (GB)
100% 30.0 100% 30.0
25.0 80% 25.0
80%
20.0 20.0
60% 60%
15.0 15.0
40% 40%
10.0 10.0
20% 20% 5.0
5.0
0% 0.0
0% 0.0

1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
2Q12

1Q15
1Q12

3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14

2Q15
3Q15
4Q15
1Q16
2Q16

32/64/128/256/512MB 1GB 32/64/128/256/512MB 1GB

4GB 8GB 4GB 8GB
16GB 32GB 16GB 32GB
64GB 128GB 64GB 128GB
Average NAND capacity (GB) Average NAND capacity (GB)

Source: Credit Suisse estimates Source: JD, Tmall, Credit Suisse

■ USB Type C adoption starts to emerge. High-end smartphones have been gradually
adopting USB Type-C as the port is half width and one-third the height vs. standard
USB connector, allowing even smaller form factor. In addition, USB Type-C allows
faster data transmission and power supply compared with standard USB connector.
We estimate the smartphone shipments supported USB Type-C has increased from
7.5mn units in 1Q16 to 14.0mn 2Q16, representing 4% of penetration. China
smartphone markers (e.g., Huawei, Xiaomi, Gionee, and LeEco) have been adopting
the function in high-end smartphones. Samsung also has started to use the connector
in its Galaxy Note 7 though the shipments is limited due to battery issue.

■ VR still niche but seeing standardisation with Google's Project Day Dream. Many
China brands and whitebox vendors are also working on virtual reality where
penetration is low but currently offers a land rush of hardware and content solutions
looking to grab early mind share and volumes. Google's VR platform Daydream has
potential to create a wide ecosystem for the mass market using a high-end smartphone
at US$300+ as the main engine for the graphics and multimedia, substantially lowering
the entry price. The vendor is mandating OLED Display for VR capable phones and
high-end processor, noting the Snapdragon 800 series is the first Daydream ready
processor. We expect that increasing requirements for supporting VR could potentially
drive upgrade cycles on the SoC for next several years.

Asia Semiconductor Sector 13

 5 January 2017

Competitive pressure persists in mobile

processors
The mobile processor space has largely consolidated around merchant suppliers Mediatek,
Qualcomm and Spreadtrum along with in-house solutions from Samsung, Huawei and
Apple (still outsources baseband), with Xiaomi also investing in Leadcore. Despite the
consolidation on the merchant side, the market remains a competitive challenge with
Qualcomm still controlling the high-end merchant market but aggressively battling
Mediatek in the entry to mainstream, with Spreadtrum still a factor in the 3G market.

Figure 34: Qualcomm taking a modest lead, with a recent lift from China Mobile's CAT 7 requirement
Spreadtrum Mediatek Qualcomm
SC9830/9832 Helio P10 / P20 Helio X10 Helio X20 Helio X25 / X30 Snapdragon 61x / 625 Snapdragon 65x Snapdragon 808 Snapdragon 810 Snapdragon 820 / 835
Infocus Bingo 21 Archos Diamond 2+ Creo Mark 1 360 N4 Elephone P9000 Asus Zenfone Max Asus Zenfone 3 Acer Jade 2 Gigaset ME pro Asus ZenFone 3
Intex Cloud String Elephone M3 Elephone Vowney Alcatel Flash 3 LeEco L2 HTC One A9 Asus Zen Pad Z8 Acer Jade Primo HTC Butterfly 3 HP Elite x3
Lephone W7 Gionee S6 Pro Gionee E8 Elephone P 9000 LeEco Le 2S Huawei Nova Coolpad Cool1 Blackberry Vienna Huawei Nexus 6P HTC M10
Lephone W9 Gionee S8 HTC One E9+ InFocus M888 Meizu M3 Lenovo Lemon 3 NuAns NEO Lenovo Vibe X3 LeTV 1S Pro HTC Nexus
Micromax Canvas Mega 2 Gionee W909 HTC One M9+ LeEco Le2 Meizu Pro 6 Lenovo Phab Plus Oppo R9 Plus LG Angler LeEco Cool 1 Lenovo Zuk Z2
Micromax Unite 4 Pro Imoo M1000 HTC One ME Meizu MX6 Vernee Apollo Lenovo Vibo K5/Plus Sony Xperia X LG G4 Microsoft Lumia 950 XL LeTV Le Max Pro
Philips S326 InFocus S1 HTC One X9 QIKU N4 Vivo X7 Micromax YU Yureka Gionee Elife S6 LG Nexus 5X Motorola Droid Turbo 2 LG G Flex 3
Rockcel Quartzo LEAGOO Elite 1 Letv 1S Smartcong Flagship Xiaomi Redmi Pro Oppo F1 Jide Remix Pro LG V10 Motorola Moto X LG G5
Samsung Galaxy J2 Lenovo K5 Note Lumigon T3 Vernee Apollo Lite Meizu Pro 7 Oppo R7s LeEco Le 2 Microsoft Lumix 950 OnePlus Two LG V20
Samsung Z2 LG X Power with Sprint Meitu V4 Xiaomi Redmi 4 Samsung Galaxy A5 Sony Xperia XZ Motorola Moto X Style Samsung Galaxy S6 Active Moto X 2016
Xolo Era 1X Meitu M6 Meizu MX5 ZOPO Speed 8 Samsung Galaxy A8 Vivo V3 Max Nextbit Ember Robin Sharp AQUOS ZETA Nexus 6P
Meizu M3 Note Meizu MX6 Sharp Aquos Z2 Sony Xperia M4 Vivo X7 Qiku Flagship Sony Xperia Z5 One Plus 3
Meizu Blue Charm 2 OPPO R7 Plus TCL IDOL 4/4S Vodafone Plat 7 Samsung Galaxy N5 edge Vivo Xshot 3s Oppo Find 9
Motorola X 2016 PPTV PP King 7s Vivo X6SPlus Xiaomi Mi Max Sony Xperia W+ Xiaomi Note Samsung Galaxy S7
Oppo R9 Sony Xperia M5 Asus Zen Fone 3 Xiaomi 4C ZTE Axon Sony Xperia X Perf.
Sony Xperia C6 Sony Xperia Z4 Compact Huawei Nova Plus ZTE nubia Z9 Vivo Xplay 5
TCL 750 Xiaomi Redmi Note2 Huawei G9 Plus Xiaomi mi5
Umi Super Model Xiaomi Redmi Note3 Moto Z ZTE Nubia Z11
Yu Yunicorn Samsung Galaxy C7 Samsung Galaxy S8
ZTE Nubia NX541 Xiaomi Mi 6
Meizu Note 6

Source: Company data, Credit Suisse

Mediatek's market share MediaTek did well through most of 2016 in China and emerging markets up to the mid-
now around 49%, though high-end with Helio, but has not cracked the flagship portion of the market. Our tracker of
slipping slightly in late design wins the past couple quarters shows Qualcomm edging MediaTek 84 to 60, though
2016 the difference is largely from the 17 design wins secured by Qualcomm’s flagship
Snapdragon 820/821 processor. Qualcomm prices this product over US$50, well above
MediaTek’s top-end US$25-30 pricing and commands a number of premium brands with
this series (Samsung, LG, Motorola, LG, Sony, Vivo, Xiaomi, ZTE, Lenovo, LeTV, Asus).

Figure 35: Chipsets by vendor—Mediatek shareholding relatively stable

Chipsets to China brands 2013 2014 2015 2016E 2017E 2018E 15-18 CAGR
Mediatek 223.2 356.4 395.4 500.1 530.1 546.5 11%
Mediatek share (%) 45% 47% 46% 49% 49% 49%
Spreadtrum 120.6 160.0 200.0 220.0 230.0 245.0 7%
Leadcore 12.0 16.0 15.0 13.0 11.0 11.0 -10%
Hi-Silicon 2.6 15.4 48.2 70.0 85.0 92.5 24%
Asian suppliers 358.4 547.8 658.5 803.1 856.1 895.0 11%
YoY Growth 144% 53% 20% 22% 7% 5%
Share 72% 72% 76% 79% 80% 80%
Qualcomm 116.7 187.9 184.8 203.8 218.5 230.3 8%
Intel 0.0 0.0 10.0 5.0 0.0 0.0 NM
Broadcom 7.0 5.0 0.0 0.0 0.0 0.0 NM
Marvell 13.0 25.0 15.0 0.0 0.0 0.0 NM
ST-Ericsson 0.5 0.0 0.0 0.0 0.0 0.0 NM
Overseas suppliers 137.2 217.9 209.8 208.8 218.5 230.3 3%
YoY Growth 34% 59% -4% 0% 5% 5%
Share 28% 28% 24% 21% 20% 20%
Chipset incl MTK/SPRD tier-1 495.6 765.7 868.3 1,011.9 1,074.6 1,125.3 9%
YoY Growth 99% 55% 13% 17% 6% 5%
Mediatek tier-one's 4.5 14.3 31.6 35.0 65.0 75.0 33%
Spreadtrum tier-one's (Samsung) 25.0 28.3 59.0 65.0 30.0 20.0 -30%
Chipset total to China brands 466.1 723.1 777.6 911.9 979.5 1,030.3 10%
YoY Growth 96% 55% 8% 17% 7% 5%
Source: Company data, Credit Suisse estimates

Asia Semiconductor Sector 14

 5 January 2017

Mediatek's gains into Samsung to offset modest China share loss

We estimate Mediatek’s share in the China built smartphone market increased from 45%
to 49% from 2013 through 2016 with a good push into the mainstream LTE market,
although is now getting capped from further gains and even slightly reversing through late
2016. The company lost some share late in 2016 into early 2017 in China's upper tiers of
the market to Qualcomm due to lack of CAT 7 modem and a slight leg on qualification of
super-regional models which Qualcomm is pushing with its global pass program.
Mediatek's customer mix has been split between Tier one Chinese (~50% of shipments),
Smaller Tier 2 brands (40% of shipments) and a gradually increasing mix of Tier One's.
The company's China business lately has been a victim of vendor shifts in the market, with
Mediatek having less than 30% of Huawei and Vivo's volume and could fall under 50% of
Oppo's volume but higher share at now slower growing customers including Lenovo,
Xiaomi, Meizu, TCL, ZTE and Coolpad. To offset these losses, Mediatek is at least finally
shipping to Samsung's entry level J-series models which could help it track the industry's
+5-10% shipment growth to maintain overall share.

Figure 36: Mediatek's customer base still led by the Chinese customers
2011 2012 2013 2014 2015 2016E 2017E 15-17 CAGR 2016 % of sales
Sony 0.0 1.0 1.9 6.0 9.0 9.9 10.4 7% 2.0%
LG 0.2 0.8 1.9 5.9 8.0 8.8 9.2 7% 1.8%
HTC 0.0 0.0 0.0 2.1 6.0 7.4 6.7 6% 1.5%
Samsung 0.0 0.0 0.0 0.0 0.0 1.5 30.0 NM 0.3%
Motorola 0.0 0.0 0.0 0.0 1.5 6.5 7.8 128% 1.3%
Others 0.2 0.4 0.7 0.2 0.8 0.8 0.8 2% 0.2%
International brands 0.4 2.2 4.5 14.3 25.3 35.0 65.0 60% 7.0%
YoY growth 447% 103% 219% 78% 38% 86%
International brands 4% 2% 2% 4% 6% 7% 12%
Huawei 1.6 9.5 15.6 27.0 32.1 42.0 34.0 3% 8.4%
Oppo 0.0 2.3 7.7 21.0 28.0 61.8 60.8 47% 12.3%
Vivo 0.0 1.0 4.5 12.0 14.4 33.8 39.0 65% 6.7%
Lenovo 2.6 21.3 31.9 41.6 30.5 24.0 25.6 -8% 4.8%
Xiaomi 0.0 0.0 2.8 18.3 29.0 33.8 33.0 7% 6.8%
Meizu 1.0 2.0 3.0 5.2 21.1 15.8 18.0 -8% 3.1%
TCL/Alcatel 0.0 2.3 8.8 27.7 24.5 23.1 21.0 -7% 4.6%
ZTE 1.1 8.0 16.0 21.6 20.0 18.0 19.2 -2% 3.6%
Coolpad 0.8 4.8 10.5 13.1 10.0 6.3 6.8 -18% 1.3%
Chinese Tier One 7.1 51.3 100.7 187.4 209.6 258.5 257.4 11% 51.7%
YoY growth 623% 96% 86% 12% 23% 0%
Chinese Tier One 71% 47% 45% 53% 53% 52% 49%
Asustek 0.0 0.0 0.0 0.8 3.0 9.7 11.6 95% 1.9%
Micromax 0.0 1.2 5.6 10.8 12.1 10.6 12.7 3% 2.1%
Gionee 0.0 4.7 8.0 11.2 10.2 25.5 27.2 63% 5.1%
Hisense 0.2 2.5 5.8 8.2 4.2 4.0 3.2 -13% 0.8%
Tecno 0.0 0.7 1.4 2.8 5.6 8.8 10.4 36% 1.8%
Tianyu / K-Touch 0.3 5.6 9.3 7.8 3.4 1.8 1.2 -41% 0.4%
Karbonn 0.0 0.5 3.3 3.3 2.1 0.6 0.6 -44% 0.1%
Spice 0.1 0.1 0.4 1.1 1.3 0.2 0.2 -64% 0.0%
Others 1.9 41.0 84.2 108.7 118.6 145.5 140.5 9% 29.1%
Tier Two 2.5 56.3 118.1 154.7 160.5 206.6 207.7 14% 41.3%
YoY growth 2121% 110% 31% 4% 29% 0%
Chinese Tier Two 25% 51% 53% 43% 41% 41% 39%
Total 10.0 109.8 223.2 356.4 395.4 500.1 530.1

Source: Company data, Credit Suisse estimates

Mediatek's roadmap could maintain its position through the year

Mediatek's roadmap Mediatek has not quite closed the gap with its high-end products to Qualcomm with its
should sustain its Helio family. The lack of CAT 7 modem and its supply constraints through mid-2016 have
position with new cost it some market share in 4Q16 into early 1Q17. We do believe the roadmap can stem
products that can ramp further share loss by 2H17, however as Mediatek will introduce Helio X30 (10nm) and P25
up by 2H17 (16nm) in late 1Q17 and follow with 2H17 upgrades with CAT 12 for the Helio and CAT 7
for the mainstream at better cost structure.
Better modem share and incremental Samsung should keep the company in-line to market
growth and offset moderating China shipments and exposure to some of the mid-tier
vendors in China not performing as well. M&A by its top competitor lowers its mobile
exposure from 90% to 60%, also slightly lowering competitive intensity in smartphones.

Asia Semiconductor Sector 15

 5 January 2017

Figure 37: Helio shipment grows modestly in 2017 Figure 38: Helio lifting blended ASPs mildly
Revenue (NT$bn) Helio % of Mediatek sales Smartphone shipment (mn units) Smartphone ASP (US$)
$50 40% 90.0 $30
$45 35% 80.0 $27
$40 70.0 $24
30% $21
$35 60.0
25% $18
$30 50.0
$15
$25 20% 40.0
$12
$20 30.0 $9
15%
$15 20.0 $6
10% 10.0 $3
$10
5% 0.0 $0
$5
1Q16 2Q16 3Q16 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
$0 0%
3G units 4G Mainstream units 4G Helio units
1Q16 2Q16 3Q16 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
Blended SP ASP 4G Helio ASP 4G Mainstream ASP
3G 4G Mainstream 4G Helio 4G Helio 3G ASP
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Mediatek management acknowledges its Helio refresh in 2Q17 will not likely yet improve
margins although hopes better cost structure can start to improve margins in 2H17. We
have remained more conservative in our model due to uncertain price reaction from its
competitors and also similar refreshes coming from Qualcomm from top to bottom for its
product family.

Figure 39: Mediatek smartphone roadmap

2015 2016 2017
1H 2H 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
X 20 X 25
X 30
Helio-X

X 10 MT6797 MT6797T
LTE Cat 10
MT6795 Deca, Dual A72 + Octa (1H17)
Deca, Dual A72 + A53, 64bit big.LITTLE,
64-bit Octa, 2.2GHz, Octa A53, 64bit 20nm, 25MP, H.265 Decacore, 64bit
28nm HPM, Cat4 big.LITTLE, 4K2K 30fps video, LTE big.LITTLE, 10nm,
20nm, Cat-6, R11 Cat-6, 2x20 40MP, H.265 4K2K
P10
4G

CA+C2K SRLTE 30fps video

Octa, 1.3-
MT6755
10nm, Deca cores,
1.5GHz, 8 A53,
Next P1 up to A73, 2.2 GHz
Mainstream

64 bit, 28nm
LP, Cat4+
Octa A53, 28nm P20
LP, 2.0 GHz, 21MP,
MT6753 Octa A53, 64bit,
P25 Next P2
LTE + C2K SoC
1080p30 video FHD
(1920x1080), LTE
MT6750/T Cat6, big.LITTLE,
R11 Cat6 2x20 CA 16nm
Octa A53, 28nm HPM, 1.5 GHz, 16nm, Octa A53, 16nm, Octa core,
+ C2K SRLTE
16MP, HD Display, LTE Cat6 24MP, Dual A53
2xCA + C2K SRLTE
MT6735 camera, Cat 6
LTE + C2K SoC MT6738
Entry 4G

Quad A53, 1.3GHz, 13MP, 28nm Octa A53, 1.5 GHz, 28nm,
LP, 64 bit, FHD (1920x1080), LTE 13MP, HD Display, LTE Cat6
R9 Cat4/HSPA+ (42/11)/TD,
CDMA2000 1x/EVDO Rev. A MT6737
MT675x
MT6735P/M Quad A53, 1.3 -1.5 GHz,
LTE + C2K SoC 28nm, 13MP, HD Display, Under planning
LTE Cat6 2xCA + C2K
Quad A53, 1.0GHz, HD (P) / qHD SRLTE
(M), 8MP, 1080p qHD, 28nm LP, 64
bit, LTE R9 Cat4+ CDMA2000
Quad A7, 1.3GHz, MT6580
Entry 3G

HD720, HSPA+
(21/5.76)/EDGE MT673x
MT6570
Under planning
Dual A7, 1.3GHz, qHD,
HSPA+ (21/5.76)/EDGESource: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse

Qualcomm's high-end and mass market innovation keeps the pressure

on Mediatek
Qualcomm's refresh and Qualcomm targets to maintain its high-end lead for Snapdragon 800 and match up
solutions for super- competitively with MediaTek on the mid-tier Snapdragon 400 and 600 platforms. We
regional and global believe the company is planning MSM8997/MSM8998 in early 2017 using Samsung’s
models should keep 10nm process and using at CAT 12/CAT 16 modems to stay ahead of MediaTek shifting to
competitive pressure CAT 10 in 1H17.
high

Asia Semiconductor Sector 16

 5 January 2017

In the Snapdragon 600 tier, Qualcomm is moving back from 14nm to 28nm HPM, likely
motivated by cost and availability of multiple sources including Samsung and TSMC. The
product would be optimised for emerging markets mid-high-end and with CAT 7 modem
still meeting China Mobile’s target for that modem standard in its Rmb2,000+
smartphones.
In the Snapdragon 400 tier, Qualcomm would also offer a CAT 7 modem with its
MSM8940 built on a low-cost 28nm LP process capable of multi-sourcing across Samsung,
TSMC, UMC, GlobalFoundries and SMIC. This product would be positioned against
MediaTek’s older MT6753 chipset (mainstream octa-core). For the low-end of the market,
Qualcomm’s Snapdragon 200 series 8908/8909 would offer a quad core option against
MediaTek’s MT6735/MT6737. Qualcomm also has improved tools for its reference design
including Global Pass to speed time to market gap and a comprehensive online database
of qualified suppliers.

Figure 40: Qualcomm smartphone roadmap advancing in 2H16 and 1H17

2015 2016 2017
1H 2H 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
8994/ S810 8998 64-bit, X16
Premium

8976/ S620 8996/ S820 LTE CA 450Mbps, modem, Kryo,

20nm SoC 28nm HPM 14FF 10FF
S800

Hydra 64 bit Cat 16, 4k

60fps
LTE CA X10 Cat 9, Octa, 4 A72 + 4 A53, 64-bit, X12
TD, 64-bit big.LITTLE, 1.4 GHz, LTE modem, 8997
CA, 4K, X8 CAT 7 Cat 12, Kryo, 10FF
8992/ S808 QHD 2.5K
20nm SoC
Qualcomm S600

8976 Pro
Mainstream

LTE CA X10 Cat 28nm HPM

9, TD, 64-bit
X9 LTE modem, Cat 7,
8956/S618 QHD, 4A72 + 4 A53
28nm HPM
8953/ S625 Octa, 8 A53,, 64-bit,
8952/ S617 14nm FF X9 Cat 7, CA, FHD
28nm LP Hexa, 2 A72 + 4
A53, X8 CAT 7, CA,
Octa, 8 A53, 1.5 GHz, 1.2 GHz, 4K
X8 Cat 7, CA, FHD

8929/ S425
8937 / S430
28nm LP
28nm LP
S4xxx / 8940
Octa A53, 1.4 GHz, 64- Octa, 8 A53, 1.7 GHz, 28nm LP S4xxx / 8920 X9 LTE modem, Cat 7,
28nm LP
S400
Entry

bit, Cat 4, FHD 64-bit, X6 modem Cat FHD, 4 A53 + 4 A53

4, FHD
X9 LTE modem, Cat 7,
FHD, 4 A53 + 4 A53
S412 / 8917
28nm LP

Quad, 4 A53, 1.4

GHz, 64-bit, X6
Cat 4, FHD Source: Company data, Credit Suisse estimates

8909/ S215 LTE CA Cat4, TD,

28nm LP Quad A7 1.1 GHz
S200
Low

8908/ S210 TD-SCDMA

28nm LP Dual A7 1.1 GHz

Source: Company data, Credit Suisse estimates

Spreadtrum continues to take share and keep 3G competitive, although

4G is not yet a meaningful rival
Spreadtrum launched its Spreadtrum’s major traction has been with WCDMA the past couple years in the entry
higher-end LTE solution level channels with its quad core WCDMA SC7731 built on TSMC’s 28nm. Most whitebox
at MWC but is not yet suppliers offer the Spreadtrum solution as a stable offering at US$1-2 cheaper than
shipping in meaningful comparable MediaTek solutions. For 4G, however, Spreadtrum has only had modest
volume traction. The company has been shipping its SC9832 4G quad core entry level solution
into a handful of China and India brands (Intex, Lava, InFocus, LePhone) at US$50-100
retail prices but most smartphone vendors do not yet feel comfortable designing in the
chipset beyond their entry level 4G tablets.

Asia Semiconductor Sector 17

 5 January 2017

Figure 41: Spreadtrum launching a 16nm TSMC chip in 2H16, Planning an Intel based chip in 1H17
Spreadtrum Spreadtrum Spreadtrum Spreadtrum Spreadtrum Spreadtrum Spreadtrum
Chipset SC9620 2-chip Shark SC8831G SC7731G SC9832 SC9860 SC98xx
Technology 40nm SMIC 40nm SMIC 28nm TSMC 28nm TSMC 28nm TSMC 16nm TSMC 14nm Intel
Multi-core Quad Quad Quad Quad Quad Octa Octa
CPU Modem Only A7 A7 A7 A7 A53 x86
Network 4G 4G 4G 3G 4G 4G 4G
Frequency 1.0GHz 1.2GHz 1.4GHz 1.5GHz 1.5GHz >2.0GHz >2.0GHz
GPU Mali-400 Mali-400 Mali-400 Mali-400 MP2 Mali-400 Mali-T880 TBD
Sampling 3Q14 1Q14 3Q14 1Q15 4Q15 3Q16 1Q17
Ramp 4Q14 2Q15 1Q15 2Q15 2Q16 4Q16 2Q17
Source: Company data, Credit Suisse

Spreadtrum had announced plans back in Mobile World Congress for a 4G upgrade with
its SC9860 Whale 2 octa-core 4G platform. The chip on paper looked like a formidable
rival to Mediatek's Helio series, sporting an 8 core ARM A53 architecture clocked over
2.0GHz and manufactured on TSMC’s 16nm. Despite an announcement in 1Q16 that the
chip was in mass production and would ship in models in 2Q16, we have not yet seen the
chip in the market. We also believe Spreadtrum is planning a 14nm chip at Intel in 1H17
after its SC9860, shifting from TSMC as part of the equity stake Intel took in Tsinghua
Unigroup. Intel has cancelled its internal SoFIA project but would still see some potential if
this chip sees better commercial success.
Spreadtrum management had been targeting to grow their baseband shipment from 530
mn in 2015 (about 230 mn smartphones) to 600 mn units in 2016 with 120 mn for LTE
smartphones. With the market shifting to 4G faster, we believe the company fell short and
may have only shipped 30 mn units. The company may end up closer to 220 mn
smartphones, slightly below the market growth although could still have more market
impact in 2017 if its new LTE chips can finally ramp into high volume production.
Captive chipsets also carving out some market share
Samsung and HiSilicon The improving competitiveness of captive chipsets from Huawei and Samsung has also
have improved their taken a piece of business from the merchant market. Samsung integrated its modem and
competitiveness to take processor into a high-end Exynos that now splits flagship sockets with Qualcomm and is
some share at their rolling out into the mid-tier of Samsung's product line. Long term, Samsung is looking to
parent companies get to 50% internal sourcing of its Exynos chipset, with Qualcomm and Mediatek or
Spreadtrum splitting the rest. For 2017 models, Mediatek has taken some of the low-end
J-series previously designed by Spreadtrum due to its more mature 4G solution.

Figure 42: Captive chipsets improving in performance and integration

HiSilicon HiSilicon HiSilicon HiSilicon HiSilicon HiSilicon Samsung Samsung Samsung Leadcore
LTE chipsets Kirin 930 Kirin 935 Kirin 940 Kirin 950 Kirin 960 Kirin 970 Exynos 7420 Exynos 7580 Exynos 8890 LC1860
Technology 28nm HPC 28nm HPC 16nm 16nm 16nm 10nm 14nm LPE 28nm 14nm LPP 28nm
Multi-core Octa core Octa core Octa core Octa core Octa core Octa core Octa core Octa core Octa core Hexa core
4 Cortex A53 + 4 Cortex A53 + 4 Cortex A53 + 4 Cortex A53 + 4 Cortex A53 + Mongoose +
CPU 8 Cortex A53 8 Cortex A53 8 Cortex A53 6 Cortex A7
4 Cortex A72 4 Cortex A72 4 Cortex A73 4 Cortex A73 4 Cortex A57 A53
TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE
Network 2-chip LTE
W/TD-SCDMA W/TD-SCDMA W/TD-SCDMA W/TD-SCDMA W/TD-SCDMA W/TD-SCDMA W/TD-SCDMA W/TD-SCDMA W/TD-SCDMA

Modem CAT 6 CAT 6 CAT 6 CAT 6 CAT 12 CAT 12

Frequency 1.8GHz 1.8GHz 2.2GHz 2.4GHz 2.4GHz 2.8GHz 2.1GHz 1.6GHz 2.3GHz 2GHz
GPU Mali T628 Mali T628 Mali T860 Mali T880 Mali G71 Mali G71 Mali T760 Mali T720 Mali T880 Mali T628
Ramp 2Q15 2Q15 3Q15 4Q15 4Q16 1Q17 2Q15 2Q15 1Q16 2Q15

Source: Company data, Credit Suisse

Competition from merchant solutions is also rising in the China brands with Huawei now
giving over half of its allocation to HiSilicon on its mid-high-end 4G smartphones. HiSilicon
is competitive with CAT 10 modem and octa-core processor built on TSMC's new 16nm
FinFet process so capable of meeting specifications for Huawei's flagship smartphones.

Asia Semiconductor Sector 18

 5 January 2017

We also believe Leadcore, invested by Xiaomi, is also growing more capable with its
offerings. The company has been shipping in an entry-level quad core processor into
Xiaomi smartphones but plans a move to 14nm FinFet for a high-end LTE-Advanced
chipset in 2017.

Staying conservative on Mediatek, trends staying

soft near term
We expect Mediatek to lose share and struggle early in the year but has prospects for a
turnaround with new products by 2Q17 through 2H17. The company is still lagging on the
modem through 1Q17 and facing slowdown from some of its struggling China customers
(Xiaomi, Meizu, LeEco, TCL, Coolpad) and impact from the pause in India demand
following its demonetisation shift in 4Q. We do see some prospects for improvement with
new CAT 10 Helio X30 chipset and Helio P35 in late 1Q17 and new cost down chips for
the entry tier in 2H17. The company is also shipping its mid-end chips to Samsung’s J/A
series, adding 4% unit growth in 2017 and offsetting the ASPs decline on competition.

Figure 43: Mediatek 4Q16-1Q17 and 2016-2018 estimates CS vs. Street

4Q16 1Q17 2016 2017 2018
(NT$ mn) CS CS(old) Street Guidance CS CS(old) Street CS CS(old) Street CS CS(old) Street CS CS(old) Street
Sales $68,807 $70,351 $69,911 NT$66.6-72.9bn $60,607 $69,572 $63,576 $275,643 $277,187 $276,864 $300,832 $307,327 $297,404 $320,701 $320,981 $303,325
Chg -12.2% -10.3% -10.8% -7.0%-15.1% QoQ -11.9% -1.1% -9.1% 29.3% 30.0% 29.8% 9.1% 10.9% 7.4% 6.6% 4.4% 9.6%
GM% 34.9% 35.1% 35.0% 33.5-36.5% 35.1% 35.0% 34.7% 35.7% 35.8% 35.7% 35.0% 35.0% 35.3% 35.1% 35.3% 36.2%
OpM% 6.1% 6.1% 6.6% 4-11% 3.4% 6.6% 6.6% 8.5% 8.4% 8.7% 8.4% 8.4% 9.0% 8.8% 8.7% 9.7%
Net Inc. 4,416 4,412 6,163 FX: 31.5 2,600 4,697 5,549 22,668 22,664 24,760 25,010 25,013 28,430 27,358 26,573 29,057
EPS (NT$) $2.83 $2.82 $3.90 $1.66 $3.00 $3.43 $14.50 $14.50 $15.68 $16.00 $16.00 $17.95 $17.50 $17.00 $18.29

Source: Company data, Credit Suisse

4Q16 now at the lower-half of guidance, 1Q17 should see a seasonal

decline, with some incremental impact from India demonetization
Mediatek may come in at We believe Mediatek only achieved the lower-end of guidance for 4Q16 and trim our sales
the lower half of estimate from -10% QoQ to -12% QoQ versus -7-15% QoQ guidance due to slower sales
guidance and guide a from India and a late year slowdown in China. We also expect Mediatek to see a sales
soft 1Q17 decline in 1Q17 that could rival traditional seasonality down 10-15% QoQ and now cut our
1Q17 estimate from -1% to -12% QoQ off a lower 4Q base. The company will be impacted
by some short-term market share loss to Qualcomm due to its lag on the high-end modem
and also an impact from the slowdown in India following the currency demonetisation,
which has prompted the Indian Cellular Association to report a short-term 50% drop in
mobile phone sales. We estimate India annual smartphone shipments at 120mn units and
Mediatek about 50% market share, contributing ~60mn annualised units or about 12% of
its smartphone shipment run rate and 10% of smartphone revenue.

Figure 44: Mediatek operating assumptions

NT$mn unless noted 2013 2014 2015 2016F Prior 2017F Prior 2018F 2019F
3G Smartphones (mn) 223.2 324.5 236.8 168.2 172.2 139.8 153.9 127.2 107.0
4G Smartphones (mn) 0.0 31.8 158.6 331.9 336.0 390.3 433.0 419.3 459.2
Smartphones (mn) 223.2 356.4 395.4 500.1 508.3 530.1 586.9 546.5 566.2
Tablets (mn) 21.9 41.3 44.1 41.9 42.5 38.5 40.7 35.4 32.1
Feature phones (mn) 354.0 300.0 257.0 255.0 255.0 238.6 222.0 209.3 172.7
Total Sales 135,968 213,062 213,255 275,642 277,186 300,832 307,327 320,701 333,255
GM % 44.0% 48.8% 43.2% 35.7% 35.7% 35.0% 35.0% 35.1% 35.3%
Op M% 18.6% 22.2% 12.1% 8.5% 8.4% 8.4% 8.4% 8.8% 8.9%
EPS $20.13 $29.67 $16.74 $14.50 $14.50 $16.00 $16.00 $17.50 $18.25
EPS growth 57.1% 47.4% -43.6% -13.4% -13.4% 10.3% 10.4% 9.4% 4.2%

Source: Company data, Credit Suisse estimates

Asia Semiconductor Sector 19

 5 January 2017

Margins could finally stabilize at lower levels for Mediatek

Mediatek's GMs stayed in the mid-30% range through 2H16 and we don't expect a
meaningful improvement until 2H17 as the company's high-end chipsets will optimise for
performance rather than cost, keeping up the risk on margin pressure. The non-
smartphone business though at least (connectivity, set-tops, digital TV) is providing some
buffer at margins above the corporate average.
New chipsets offering cost reductions for the mass market tier would only launch from the
middle of 2017 and cross over volume of the older chips in 2H17. The long wait for cost
down chips in the entry tier gives Spreadtrum several more quarters to improve
performance and competitiveness of its chips as an entry tier alternative.

Figure 45: Mediatek 4G ramping at lower margins Figure 46: Mediatek's stock pressured by lower GMs
Sales (NT$mn) GM (%) Mediatek Stock GM / OpMs (%)
50,000 70% Price (NT$)
45,000 63% $700 70%
40,000 56%
$600 60%
35,000 49%
30,000 42% $500 50%
25,000 35% $400 40%
20,000 28%
15,000 21% $300 30%
10,000 14% $200 20%
5,000 7%
$100 10%
0 0%
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17E
3Q17E

$0 0%

1Q03

4Q15
3Q01
2Q02

4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
3Q13
2Q14
1Q15

3Q16
2G sales 3G (WCDMA+TD) sales LTE sales
3G GM % LTE GM % Corporate GM % Share price Corporate GM % Corporate OpM %

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Asia Semiconductor Sector 20

 5 January 2017

Stay selective positioning in the Asian

supply chain
In the Asian tech coverage, we are more cautious on the overall smartphone opportunity
but would invest in companies where content or market share gains are still coming
through and margins are protective through innovation or competitive advantage. We
highlight implications for the major subsectors.
Top picks in the chain ■ Foundry – Growth centered on iPhone 8 and new applications. We expect foundry
are TSMC, Win Semi, outgrowth both on the advanced technology where TSMC is leading with higher share
Egis, AAC and Sunny in mobile and graphics and also from Chinese foundries capitalising on the stepped-up
Optical domestic semiconductor development. We are a bit sensitive on a pullback for SMIC
following its strong performance in 2H16 so prefer Hua Hong at a discount valuation to
1x P/B with profitable 8" business model. We would get more constructive on
Vanguard on a further pullback which brings valuation back to reasonable levels
appropriate for its mild growth. The foundries are seeing rising depreciation in the next
few years as higher capital intensity the past few years is still triggering increases, with
a moderate ~10% increase for TSMC and likely very high ~30% increase for SMIC.
Despite the higher depreciation burden, the foundries have kept capacity tight to
maintain decent pricing and also avoid hits to GM from low utilisation.
■ IC Design: Neutral on MediaTek - Defending share at the expense of margin. IC
design remains a competitive space with global players Qualcomm competing against
Asian suppliers MediaTek and Spreadtrum and semi-captive Asian suppliers HiSilicon,
Samsung and Leadcore. Mediatek will continue to improve its product portfolio in Helio
series to gain back market share from Qualcomm in 4G and Spreadtrum in 3G. The
company will also ship 30mn chips for Samsung's J/A series smartphones in 2017. Though
Mediatek will gradually improve the cost structure through upgrading its modem in 2H17,
we would note the company’s high-end chips will be optimised for performance rather than
cost while chipsets offering cost reductions for the mass market tier would only launch from
the middle of 2017, keeping pressure on margins at least through 1H17. We maintain our
conservative outlook and remain NEUTRAL with a target price of NT$225 as the company
doesn't yet control its destiny on pricing and margins due to fierce competition.
■ Back-end: Improving profitability offsets the slowing growth. The major back-end
suppliers saw a modest improvement in revenue in the core package and test business
in 2016 following the inventory correction in 2015 while SiP business declined as
suppliers were balancing growth and profitability. We expect growth may continue to be
mild in 2017 as suppliers are selective on system in package module work to manage
profitability and are not yet ready for high volume fan-out solutions. 2017 should be the
year for trials in fan-out packaging for the mobile customers, with 2018 the year for
volume deployments, though fortunately we do not see TSMC extending into advanced
packaging beyond its InFO package for Apple in 2017.
■ Display-related ICs: FocalTech, Chipbond and Egis. In the display-related IC space,
we prefer FocalTech and Chipbond, as we think they are better positioned to benefit
from the rising penetration of in-cell TDDI. For FocalTech, we estimate its in-cell
IDC/TDDI shipments can triple in 2017 (60 mn units vs ~20mn in 2016), thanks to more
design wins at panel makers. Besides the IDC for LTPS-based FHD panels, we expect
its a-Si HD in-cell IDC with six masks (vs current 8-9 masks) to ramp up from 2H17.
We believe the increasing revenue mix of IDC should help its GM to further improve in
2017. For Chipbond, the in-cell TDDI trend will benefit DDI backend as the integration
of touch and driver IC still adopts their gold bumping packaging process but with larger
chip size (more wafers) and longer testing time. We estimate Chipbond can enjoy 10-
40% better ASP for TDDI vs conventional driver IC. We also like Egis as the fingerprint
sensor solution provider, as we think it will ride the fingerprint sensor proliferation in the
next few years. We also expect Egis to penetrate into Chinese smartphone makers
from 2Q17, after successfully ramping up its shipment to Samsung.

Asia Semiconductor Sector 21

 5 January 2017

■ Compound / RF Semiconductors: Win Semi. In the Taiwan compound

semiconductor space, we think Win Semi is well positioned to capture the growth led
by rising penetration of carrier aggregation (CA) and WiFi spec upgrade, and could
also become the main foundry partner for QualComm’s RF chips from 2H17. It is also
diversifying into opto business, which offers better margins and should see more
contribution from 2H17.
■ China Components Sector – content gainers better off. We expect upstream (semi
and key components) to outperform downstream (assembly and OEMs) in 2017, and
prefer key component upgrades especially dual-cam (Sunny Optical), glass (Lens
Tech) and acoustics/RF (AAC Acoustics). We see the fast adoption of dual-cam could
totally offset any pressure in shipments or GMs, so remain confident in our Sunny
Optical estimates. For AAC, the company stated it already collected most of
receivables from LeTV, the rest will be collected in six months, and doesn't see any
necessity for write-offs. In addition, its RF mechanical business development at other
clients (OPPO, Oneplus, Huawei, and Samsung) are well on-track.
Figure 47: Key Asian suppliers in smartphones
(in millions, unless otherwise stated)
Supply chain Key suppliers
Foundry: TSMC, SMIC
Back-end: Chipbond, King Yuan, JCET, Tiansui Huatian
Asian fabless: MediaTek, Silicon Motion, Egis, Goodix, Focaltech
Overseas fabless and IP: eMemory, Skyworks
Compound / RF Semiconductors: Win Semi, Visual Photonics, AWSC, ACX, Murata
Semiconductor Distribution: WPG
PCBs: Kinsus, Unimicron
Optical Lens: Largan, Sunny Optical
Acoustics/Haptics: AAC Acoustics, Goertek, Alps
Devices: Lenovo, Samsung, ZTE
Display/Touch components: TPK, O-Film, Truly, AUO, Novatek, Himax, FocalTech
Carriers: China Unicom, China Mobile, China Telecom
Source: Credit Suisse estimates

Asia Semiconductor Sector 22

 5 January 2017

Companies Mentioned (Price as of 03-Jan-2017)

AAC Technologies Holdings Inc (2018.HK, HK$70.55)
Apple Inc (AAPL.OQ, $116.15)
BlackBerry (BBRY.OQ, $6.96)
China Mobile Limited (0941.HK, HK$82.0)
China Telecom (0728.HK, HK$3.61)
China Unicom Hong Kong Ltd (0762.HK, HK$9.13)
Coolpad Group Limited (2369.HK, HK$0.79)
Egis Technology Inc. (6462.TWO, NT$253.5)
Ericsson (ERICb.ST, Skr53.3)
Gionee Communication (Unlisted)
Google (GOOAV.OQ^D14)
HTC Corp (2498.TW, NT$79.2)
Hi Silicon (Unlisted)
Hua Hong Semiconductor Limited (1347.HK, HK$8.71)
Intel Corp. (INTC.OQ, $36.6)
LG Display Co Ltd. (034220.KS, W31,750)
Largan Precision (3008.TW, NT$3795.0)
Leadcore (Unlisted)
Lenovo Group Ltd (0992.HK, HK$4.79)
MediaTek Inc. (2454.TW, NT$218.0, NEUTRAL, TP NT$225.0)
Meizu (Unlisted)
Micromax (Unlisted)
Motorola Solutions (MSI.N, $83.6)
Nokia (NOKIA.HE, €4.57)
Powertech Technology (6239.TW, NT$86.6)
QUALCOMM Inc. (QCOM.OQ, $65.4)
Samsung Electronics (005930.KS, W1,824,000)
Semiconductor Manufacturing International Corp. (0981.HK, HK$11.58)
Sony (6758.T, ¥3,275)
Spreadtrum Communication (SPRD.OQ^L13)
Sunny Optical Technology Group Co.Limited (2382.HK, HK$34.05)
Taiwan Semiconductor Manufacturing (2330.TW, NT$183.0)
Vanguard International Semiconductor (5347.TWO, NT$55.9)
Win Semiconductors Corp (3105.TWO, NT$89.5)
Xiaomi (Unlisted)
ZTE Corporation (0763.HK, HK$12.94)

Disclosure Appendix
Analyst Certification
I, Randy Abrams, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this report.
3-Year Price and Rating History for MediaTek Inc. (2454.TW)

2454.TW Closing Price Target Price

Date (NT$) (NT$) Rating
06-Jan-14 431.50 500.00 O
08-Apr-14 460.00 540.00
01-May-14 472.00 570.00
07-Oct-14 455.50 540.00
10-Feb-15 454.00 520.00
29-Mar-15 419.00 425.00 N
27-Apr-15 410.50 405.00
15-Jun-15 409.00 430.00
03-Aug-15 299.00 300.00
02-Nov-15 270.00 250.00 O U T PERFO RM
N EU T RA L
11-Jan-16 209.00 230.00
18-Apr-16 234.50 250.00
02-May-16 230.00 225.00
* Asterisk signifies initiation or assumption of coverage.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total

Asia Semiconductor Sector 23

 5 January 2017

return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
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Target Price and Rating

Valuation Methodology and Risks: (12 months) for MediaTek Inc. (2454.TW)
Method: Our target price of NT$225 for Mediatek is based on 14x 2017E EPS (earnings per share), in-line with global peers. We have a
conservative outlook as the company does yet control its destiny on pricing and margins due to fierce competition and thus have a
NEUTRAL rating on Mediatek.
Risk: Risks that could cause the share price to diverge from our NT$225 target price and cause us to change our NEUTRAL rating for Mediatek
include the impact of competitive products and pricing, timely design acceptance by its customers, timely introduction of new technologies,
ability to ramp new products into volume, industry-wide shifts in supply and demand for semiconductor products, industry overcapacity,
availability of manufacturing capacity, and financial stability in end markets.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names

Asia Semiconductor Sector 24

 5 January 2017

The subject company (2330.TW, 3105.TWO, AAPL.OQ, 005930.KS, QCOM.OQ, INTC.OQ, NOKIA.HE, 2498.TW, MSI.N, 6758.T, BBRY.OQ,
0992.HK, 0763.HK, 034220.KS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit
Suisse.
Credit Suisse provided investment banking services to the subject company (AAPL.OQ, 005930.KS, QCOM.OQ, INTC.OQ, MSI.N, BBRY.OQ,
0992.HK, 034220.KS) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (AAPL.OQ, 005930.KS, QCOM.OQ, INTC.OQ,
MSI.N, BBRY.OQ, 0992.HK, 034220.KS) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (2454.TW, 2330.TW,
2382.HK, 6239.TW, 6462.TWO, 2018.HK, 3105.TWO, AAPL.OQ, 005930.KS, QCOM.OQ, INTC.OQ, 0762.HK, 0728.HK, NOKIA.HE, 2498.TW,
MSI.N, 6758.T, BBRY.OQ, 0992.HK, 0763.HK, 034220.KS, 3008.TW, 0981.HK) within the next 3 months.
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2454.TW, 2330.TW,
6239.TW, 6462.TWO, 0762.HK, 0728.HK, 2498.TW, 0992.HK, 0981.HK).
Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (005930.KS, 0728.HK, 034220.KS,
3008.TW).
Credit Suisse has a material conflict of interest with the subject company (QCOM.OQ) . Credit Suisse is Financial Advisor to NXP Semiconductors
(NXPI.OQ) on their sale to Qualcomm Incorporated (QCOM.OQ).
Credit Suisse has a material conflict of interest with the subject company (INTC.OQ) . Credit Suisse Securities (USA) LLC is acting as financial
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Credit Suisse AG, Taipei Securities Branch ........................................................................................................... Randy Abrams, CFA ; Haas Liu
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Credit Suisse AG, Taipei Securities Branch ........................................................................................................... Randy Abrams, CFA ; Haas Liu
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Asia Semiconductor Sector 25

 5 January 2017

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