Equity Research
Total Page：16
File Type：pdf, Size：1020Kb
March 9, 2015 Equity Research Chip Weekly: New Chips At Mobile World Congress • Last week at the Mobile World Congress trade show, Intel, Qualcomm and MediaTek made chip announcements which we think establish how these three companies are establishing their leadership positions in tablet and smartphone chips. We hosted investor meetings with Intel in London and Paris. NXP Semiconductors announced an offer to acquire Freescale. • Last week at the Mobile World Congress trade show, Intel announced its integrated modem/processor product, SoFIA, for smartphones and low end tablets; highlighted its 14nm Cherry Trail standalone processor and announced its 3rd generation standalone 4G modem, the 7360, with Cat 10 LTE capability. Qualcomm stated that its next generation Snapdragon processor, the 820, will be manufactured on leading edge FinFET technology with a Qualcomm proprietary core (Kryo). Mediatek introduced a new integrated smartphone modem/processor product and a standalone tablet processor. • Last week, we sat in on a number of investor meetings in London and Paris with Intel’s CFO and investor relations. Intel highlighted its expectations for high growth in its highly profitable data center business, the value of its desktop and notebook business as a source of cash flow and intellectual property, its new products for smartphones and tablets and breadth of capabilities and products suitable for the internet of things (IoT). • Semtech reported January quarter sales of $130.4 million (down 12% sequentially and up 3% yr/yr). The sequential decline was mostly seasonal softness coupled with incremental weakness from Korean handset customers and lower channel wireless infrastructure spending. Semtech guided April quarter sales to the $130- 136 million range (midpoint=+2% sequentially). Ambarella reported January quarter sales of $64.7 million (down 1.5% sequentially and up 61.9% yr/yr). Ambarella guided April quarter revenue to the $64-68 million range (midpoint=+2% sequentially). • NXP Semiconductors and Freescale Semiconductor announced an agreement whereby NXP will acquire Freescale. The terms of the agreement call for Freescale shareholders to receive $6.25 in cash and 0.3521 on an NXP ordinary share for each Freescale common shares held at the close of the transaction. The transaction is expected to close in the second half of 2015. • In the coming week, Xilinx is hosting its 2015 Investor & Analyst Meeting in New York City. We expect month of February Taiwanese electronics sales numbers will show large month over month drops in all our composites because February is a short month in addition to factory shutdowns related to the Chinese New Year holiday which commenced on February 18. David Wong, CFA, PhD, Senior Analyst (212) 214-5007 [email protected] Amit Chanda, Associate Analyst (314) 875-2045 [email protected] Parker Paulin, Associate Analyst (212) 214-5066 [email protected] Charles E. Long, Associate Analyst (212) 214-8017 Please see page 12 for rating definitions, important disclosures [email protected] and required analyst certifications All estimates/forecasts are as of 03/09/15 unless otherwise stated. Wells Fargo Securities, LLC 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 the report and investors should consider this report as only a single factor in making their investment decision. WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT Our View: Qualcomm/MediaTek/Intel – leaders in mobile chips, Micron - DRAM pricing risk At the Mobile World Congress (MWC) trade show last week: • Intel announced its integrated modem/processor product, SoFIA, for smartphones and low end tablets; highlighted its 14nm Cherry Trail standalone processor which we think is primarily for mid- range and high end tablets; and announced its 3rd generation standalone 4G modem, the 7360, with Cat 10 capability. o We see SoFIA as the key to Intel eliminating subsidies for low end tablets and expanding its addressed market in smartphones to include the majority of smartphone that use integrated modem/processor chips. • Qualcomm stated that its next generation Snapdragon processor, the 820, will be manufactured on leading edge FinFET technology with a Qualcomm proprietary core (Kryo). This product is expected to begin sampling in 2H2015. o We think that Qualcomm’s problems with its current generation chips could create a competitive headwind for Qualcomm’s chip division through 2015 and possibly much of 2016. We think that the next generation products with the Kryo core may be key to Qualcomm regaining its competitive momentum in smartphone chips. • Mediatek introduced a new integrated smartphone modem/processor product and a standalone tablet processor. • Marvell announced the ARMADA Mobile PXA 1826 modem chipset targeted for LTE market supporting carrier aggregation. These product announcements were much in line with our expectations and, we think, consistent with our view on how the competitive landscape is shaping up in tablet and smartphone chips: • We think that Intel and MediaTek are emerging as the leaders in the merchant tablet processor space (excluding Apple which makes processors for its own use). We believe that Qualcomm might lose some momentum in this segment through 2015 and 2016 (see our chip weekly dated 3/2 for more data and discussion on this topic). • While we think that Qualcomm’s LTE share is likely to drop from its current level of close to 80%, we expect Qualcomm will remain the clear share leader in LTE while MediaTek establishes itself solidly in the #2 position and Intel builds out its product offerings to battle with Marvell for the #3 merchant market share position – we think that Intel might have more advanced technology capability while Marvell has built a solid market share position in China. We are reiterating our Outperform ratings on Intel (INTC, $33.19) and Qualcomm (QCOM, $71.51), which are both on our Priority Stock List. For more details and discussion please see our note dated 3/2/2014 After briefly stabilizing in the first half of February, it appears the DRAM spot prices began to slide again in the last two weeks. DRAMexchange data suggests that the spot price of a 4Gb DDR3 chip dropped to $3.36 by the end of last week, compared to $3.38 at the end of the prior week before and $3.39 the week before that (see figure A). Data on Bloomberg (quoting Inspectrum) suggests that the DRAM contract price decreased to $3.30 in March from $3.45 in February and $3.59 in January for a 4Gb DDR3 chip. DRAMexchange numbers also show DRAM contract prices have been falling in recent months. We remain negative on Micron (MU, $28.50) with an Underperform rating. We think that the investment community may have overly optimistic projections for memory pricing and Micron’s margin potential. Our FY16 GAAP EPS estimate of $2.53 is a substantially below the consensus GAAP EPS estimate of $3.90. 2 WELLS FARGO SECURITIES, LLC Chip Weekly: New Chips At Mobile World Congress EQUITY RESEARCH DEPARTMENT Figure A. DRAM Chip Pricing $4.50 $4.40 $4.30 $4.20 $4.10 $4.00 $3.90 $3.80 $3.70 $3.60 Spot Price $3.50 $3.40 $3.30 $3.20 $3.10 $3.00 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 4Gb DDR3 contract 4Gb DDR3 spot Source: DRAMexchange, Wells Fargo Securities, LLC I on Intel March 4 and 5, 2015. Investor meetings in Paris and London. We sat in on a number of investor meetings in London and Paris with Intel’s CFO and investor relations. Intel highlighted its expectations for high growth in its highly profitable data center business, the value of its desktop and notebook business as a source of cash flow and intellectual property, its new products for smartphones and tablets and breadth of capabilities and products suitable for the internet of things (IoT). • Intel’s order of priorities for use of cash are: (1) Investing in its business. (2) Paying a dividend to shareholders. Intel targets paying out 40% of free cash flow in dividends. (3) Buying back stock. • In 2014 Intel’s data center segment contributed about $14 billion in revenue at an operating margin of about 50%. Intel believes that its data center business can grow at mid teems percent per year in the future. Intel’s rising ASP for its data center processors in recent years has been driven by mix, with customers choosing to move to higher priced processors. • Intel considers its desktop and notebook business to be an important source of cash flow. The division also generates microprocessor designs and other intellectual property that are useful for Intel’s other business in data center, tablets, smartphones and internet of things (IoT). • SoFIA is Intel’s first integrated modem/applications processor product. The first product in the SoFIA family, a dual-core applications processor with a 3G modem, is currently sampling to customers. A 4G version of SoFIA is expected in 2H15 and Intel also highlighted its alliances with Rockchip and Spreadtrum involving these companies designing tablet and smartphones products based on SoFIA. • Recent technology transitions have required greater capital intensity at a wafer level, which Intel has neutralized by achieving incremental scaling at a transistor level and by reducing die size. Intel has continued to achieve continued reductions in cost/transistor in recent technology transitions which it thinks might distinguish it from some companies it competes with for foundry business. March 2, 2015.