China Smartphones Sector
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05 January 2016 Asia Pacific/China Equity Research Semiconductor Devices China Smartphones Sector Research Analyst SECTOR FORECAST Randy Abrams, CFA 886 2 2715 6366 [email protected] 2016 mobile outlook: Growth slowdown Jerry Su 886 2 2715 6361 narrowing opportunities [email protected] Pauline Chen Figure 1: Lowering smartphone estimates – mid-single digit growth in 2016-17 886 2 2715 6323 2012 2013 2014 2015E 2016E 2017E [email protected] New Estimate 725,476 1,019,432 1,303,395 1,438,029 1,503,503 1,559,379 Thompson Wu YoY 47% 41% 28% 10% 5% 4% 886 2 2715 6386 Old Estimate 725,476 1,019,432 1,303,395 1,458,290 1,603,311 1,731,966 [email protected] YoY 47% 41% 28% 12% 10% 8% Derrick Yang Revision (%) 0.0% 0.0% 0.0% -1.4% -6.2% -10.0% 886 2 2715 6367 Source: Credit Suisse estimates [email protected] Haas Liu ■ 2016 smartphone deceleration continues. Our global hardware team, in its 886 2 2715 6365 annual wireless preview on 4 January, lowered its 2016/17 smartphone unit [email protected] forecasts by 6%/10% from 1,603mn/1,731mn to 1,503mn/1,559mn as China and EM mature and slow toward developed market rates. Smartphone units in 2016 are projected up 5% YoY with revenue down 2% YoY. Tablets have also slowed, down 12% YoY in 2015 and bottom's up points to -5% in 2016. ■ IoT offsets some of the slowdown. IoT is offsetting some of the decline in mobile, with IoT silicon projected to witness a 29% CAGR to US$44 bn by 2020, adding a couple points to annual chip industry growth. The Chinese brands and chipset vendors are adopting mobile processors for new applications (drones, home automation, GoPros, VR, wearables, robots). ■ Slowing mobile creates some risks. We stay cautious on the overall space having downgraded some of the Apple supply chain in early November and Mediatek/Panels in early 2015. We stay conservative on Mediatek as competition from QCOM/Spreadtrum and captive solutions pressures margins, Ibiden in view of the InFo-related risk and optimistic guidance for module substrates, Pegatron on iPhone share gain story peaking out and rising concerns over 2016 iPhone units, and Radiant on pricing/share competition. ■ Some opportunities still in Foundry, RF and display ICs. Despite a softer mobile outlook, we see opportunity in TSMC and upgraded the stock in December to OUTPERFORM on a more benign competition, broadening 16nm business with share gains, cyclical rebound and improving margins, RF foundries (Win Semi, VPEC) where content gains continue, driver IC chain as the inventory correction ends (Novatek, Chipbond, Vanguard) and initiate coverage on Egis (covered by Jerry Su) with an OUTPERFORM rating due to increased Android adoption of fingerprint. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, 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. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access 05 January 2016 Focus tables and charts Figure 2: Summary of Credit Suisse's smartphones estimates (in millions, unless otherwise stated) CS Global Model 2010 2011 2012 2013 2014 2015 2016 2017 15-17 CAGR 11-15 CAGR Smartphone subscribers 481 760 1,191 1,836 2,593 3,328 3,969 4,510 16.4% 44.6% % penetration 9.3% 13.2% 19.3% 28.1% 37.6% 46.1% 52.7% 57.4% 52.1% 28.9% Net additions 147 280 430 645 757 735 641 542 Replacements 157 215 295 374 547 703 862 1,018 20.3% 34.5% Replacement rate 2.1 2.2 2.6 3.2 3.4 3.7 3.9 3.9 Smartphone units 305 494 725 1,019 1,303 1,438 1,504 1,559 4.1% 30.6% YoY 75.8% 62.3% 46.7% 40.5% 27.9% 10.3% 4.6% 3.7% ASPs $363 $361 $329 $283 $249 $231 $216 $201 -6.7% -10.6% YoY 1.2% -0.6% -8.9% -14.0% -12.1% -7.2% -6.3% -7.1% Revenue $110.6 $178.4 $238.6 $288.4 $324.2 $332.1 $325.3 $313.5 -2.8% 16.8% Smartphone Revenue YoY 33.7% 20.9% 12.4% 2.4% -2.0% -3.6% Source: Credit Suisse estimates Figure 3: Stabilising replacements needed to drive growth Figure 4: China subscriber penetration rates rising Subscriber base (mn) 3G + 4G penetration % Smartphone Replacement Years 900 80% $1,950 3.90 3.65 3.40 3.15 2.90 800 70% 700 60% 5.1% 1,559 1,626 1,704 1,794 1,900 600 50% 500 40% 6.5% 1,698 1,768 1,848 1,940 2,049 400 300 30% 7.5% 1,799 1,870 1,952 2,046 2,157 200 20% 100 10% 8.5% 1,901 1,973 2,056 2,152 2,265 0 0% 9.5% 2,002 2,075 2,160 2,258 2,372 Jul-10 Jul-11 Jul-13 Jul-14 Jul-15 Jul-12 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 10.5% 2,103 2,178 2,264 2,364 2,480 May-10 May-11 May-12 May-13 May-14 May-15 Penetration Pace Mobile subscribers Unicom subscribers Telecom subscribers 2,204 2,280 2,368 2,469 2,588 11.5% Mobile penetration Unicom penetration Telecom penetration Source: Gartner Source: Credit Suisse estimates Figure 5: Internet of Things Silicon remains a new driver Figure 6: 2015 Chinese chipsets shift over to LTE Sales (US$) YoY (%) 2016 to China brands EDGE WCDMA TD-SCDMA CDMA 2000 LTE $45,000 45% Mediatek 22.1 143.2 15.1 - 262.0 $40,000 40% Spreadtrum 35.0 128.4 16.6 - 35.0 $35,000 35% Leadcore - 2.2 3.3 - 16.5 $30,000 30% Hi-Silicon - 5.4 - 48.6 $25,000 25% Asian suppliers 57.1 279.2 35.0 0.0 362.1 $20,000 20% % of shipments 10% 51% 6% 0% 66% $15,000 15% $10,000 10% Share 100% 94% 100% 0% 68% $5,000 5% Qualcomm - 9.3 - 10.0 165.0 $0 0% Intel - 7.5 - - 7.5 Intel 0.0 16.8 0.0 10.0 172.5 2013 2014 Overseas suppliers 0% 8% 0% 5% 79% 2015E 2016E 2017E 2018E 2019E 2020E ASSP / FPGA Microcontroller Sensors Bluetooth % of shipments 0% 6% 0% 100% 32% Cellular Wi-Fi ZigBee Other Wireless Share 57.1 296.0 35.0 10.0 534.6 Wireline YoY Growth % of Chipsets 7% 39% 5% 1% 70% Source: Gartner Source: Company data, Credit Suisse estimates Figure 7: Non-Apple fingerprint to reach 57% by 2018E Figure 8: Higher RF content for LTE models mn units Non-Apple smartphone fingerprint shipments Penetration (RHS) 18 900 60% 16 57% 800 14 50% 12 700 47% 10 600 40% US$ 8 500 30% 30% 6 400 4 300 20% 16% 2 200 10% 0 100 6% 2G 3G Typical LTE Global LTE - 0% Filters Switches Powr amplifiers Others 2014 2015E 2016E 2017E 2018E Source: Company data, Credit Suisse estimates Source: Qorvo, Credit Suisse China Smartphones Sector 2 05 January 2016 2016 mobile outlook: Growth slowdown narrowing opportunities In coordination with our global hardware team, we publish our annual smartphone and tablet outlook and reduce industry unit estimates as global replacement rates slow and penetration in emerging markets further matures. We also provide implications for the Asian supply chain. Revising smartphones lower Our global hardware team, in its annual wireless preview on 4 January, revised down its 2016/17 smartphone units 2016/17 smartphone unit forecasts by 6%/10% from 1,603mn/1,731mn to 1,503mn/1.559mn revised down by 6%/10% to (+5%/4% YoY) as China and emerging market smartphone demand slows and replacement 1,503mn/1,559mn (+5/+4% rates stretch on with more modest hardware innovations. Relative to developed markets at a YoY growth) 2% CAGR between 2015 and 2017, China will stay flat and developed markets will maintain 9% growth. The global tablet market was also weaker in 2015, declining 12% YoY to 243mn though we estimate the decline to moderate to 5% to 231mn units in 2016. IoT remains an incremental extension to help offset slowing mobile growth Industry projections remain upbeat on silicon into the Internet of Things, a broad growth IoT is a supplemental adder driver connecting all objects to the Internet and communicating with and controlling other that can offset some of the devices. Gartner projects silicon for IoT to maintain a robust 29% CAGR over 2013-20 impact of slowing mobile growth from US$7.2 bn to US$43.5 bn. The China manufacturers are aggressively expanding into these new product categories for new growth, developing connected appliances in the home (smart plugs, LED bulbs, home entertainment and speakers, temperature and humidity sensors, security systems and Ethernet gateways) and also tailoring Mediatek's IoT and mobile processors for new applications (drones, robots, VR, GoPros, wearables).