Chipworks Teardowns Reveal Growing Chinese Handset Use Of
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Technology, Media & Telecom: Semiconductors Important disclosures can be found on pages 3 - 6 of this report. September 18, 2015 Industry Update Chipworks Teardowns Reveal Growing Chinese Handset Use of NFC, FPGAs, and Microphones Summary and Recommendation Today’s brief examines the latest content changes and trends discovered in our most recent teardown database, provided by our partners at Chipworks. Most notably, we identify an uptick in NFC attach rates as NXP’s parts are designed into numerous new Chinese models. Additionally, Lattice Semiconductor gained both FPGA and display content in select mid-range smartphones, while Knowles microphones continue to gain traction among Chinese vendors. As a reminder, FBR announced a partnership with Chipworks at the beginning of the year, giving us access to a database of over 250 device teardowns annually. Key Points ■ NXP Semiconductor (NXPI – Outperform – $115 price target). NXP has built on its solid NFC gains in 2Q15 as it added wins at Gionee (E8), OPPO (3075), and ZTE (Axion). Additionally, the company’s audio parts were found in the Lenovo Vibe XPro, Huawei P8, Vivo X5 Pro, Mezui X5, and OnePlus 2. We also identified content in the latest iPod (USB controller and MCU), MacBook, Xiaomi MiTV2 (digital tuner), Audi infotainment system (eight parts), and the iPhone 6 lightning cable/charger. Overall, it was one of the strongest content updates we have seen for NXPI in the last 12 months. Positive NXPI. ■ Lattice Semiconductor Corporation (LSCC – Outperform – $7 price target). Silicon Blue is making solid design-win progress for its FPGAs in a number of new Chinese handset platforms. Chipworks identified FPGA design wins in Huawei’s P8 and Honor 7, ZTE’s Q7, and OPPO’s Neo (as well as a Canon digital camera). Additionally, we identified Silicon Image design wins in Fujitsu’s Arrows NX, LETV’s Le 1, Sony’s Xperia Z3, and Nubia’s Z7. Positive Lattice. ■ Knowles Corporation (KN – Underperform – $17 price target). We identified growing microphone content trends in Chinese handsets including Lenovo’s Vibe X2, Mezui’s MX5 (two mics), One Plus (two mics), ZTE’s Axon, OPPO’s 3007, as well as mics in Samsung’s Star 3 Duo, Galaxy A8 (two mics), Galaxy Edge Plus (two mics), Note 5 (two mics), LG’s L Prime, and Fujitsu’s Arrows NX. Additionally, the Amazon Echo has two Knowles mics but likely a Texas Instruments codec enabling the always-on technology. Knowles also claimed two sockets in the latest Apple MacBook. Positive KN. ■ Broadcom Corporation (BRCM – Outperform – $58 price target). Connectivity share remains high with wins in the Mac Book (Wi-Fi), Samsung’s Galaxy A8 (+ GPS), Grand Neo Plus, and Note 5 (+ GPS); Huawei’s P8, Honor 6/7, and X2 (and GPS); LG’s Flex 2 G4 and watch Urbane; as well as an NFC win in the Nubia Z9. That said, we did see a number of connectivity wins from MediaTek and CSR/Nordic in wearables. Modest positive BRCM. ■ Marvell Technology Group Ltd. (MRVL – Market Perform – $9 price target). Once again, Marvell was mostly absent from the latest teardowns. We identified Wi-Fi in the MS Surface 3, Audi infotainment platform, and a Canon camera (SoC). Negative MRVL. ■ Atmel (ATML – Outperform – $11 price target). Atmel continues to struggle in touch as competition mounts. Outside of touch, we witnessed an EEPROM win in the ASUS VivoWatch, MCUs in digital projectors, and some content in an auto media console. Negative ATML. ■ Intel Corp. (INTC – Outperform – $38 price target). We identified a Xeon processor in both the Lenovo ThinkPad P50 and P70 as this traditional server part will be used in laptops for the first time. Modest positive INTC. Christopher Rolland ■ ON Semiconductor Corporation (ON – Outperform – $15 price target). While Chipworks did 646.885.5405 not identify any wireless charging wins, we note voltage regulator wins included in the Huawei [email protected] P8 and PM content in the new Radeon R9 Fury graphics card. Neutral ON. © 2015 FBR & Co. Institutional Brokerage, Research, and Investment Banking © 2015 FBR & Co. Institutional Brokerage, Research, and Investment Banking Background What is Chipworks? FBR plans to offer “flash” updates from our Chipworks relationship, which will be coupled with quarterly updates from MobileVision . Chipworks will provide FBR with detailed “in package” architectural analysis and insights in addition to comprehensive and timely teardown reports of electronic devices. Also in 2015, FBR plans to host investor conference calls with the experts at Chipworks (topics may include . iPhone 6s and Chinese 4G handset trends); we hope you can join us. If you are unfamiliar with the company's high quality work, we encourage you to visit www.chipworks.com for more background. Sector Stance For semiconductor stocks overall, we believe the “mini-downcycle” that may have occurred in 2H14 reduced industry lead times to healthy levels and flushed out excessive pockets of inventory, with both trends serving to refresh, elongate, and fuel this new semiconductor up-cycle. While multiples have expanded, in part to incorporate increased merger probabilities, they remain below market average overall. Strong cash flow generation for this maturing industry is also funding accelerating share buybacks, further bolstering earnings growth. We remain constructive on the sector. Valuation Summary for FBR's Semiconductor Devices Coverage Universe Price Return Market Current Target Current Target Current Target Current Target Current Target Current Target Current Target Current Target 2015 EV/ 2015 EV/ 2016 EV/ 2016 EV/ 2015 P/ 2015 P/ 2016 P/ 2016 P/ 2015 EV/S 2015 EV/S 2016 EV/S 2016 EV/S 2015 P/E 2015 P/E 2016 P/E 2016 P/E 17-Sep-15 Ticker Rating Price Target to Target Cap ($m) EBITDA EBITDA EBITDA EBITDA FCF FCF FCF FCF ALTERA CORPORATION ALTR MP $50.45 $54 7% 15,301 8.2 8.8 7.6 8.2 29.5 31.7 24.8 26.6 27.6 29.6 22.8 24.5 38.8 41.5 36.8 39.4 ADVANCED MICRO DEVICES AMD MP $1.89 $2.50 32% 1,469 0.7 0.8 0.7 0.8 NM NM NM NM 292.9 342.0 33.9 39.6 -4.3 -5.6 -7.4 -9.8 APPLIED MICRO AMCC MP $5.84 $7 20% 471 2.6 3.2 2.1 2.6 NM NM NM NM NM NM NM NM NM NM NM NM ARM HOLDINGS ARMH OP $44.62 $64 43% 21,139 13.6 19.6 11.7 16.9 36.0 51.9 27.4 39.5 22.3 32.1 18.2 26.2 55.3 79.3 35.9 51.4 ATMEL CORP ATML OP $7.43 $11 48% 3,164 2.2 3.4 2.1 3.1 20.7 31.4 15.2 23.0 11.1 16.9 9.1 13.8 15.5 22.9 11.8 17.4 BROADCOM CORP BRCM OP $53.48 $58 8% 32,783 3.4 3.7 3.3 3.6 14.9 16.4 13.7 15.0 13.7 15.0 13.5 14.8 30.0 32.6 19.3 21.0 FAIRCHILD SEMICONDUCTOR FCS OP $14.14 $20 41% 1,697 1.2 1.7 1.2 1.7 19.8 28.3 11.3 16.3 7.3 10.4 6.2 8.9 14.3 20.2 9.9 14.0 INTEL CORP INTC OP $29.71 $38 28% 147,659 2.4 3.1 2.3 3.0 11.5 14.9 10.6 13.7 5.9 7.6 5.6 7.2 16.5 21.1 14.2 18.1 LATTICE SEMICONDUCTOR CORP LSCC OP $4.16 $7 68% 486 1.5 2.3 1.4 2.0 102.7 154.0 16.3 24.4 16.2 24.3 20.6 30.9 -12.4 -20.8 187.9 316.2 KNOWLES CORP KN UP $16.64 $17 2% 1,425 1.6 1.6 1.5 1.5 18.8 19.1 12.9 13.2 7.2 7.3 6.0 6.1 13.1 13.3 8.3 8.4 MARVELL TECHNOLOGY GROUP MRVL MP $8.90 $9 1% 4,763 0.7 0.7 0.7 0.7 10.4 10.7 6.3 6.4 5.0 5.1 3.9 4.0 10.3 10.4 7.7 7.8 CAVIUM INC * CAVM OP $67.95 $72 6% 4,020 8.9 9.4 7.3 7.8 36.4 38.6 26.7 28.4 27.3 29.0 20.8 22.1 67.9 72.0 42.1 44.6 NVIDIA CORP NVDA MP $23.31 $24 3% 13,240 2.3 2.4 2.2 2.3 16.5 17.1 13.6 14.1 11.1 11.5 9.9 10.3 15.4 15.9 19.8 20.4 NXP SEMICONDUCTORS NV NXPI OP $91.02 $115 26% 22,018 4.0 5.0 3.7 4.5 17.6 21.7 14.7 18.1 12.4 15.2 11.1 13.7 31.6 40.0 25.8 32.6 ON SEMICONDUCTOR CORP ON OP $10.17 $15 47% 4,426 1.4 1.9 1.3 1.9 11.6 16.5 9.0 12.9 8.4 12.0 7.2 10.3 9.5 14.0 7.3 10.7 QUALCOMM INC QCOM MP $54.98 $68 24% 91,652 2.6 3.6 2.5 3.3 12.4 16.8 8.7 11.7 7.1 9.5 6.1 8.3 26.9 33.3 13.1 16.2 TEXAS INSTRUMENTS INC TXN MP $48.15 $55 14% 51,087 3.9 4.4 3.7 4.2 17.0 19.5 15.7 17.9 9.4 10.7 8.9 10.2 16.0 18.3 14.1 16.1 XILINX INC XLNX MP $43.09 $47 9% 11,613 4.3 4.8 4.1 4.6 17.1 19.0 16.0 17.8 13.2 14.7 13.1 14.6 19.4 21.2 19.9 21.7 Median (ex-ARMH) $24 20% 4,763 2.4 3.2 2.2 3.0 17.1 19.1 13.7 16.3 11.1 13.3 9.5 12.0 15.7 20.6 14.2 17.8 Average (ex-ARMH) $36 23% 23,957 3.1 3.6 2.8 3.3 23.8 30.4 14.4 17.3 29.7 35.1 12.4 15.0 19.3 21.9 26.9 37.2 *All P/E multiples include stock compensation expense and back out net cash and related interest income (or the opposite for debt) except CAVM Note: % Return to Target is potential.