Multi-Company Report
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January 6, 2017 Equity Research CES Trade Show: Spotlight On Automotive Yesterday (1/5/2017) at the Consumer Electronics Show (CES) in Las Vegas we were interested to see various chip companies like Intel, Qualcomm and Nvidia highlight chip technology for cars, artificial intelligence, IoT (internet-of-things), wearables and virtual reality. AMD has some important new products scheduled Semiconductors for 2017 which we think could help AMD continue along its path to recovery that it began in 2016. We are reiterating our Outperform ratings on Intel (INTC, $36.35) and Qualcomm (QCOM, $65.03) and AMD (AMD, $11.37). While we think Nvidia has strong product lines and a solid positioning in several key markets, we think the many positive elements of Nvidia’s business are already reflected in Nvidia’s stock price and we believe that competitive pressures might grow for Nvidia in 2017, creating a risk for the stock. We remain cautious on Nvidia with an Underperform rating (NVDA, $102.82). Intel, Nvidia and Qualcomm all highlighted their automotive efforts. There are some major long-term trends in the automotive markets such as autonomous driving that we think could be significant drivers of chip content growth in automobiles over the next several years. However, we also believe it is important to bear in mind that many chip companies are putting in a substantial amount of effort to grow their presence in automotive, creating competition in the space. We think that Nvidia has established a strong product platform for autonomous driving which combines its GPU (graphics processor unit) and processor capabilities, but we believe that this is already reflected in NVidia’s stock price. In our view, Intel has significant processor and FPGA (field programmable gate array) capabilities which it is using to define a set of autonomous driving products and we think that Intel’s future potential in the autonomous driving market is underestimated by many investors. Qualcomm and Intel highlighted 5G products. We think that over the next few years 5G will be an important driver of new applications associated with collection, transmission and analysis of data, fueling growth of the internet-of- things. AMD highlighted its next generation Zen processor for desktops (Ryzen), expected to be available in the March 2017 quarter, and its next generation Vega GPU discrete graphics chips, scheduled to first ship in 1H2017. We think that AMD’s 2016 new GPU family Polaris and its 2017 GPU family Vega may well threaten Nvidia’s current dominant position in graphics chips for gaming. Intel launched a full lineup of its Kaby Lake Processors, 49 new chips following the launch of a small number of notebook Kaby Lake chips in August/September 2014. We think the availability of new PCs with Intel’s latest Kaby Lake processors may well help stimulate PC demand in the first half of 2017. Intel showed a 2-in-1 PC running Intel’s next generation, 10nm, Cannon Lake processor. Intel expects to ship Cannon Lake chips in 2017, we expect in the David Wong, CFA, PhD, Senior Analyst second half of the year. Qualcomm said its first 10nm chip, the Snapdragon 835 (212) 214-5007 is in production now and is expected to ship in commercial devices in the first half [email protected] of 2017. Although, for the most part, Intel does not compete directly against Amit Chanda, Associate Analyst Qualcomm in processors, we think there is growing evidence that the once clear (314) 875-2045 lead in technology manufacturing that Intel had over all other chip companies has [email protected] been eroded away. Keith Kan, CPA, Associate Analyst (212) 214-5066 [email protected] Joy Zhang, Associate Analyst (212) 214-8017 [email protected] Please see page 13 for rating definitions, important disclosures and required analyst certifications. All estimates/forecasts are as of 01/06/17 unless otherwise stated. 01/06/17 11:59:40 ET 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 This week, January 4-6, 2017 at the Consumer Electronics Show (CES) in Las Vegas: Intel, Nvidia, and Qualcomm all highlighted their automotive efforts. There are some major long-term trends in the automotive markets such as autonomous driving that we think could be significant drivers of chip content growth in automobiles over the next several years. However, we also believe it is important to bear in mind that many chip companies are putting in a substantial amount of effort to grow their presence in automotive, creating competition in the space. o We think that Nvidia has established a strong product platform for autonomous driving which combines its GPU (graphics processor unit) and processor capabilities, but we believe that this is already reflected in NVidia’s stock price. In our view, Intel has significant processor and FPGA (field programmable gate array) capabilities which it is using to define a set of autonomous driving products and we think that Intel’s future potential in the autonomous driving market is underestimated by many investors. Qualcomm and Intel highlighted 5G products. We think that over the next few years 5G will be an important driver of new applications associated with collection, transmission and analysis of data, fueling growth of the internet-of-things. o We think that Intel’s positioning in autonomous driving, 5G communications, internet-of- things and many other major themes of the future including virtual reality and artificial intelligence make Intel a good investment. We are reiterating our Outperform rating on Intel (INTC, $36.35), Intel is our top pick and a Priority list stock. o We think that Qualcomm’s strong positioning in wireless communications and its pending acquisition of NXPI which gives it an important footprint in automotive chips make Qualcomm an attractive investment. We are reiterating our Outperform rating on Qualcomm (QCOM, $65.03), Qualcomm is a Priority list stock. Intel launched a full lineup of its Kaby Lake Processors, 49 new chips following the launch of a small number of notebook Kaby Lake chips in August/September 2014. o We think the availability of new PCs with Intel’s latest Kaby Lake processors may well help stimulate PC demand in the first half of 2017. o Intel showed a 2-in-1 PC running Intel’s next generation, 10nm, Cannon Lake processor. Intel expects to ship Cannon Lake chips in 2017, we expect in the second half of the year. Qualcomm said its first 10nm chip, the Snapdragon 835 is in production now and is expected to ship in commercial devices in the first half of 2017. Although, for the most part, Intel does not compete directly against Qualcomm in processors, we think there is growing evidence that the once clear lead in technology manufacturing that Intel had over all other chip companies has been eroded away. AMD highlighted its next generation Zen processor for desktops (Ryzen), expected to be available in the March 2017 quarter, and its next generation Vega GPU discrete graphics chips, scheduled to first ship in 1H2017. o We think that AMD has important new products scheduled for 2017 which could help AMD continue along its path to recovery that it began in 2016. We are reiterating our Outperform rating on AMD (AMD, $11.37). o We think that AMD’s 2016 new GPU family Polaris and its 2017 GPU family Vega may well threaten Nvidia’s current dominant position in graphics chips for gaming. We remain cautious on Nvidia with an Underperform rating (NVDA, $102.82). Other themes that ran through various product announcements and booth displays included, much as we expected, wearables and virtual reality. Intel Intel made the following announcements in conjunction with CES: Intel launches full lineup of Kaby Lake processors: On January 4, 2017, Intel issued a new price list, which includes the addition of 49 new Kaby Lake processors for desktops, notebooks, and mobile workstations, and launched 8 new chipsets. 16 new high end desktop processors – three Core i7 chips, seven Core i5 chips, and six Core i3 chips 19 new high end notebook processors – nine Core i7 chips, eight Core i5 chips, and two Core i3 chips 2 new processors for mobile workstations – two new Kaby Lake E3 v6 chips for notebooks 12 new value processors for desktops and notebooks 2 WELLS FARGO SECURITIES, LLC CES Trade Show: Spotlight On Automotive EQUITY RESEARCH DEPARTMENT o 8 new Pentium and Celeron Kaby Lake chips for desktops o 4 new Pentium and Celeron Kaby Lake chips for notebooks 5 new desktop chipsets and 3 news notebook chipsets In late August and early September 2016, Intel launched its third generation 14-nanometer Kaby Lake chips for mainstream/performance notebooks and Apollo Lake for value notebooks and desktops. This latest launch expands the Kaby Lake lineup to a full range of processors for desktops and notebooks. We think the availability of new PCs with Intel’s latest Kaby Lake processors may well help stimulate PC demand in the first half of 2017. As indicated in our Intel 2017 Outlook, we think that in 2017 the PC end markets could continue to improve together with most other chip markets. We believe that Intel’s Client Group revenues could be flat to up in 2017, with rising operating margins.