February 22, 2016 Equity Research

MWC Trade Show: , IoT, Automotive

 Today (2/22/2015) at the (MWC) in Barcelona, Spain we were interested to see various chip companies like , , MediaTek and Infineon highlighted chip technology for smartphones, drones, wearables, and automotive applications. Qualcomm announced its 820 Semiconductors processor will be used in ’s Galaxy S7 series phones in some regions. We think that Samsung’s decision to use the Snapdragon 820 processor in its flagship Galaxy S7 family of smartphones suggests that Qualcomm has fixed the issues with the prior generation Snapdragon 810 family of chips that impacted Qualcomm competitively in 2015. We are reiterating our Outperform rating on Qualcomm (QCOM, $51.28).  Qualcomm announced the latest S7 and S7 Edge for select regions will be powered by Qualcomm’s Snapdragon 820 processor with the integrated Snapdragon X12 LTE (long term evolution) modem. In addition the new LG G5 , HP Elite X3 and X Performance will be based on Qualcomm’s latest Snapdragon 820 chipset.  Intel’s booth emphasized wireless and demonstrations, along with network and cloud demonstrations using NFV (network functions virtualization). Intel also had examples of connected devices using its solutions including smart eyewear, wireless charging and an Intel Curie based wearable payment device. We think that Intel’s early investments in 5G, its efforts to build its LTE cellular modem position, its portfolio of other shorter range wireless capabilities and its expertise in processors will help Intel establish itself as an important chip provider in the IoT (internet of things) space in the future. We are reiterating our Outperform rating on Intel (INTC, $29.35).  Qualcomm and MediaTek showed a variety of wearables using their chips, mostly watches and wrist bands, in their booths, as well as connectivity solutions.

David Wong, CFA, PhD, Senior Analyst (212) 214-5007 [email protected] Amit Chanda, Associate Analyst (314) 875-2045 [email protected] Keith Kan, CPA, Associate Analyst (212) 214-5066 [email protected] Joy Zhang, Associate Analyst (212) 214-8017 Please see page 8 for rating definitions, important disclosures [email protected] and required analyst certifications All estimates/forecasts are as of 02/22/16 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

Today (2/22/2016) at the Mobile World Congress (MWC) trade show in Barcelona, Spain:

 Qualcomm announced the latest and S7 Edge for select regions will be powered by Qualcomm’s Snapdragon 820 processor with the integrated Snapdragon X12 LTE (long term evolution) modem. In addition the new LG G5 smartphone, HP Elite X3 and Performance will be based on Qualcomm’s latest Snapdragon 820 chipset. o We think that Samsung’s decision to use the Snapdragon 820 processor in its flagship Galaxy S7 family of smartphones suggests that Qualcomm has fixed the issues with the prior generation Snapdragon 810 family of chips that impacted Qualcomm competitively in 2015. o Over the last three months Qualcomm has noted design win momentum with its next generation chips and announced several new license agreements in China. These developments build our confidence that Qualcomm is at the beginning of a multi-year turnaround in both its royalty and chip businesses. We are reiterating our Outperform rating on Qualcomm.

 Intel’s booth emphasized wireless and 5G demonstrations, along with network and cloud demonstrations regarding NFV (Network Functions Virtualization). Intel also had examples of connected devices using its solutions including smart eyewear, wireless charging and an Intel Curie based wearable payment device. We think that Intel’s early investments in 5G, its efforts to build its 4G LTE cellular modem position, its portfolio of other shorter range wireless capabilities and its expertise in processors will help Intel establish itself as an important chip provider in IoT (internet of things) space in the future. We are reiterating our Outperform rating on Intel.

 Qualcomm and MediaTek showed a variety of wearables using their chips, mostly watches and wrist bands, in their booths, as well as various connectivity solutions.

Qualcomm

Qualcomm held an Executive Q&A session with investors on February 22nd at MWC:

Summary of MWC Announcements:

 Compute o LG G5 smartphone (Snapdragon 820 processor) o Samsung S7 smartphone (Snapdragon 820 processor) o HP Elite X3 (Snapdragon 820 processor) o Sony Xperia X Performance (Snapdragon 820 processor) o Snapdragon 625, 435 and 425 processors o First secure authentication for Tencent’s WeChat services o Vulkan API support on the Qualcomm Andreno 530 GPU

 Connectivity o Snapdragon X16 Modem Gigabit class o Next generation Qualcomm RF360 front end solutions o Network trials and demonstration of 5G, LTE-U, MulteFire and Gigabit class X16 LTE modem

 Internet of Things (IoT) o Snapdragon Wear platform o 2100 watt SoC and ecosystem traction o o Compal o Infomark

Summary of Q&A session:

licensing agreement o Incremental catch up licensing revenue will be 3 mode device volume

 Samsung Galaxy S7 and S7 Edge design win

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o Although Qualcomm did not disclose which geographies its Snapdragon 820 based Samsung Galaxy S7 and S7 Edge devices will be shipping to, Qualcomm stated the 820 chipset will be in a significant portion of Samsung’s next generation S7 phone shipments.

 China handset inventory update o Qualcomm has not seen demand impacts stemming from China o Qualcomm noted it was showing more China related demand in mid and high tier handsets compared to the beginning of the year.  Worldwide channel inventory update o Qualcomm expects normal 13-14 week inventory in the channel o As previously disclosed, Qualcomm pointed out inventory related issues surrounding thin modems.

 Access point business o Qualcomm sees an opportunity to raise ASPs (average selling price)

 Qualcomm expects worldwide handset replacement rates to decline over time with more units stemming from emerging markets, where replacement rates are typically longer. o Qualcomm expects ASPs to decline in the mid to low single digit percent/year range for handsets.

 QCT (Qualcomm chip technologies) margins o Qualcomm expects higher gross margins and operating margins for QCT driven by the premium tier of handsets gaining traction in the second half of the year and an end of year pick up in thin modem sales.

Qualcomm made the following product announcements in conjunction with MWC.

February 22, 2016. 820 processor to support the next generation Samsung Galaxy S7 and S7 Edge smartphones. Qualcomm announced the latest Samsung Galaxy S7 and S7 Edge for select regions will be powered by Qualcomm’s Snapdragon 820 processor with the integrated Snapdragon X12 LTE modem. The Samsung Galaxy S7 and S7 Edge will also integrate Qualcomm’s TruSignal multi-antenna boost technology. The Snapdragon processor features the company’s quad core custom 64-bit Qualcomm Kryo CPU at up to 2.2GHz per core in the most advanced 14nm FinFET LPP process as well as a custom 530 GPU and a new Qualcomm Hexagon 680 DSP. The Snapdragon 820 processor is available now and is expected to be shipping in devices in the first half of 2016.

February 22, 2016. NXP and Qualcomm expand collaboration to enable mobile transit for Snapdragon based phones. NXP and Qualcomm announced the integration of industry leading near field communication (NFC) and embedded secure element (eSE) solutions across Qualcomm Snapdragon 800, 600, 400 and 200 processor platforms. The solution now includes pre-validation of mobile transaction services including transit and payment. In 2015, Qualcomm and NXP announced they entered a strategic cooperation to accelerate adoption of NFC and security in mobile, wearable and Internet of Things (IoT).

February 17, 2016. Qualcomm and Samsung announce small cells supporting LTE in Unlicensed Spectrum. Qualcomm and announced their collaboration on small cell technologies and products supporting LTE in unlicensed spectrum designed to enhance the speed and capacity of mobile networks. The Samsung LTE-U eFemto cell uses a Qualcomm FSM9955 chipset. The Samsung LTE- U eFemto cell with Qualcomm FSM9955 chipset will be demonstrated at Mobile World Congress in Barcelona, Spain.

February 17, 2016. Qualcomm announces Enablement of first secure fingerprint authentication for Tencent’s WeChat mobile payment services. Qualcomm announced it supports hardware backed biometric fingerprint authentication for Tencent’s WeChat mobile payment service. This feature is enabled by the Qualcomm Haven security platform’s authentication framework and means that users will be able to conduct online transactions on mobile devices using their fingerprint as the authentication method, instead of PIN codes or passwords. The technology is currently shipping in the Qualcomm Snapdragon All Mode powered Vivo X6 devices in China and will be available in various smartphones over the coming months. Secure biometric fingerprint authentication support for WeChat’s payment service is available in the Snapdragon 400, 600 and 800 processor tiers. At Mobile World Congress, Qualcomm will be demonstrating support for secure WeChat payment service on the Snapdragon powered All Mode Vivo X6 handset.

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February 17, 2016. Qualcomm announces showcase of connectivity leadership at MWC. Qualcomm announced plans to demonstrate the breaking of the 1Gbps barrier with Qualcomm’s Snapdragon X16 LTE modem, 4x4 LTE MIMO (multiple in multiple out) in a smartphone and several examples demonstrating the future of LTE based and 5G connectivity solutions at Mobile World Congress. Qualcomm will preview Gigabit class LTE speeds using its Snapdragon X16 LTE modem. The demonstration regarding 4x4 LTE MIMO in a smartphone prototype developed by Communications will be based on the Snapdragon 820 processor with the X12 LTE modem. Qualcomm will show LTE Wi-Fi Link Aggregation (LWA) integrating Qualcomm FSM99xx small cells and IPQ40xx solutions in an integrated solution, as well as a Snapdragon 820 test smartphone. Qualcomm will demonstrate low power LTE connectivity for IoT applications. Qualcomm will show demonstrations regarding the future of LTE based and 5G connectivity.

February 17, 2016. Ericsson and Qualcomm Technologies successfully test 1 Gbps for Telstra. Ericsson and Qualcomm Technologies successfully completed the network and device testing of LTE-Advanced features enabling download speeds of 1 Gbps. This was achieved through the successful interoperability testing of the Snapdragon X16 LTE modem at Ericsson headquarters in Sweden and witnessed by executives from Telstra. The combined features of Gigabit LTE including three component Carrier Aggregation (CA), 4x4 MIMO (multiple input multiple output), LTE 256 QAM (quadrature amplitude modulation) and Ericsson’s Lean Carrier will be demonstrated live at MWC 2016.

In Qualcomm’s booth we saw on display:

 Smartphones o Liquid Jade Primo (Snapdragon 808 processor) o (Snapdragon 617 processor) featuring X5 LTE o Zenofone 2 Laser (Snapdragon 615 processor) featuring X5 LTE o Bittium Tough Mobile (Snapdragon 801 processor) featuring LTE advanced o Blackberry Priv (Snapdragon 808 processor) featuring X10 LTE o BQ Aquaris X5 plus (Snapdragon 652 processor) featuring X8 LTE o A8 (Snapdragon 615) featuring X5 LTE o HTC One M9 (Snapdragon 810 processor) featuring X10 LTE o HTC One A9 (Snapdragon 617 processor) o (Snapdragon 810 processor) featuring X10 LTE o Kazam Trooper smartphone (Snapdragon 210 processor) featuring X5 LTE o Brigadier Kyocera (Snapdragon 400 processor) featuring 4G LTE o Kyocera Duraforce XD (Snapdragon 400 processor) featuring 4G LTE o Yoga Tab 3 8 inch (Snapdragon 210 processor) featuring X5 LTE o Google LG (Snapdragon 808 processor) featuring X10 LTE o LG VIO (Snapdragon 808 processor) featuring X10 LTE o Lumia 950 (Snapdragon 808 processor) featuring X10 LTE o Microsoft Lumia 950 XL (Snapdragon 810 processor) featuring X10 LTE o 2 (Snapdragon 810 processor) featuring X10 LTE o Pure Edition (Snapdragon 808 processor) featuring X10 LTE o ZTE Nubia Z9 (Snapdragon 810 processor) featuring X10 LTE o One Plus 2 (Snapdragon 810 processor) featuring X10 LTE o R7s (Snapdragon 616 processor) featuring X5 LTE o (Snapdragon 616 processor) featuring X5 LTE o 360 Qiku Flagship (Snapdragon 808 processor) featuring X10 LTE o (Snapdragon 652 processor) featuring X8 LTE o Silent Circle Blackphone2 (Snapdragon 615 processor) featuring X5 LTE o T2 (Snapdragon 808 processor) featuring 4G LTE o Premium (Snapdragon 810 processor) featuring X10 LTE o Vaio Phone Biz (Snapdragon 617 processor) featuring X8 LTE o Venus V3 5570 Vestel (Snapdragon 615 processor) featuring X5 LTE o Vivo Plus X6A by BBK (Snapdragon 616 processor) featuring X5 LTE o Wileyfox Storm (Snapdragon 616 processor) featuring X5 LTE o Wileyfox Swift (Snapdragon 410 processor) featuring 4G LTE o Note 3 (Snapdragon 650 processor) featuring X8 LTE o ZTE Avid Plus (Snapdragon 210 processor) featuring X5 LTE o ZTE Axon Pro (Snapdragon 810 processor) featuring X10 LTE o Letv LeMax Pro (Snapdragon 820 processor) featuring X12 LTE o LG G5 (Snapdragon 820 processor) featuring X12 LTE

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In Qualcomm’s booth we saw the following demonstrations:

 Machine Intelligence   Fingerprint Biometrics  Virtual Reality  Immersive graphics and display  Wireless Charging  Mobile Compute  11ad compatibility (Qualcomm Atheros)  MultiGigabit 11ad WiFi (Qualcomm Atheros)  Gigabit Class LTE  5G  Enhanced LAA: Downlink and Uplink in Unlicensed Spectrum  LTE Wi-Fi aggregation  License Assisted Access (LAA) Small Cells  3.5GHz Small Cells  Neutral Host LTE Small Cells  LTE in Unlicensed Spectrum  LTE uplink Enhancements  Smartphone Antenna Boost

 Next generation Automotive Infotainment o Snapdragon 820A processor o Rear seat entertainment o Advanced connectivity o Powered safety features o Modularity

 Connected Car Solutions o Vehicle 2x ADAS o Infotainment o Collision Avoidance o Navigation o Integrated 4G connectivity o Automotive Data Analytics platform

 IoT/Wearables o Echo (Qualcomm Connectivity) o Google On Hub Dimmer (Qualcomm Connectivity) o GoPro Hero 4 (Qualcomm Atheros) o Lifeband LG o Alcatel One Touch o LG Watch Urbane (Snapdragon 400 processor) o LG G Watch R (Snapdragon 400 processor) o Moto 360 for women (Snapdragon 400 processor) o Asus Zen Watch 2 (Snapdragon 400 processor) o Moto 360 v2 (Snapdragon 400 processor) o Huawei watch (Snapdragon 400 processor) o ZTE Axon watch (Snapdragon 400 processor) o Moto 360 Sport (Snapdragon 400 processor) o Gear S Samsung watch (Snapdragon 400 processor) o LG GizmoPal 2 (QSC6155 ) o Samsung Gear S2 3G watch (Samsung 400 processor)

Intel

In Intel’s booth we saw on display:

 Connected Devices demonstrations

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o Smart bike o Recon Smart Eyewear o Tag Heuer watches o Intel RealSense smartphone developer kit o Big screen experience powered by Intel Atom X3 o Wearable security for Android Wear o Hybrid Access Home Gateway o McAfee Personal Safety o True Key by Intel Security

 Network and Cloud demonstrations o Hyperscale IT (information technology) and Telco Infrastructure from Ericsson o Virtual Evolved Packet Core for IoT (Internet of Things) with SK Telecom o Virtualized Customer Premise Equipment from Huawei o KDDI R&D Labs and Wind River High Fault tolerant NFV platform o Media Rich Mobile Edge Computing (MEC) o Virtualized LTE Radio Access Network (RAN) o Flexible Service Chaining on Airframe o Project Cloudify: Open Source NFV Solution o Virtual Evolved Packet Core for IoT with SK Telecom o Cisco NFV Infrastructure on Intel Architecture

 Intel 5G Mobile Trial Platform demonstration o Partners include AT&T, NTT DoComo; Korea Telecom; SK Telecom; TMobile; Verizon; Vodafone; Telefonica o Utilizes advanced Aria FPGAs (field programmable gate arrays) from Altera and Radio frequency integrated circuits

 LTE licensed assisted access o Intel demonstrated an Intel Atom X5 device with Intel’s XMM 7360 LTE Advanced Modem o Intel demonstrated LTE Rel 13 license assisted access using Intel’s Transcede Small Cell platform

 Intel connectivity for various IoT devices o Philips Dream Station o Danlaw Datalogger o Toshiba Communications Hub o Verifone E265 o Filip z Wearable Phone o Edmi Atlas MK7B

Intel made the following announcements in conjunction with MWC:

February 22, 2016. AT&T and Intel to test drones on LTE network. AT&T and Intel agreed to test how Unmanned Aerial Vehicles (UAVs), or drones, work on a network designed to connect devices on the ground. Intel and AT&T will be working to solve major issues in space, including connectivity. At Mobile World Congress, Intel will demonstrate the Yuneec Typhoon H with Intel RealSense technology UAV, which will stream video and telematics from the air over LTE and the use of the AT&T core network.

February 22, 2016. Cisco announces collaboration with Ericsson and Intel to develop next generation 5G router for business and residential services. Cisco announced it will start working with Ericsson and Intel to develop and trial the industry’s first 5G router. Cisco, Ericsson and Intel as part of the Verizon 5G Technology Forum are partnering with Verizon within an ecosystem to accelerate the pace of 5G innovations.

February 19, 2016. Ericsson and Orange in Internet of Things trial with EC-GSM-IoT. Ericsson, Orange and Intel completed one of the first live trials of EC-GSM-IoT (Extended Coverage Global System for Mobile Communications) technology for Internet of Things optimized for low cost devices and enhanced network capabilities for cellular IoT. This trial was conducted in Paris from November 2015 to February 2016, using the 900 MHz band. It also showed the ability to reach challenging locations such as deep indoor basements or remote areas in which sensors are deployed.

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MediaTek

In MediaTek’s booth we saw on display:

 MT2523D () plus MT2511 (biometric sensor) Wristband reference design  MT7697 HDK demonstration for smart IoT  MT2601 based Ticwatch  MT2502 based Hug Innovation  MT7697 (Bluetooth plus WiFi combo chip) based device

 Deep learning SDK demonstration o MediaTek Helio X20 processor

 5G millimeter wave prototype platform (38 GHz)  LTE WiFi Link Aggregation  MiraVision and Ultra Resolution o MediaTek Helio X20

 MediaTek Imagiq – Dual Camera Demo o ISP- Dual Camera o MediaTek Helio X20 chipset

Infineon

In Infineon’s booth we saw on display:

 Capacity pressure sensor demonstration o Applications include Motion and activity level monitoring o Healthcare and sport application o Indoor Navigation application o Outdoor Navigation and GPS support application o Local Weather station application

 Infineon RF (radio frequency) Products o Low Noise Amplifiers o Vivo X5 Max uses Infineon’s low noise amplifiers o LG G3 uses Infineon’s RF switches and low noise amplifiers o uses Infineon’s SLE97ese embedded secure element and low noise amplifiers o uses Infineon’s SLE97ese and LTE low noise amplifiers, GNSS low noise amplifiers and RF switches o Edge plus uses Infineon’s SLE97ese embedded secure element and LTE low noise amplifiers, GNSS low noise amplifiers, antenna tuners, RF switches and low noise amplifier multiplexer modules o Samsung Galaxy S6 uses Infineon’s SLE97ese embedded secure element and LTE low noise amplifiers, GNSS low noise amplifiers, antenna tuners, RF switches and low noise amplifier multiplexer modules

 RF Front end solutions for mobile devices o Antenna tuners o RF solutions for modules o GPIO (general purpose input output) switches o MIPI (mobile industry processor interface) switches o Low Noise Amplifiers

 Smart Wearables and Security o Personal authentication application o NFC (near field communications) payment application o Transport ticketing application

 Embedded Security for Connected Cars o Secure communications

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o Secure data transfer o Secure updates

NXP

NXP made the following announcements in conjunction with MWC:

February 22, 2016. NXP and Qualcomm expand collaboration to enable mobile transit for Snapdragon based phones. NXP and Qualcomm announced the integration of industry leading near field communication (NFC) and embedded secure element (eSE) solutions across Qualcomm Snapdragon 800, 600, 400 and 200 processor platforms. The solution now includes pre-validation of mobile transaction services including transit and payment. In 2015, Qualcomm and NXP announced they entered a strategic cooperation to accelerate adoption of NFC and security in mobile, wearable and Internet of Things (IoT).

February 22, 2016. NXP and Nokia’s Bell Labs jointly demonstrate industry’s first converged 5G wireless and wireline access technology. NXP and Bell Labs announced they will demonstrate an access device at Mobile World Congress that can be used to combine wireline and wireless access support. The device can support wireline and wireless standards with a single modem.

February 22, 2016. NXP announces strategic initiative to fast track 5G. NXP Semiconductors announced its comprehensive portfolio of low and high power RF technologies are being combined to address 5G demands of bandwidth, linearity, power efficiency and small factor solutions. NXP’s LDMOS (laterally diffused metal oxide Silicon) for RF process technology will continue to play a significant role for 5G. For high frequency deployments, NXP intends to leverage its gallium nitride (GaN) process technology, which will complement LDMOS in products designed to support frequencies higher than 3 GHz. For the high centimeter and millimeter wave frequency bands that 5G systems will require, NXP intends to leverage its silicon germanium (SiGe) BiCMOS (bipolar complementary metal oxide silicon) technology. For processors, NXP is leveraging its vector signal processing architecture (VSPA) into devices for 5G based systems.

Skyworks

Skyworks made the following announcements in conjunction with MWC:

February 22, 2016. Skyworks introduces technology enhancing RF power capability and efficiency. Skyworks introduced SkyBlue, a new technology that enhances both the power capability and efficiency in LTE amplifiers and front end solutions. According to Skyworks, this technology offers twice the power of envelope and average power tracking systems available on the market today, but across much broader power ranges. In the first half of 2016, Skyworks will start shipments of products leveraging SkyBlue with a tier one customer. Skyworks plans to leverage SkyBlue throughout its next generation of highly integrated SkyOne, SkyOne Ultra and SkyLiTE product families, as well as its multimode, multiband power amplifiers covering all application segments.

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