April 20, 2015 Equity Research

Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom

• Large sequential decline in processors, but March quarter could be bottom. According to Mercury, overall shipments declined 16.8% Semiconductors sequentially in the March quarter. ’s Client Computing Group revenues decreased 16.3% sequentially and decreased 8.4% year over year. Sales for Intel’s Data Center (server) group decreased 10.1% sequentially and increased 19.2% yr/yr. AMD’s Computing & Graphics segment revenue decreased 20% sequentially (primarily due to decreased desktop and notebook revenue) and decreased 38% yr/yr. While we remain cautious on the overall chip sector with a Market Weight rating, we think that Intel June quarter guidance for 3% growth suggests that the PC processor market might be stabilizing and that the data center processors market remains firm. We are reiterating our Outperform rating on Intel (INTC, $32.47) and maintaining our Outperform rating on AMD (AMD, $2.58). • pricing firm on year/year basis. Intel’s Data Center platform ASP decreased 3% sequentially and increased 5% yr/yr in the March quarter. Intel reported that desktop ASP increased 2% yr/yr and that notebook ASP decreased 3% yr/yr. AMD stated that Client ASP decreased sequentially and increased yr/yr driven by product mix. • Mercury numbers suggest that AMD may have lost desktop processor share. We think AMD’s March earnings results (sequential sales decline of 16.9%) and June quarter guidance (midpoint implying a 3% sequential sales decline) were disappointing. According to Mercury AMD lost 1.0 percentage points of desktop unit market share sequentially (to a 10.7% share), while Intel gained 0.9 percentage points of unit market share (to an 88.7% share). The Mercury numbers suggest that AMD’s unit share in the mobile space (excluding tablet processors) remaining unchanged sequentially (at 10.2%). • Intel’s tablet processor shipments dropped in the March quarter. Intel stated that its tablet processor shipments in the March quarter amounted to nearly 7 million units, versus 16 million units in the December quarter, 15 million units in the September quarter and 10 million units in the June quarter. We think that in an effort to control losses and “contra-revenues” related to the tablet business, Intel may have turned down some tablet processor business in the quarter.

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 14 for rating definitions, important disclosures [email protected] and required analyst certifications All estimates/forecasts are as of 04/20/15 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

In this report we review key March quarter data points from Intel and AMD earnings reports and Mercury Research’s preliminary microprocessor market and market share estimates for the March 2015 quarter. Our key conclusions from the data include:

Large sequential decline in processors • According to Mercury, overall x86 shipments declined 16.8% sequentially in the March quarter. • Intel’s Client Computing Group revenues decreased 16.3% sequentially and decreased 8.4% year over year. o Intel’s Client Computing Group now contains the tablet and smartphone chip operations previously reported separately as “Mobile and Communications”. • Sales for Intel’s Data Center (server) group decreased 10.1% sequentially and increased 19.2% yr/yr. • AMD’s Computing & Graphics segment revenue decreased 20% sequentially (primarily due to decreased desktop and notebook processor revenue) and decreased 38% yr/yr.

Microprocessor pricing firm on year/year basis. • Intel’s Data Center platform average sales price (ASP) decreased 3% sequentially and increased 5% yr/yr in the March quarter. • Intel reported that desktop ASP increased 2% yr/yr and that notebook ASP decreased 3% yr/yr. • AMD stated that Client ASP decreased sequentially and increased yr/yr driven by product mix.

Mercury numbers suggest that AMD may have lost desktop processor share • We think AMD’s March earnings results (sequential sales decline of 16.9%) and June quarter guidance (midpoint implying a 3% sequential sales decline) were disappointing. • According to Mercury AMD lost 1.0 percentage points of desktop unit market share sequentially (to a 10.7% share), while Intel gained 0.9 percentage points of unit market share (to an 88.7% share). The Mercury numbers suggest that AMD’s unit share in the mobile space (excluding tablet processors) remaining unchanged sequentially (at 10.2%).

Intel’s tablet processor shipments dropped in the March quarter • Intel stated that its tablet processor shipments in the March quarter amounted to nearly 7 million units, versus 16 million units in the December quarter, 15 million units in the September quarter and 10 million units in the June quarter. We think that in an effort to control losses and “contra- revenues” related to the tablet business, Intel may have turned down some tablet processor business in the quarter.

While we remain cautious on the overall chip sector with a Market Weight rating, we think that Intel June quarter guidance for 3% growth suggests that the PC processor market might be stabilizing and that the data center processors market remains firm. We are reiterating our Outperform rating on Intel (INTC, $32.47) and maintaining our Outperform rating on AMD (AMD, $2.58).

Microprocessor Comments From Intel and AMD

Microprocessor comments from by Intel:

Beginning with its March quarter earnings report, Intel revised the presentation of its operating segments to reflect the combination of the PC () Client Group and the Mobile and Communications Group to create the Client Computing Group.

ƒ Client Computing Group revenues decreased 16.3% sequentially and decreased 8.4% year over year. Intel’s Client Computing Group now contains the tablet and smartphone chip operations previously reported separately as “Mobile and Communications”. The company provided historical quarterly data to enable calculation of the sequential and year/year comparisons. • Client Computing Group platform ASP (average selling price) increased 1% sequentially and decreased 13% yr/yr, ƒ Intel reported that desktop ASP increased 2% yr/yr. ƒ Intel reported that notebook ASP decreased 3% yr/yr. • Client Computing unit shipments decreased 18% sequentially and increased 6% yr/yr. ƒ Intel reported that desktop units decreased 16% yr/yr. ƒ Intel reported that notebook units increased 3% yr/yr. • Intel shipped 7 million tablets in the quarter, up 45% year over year. ƒ This represents a substantial sequential drop from 16 million tablet processors Intel shipped in the December 2014 quarter. We think that in an effort to control losses

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WELLS FARGO SECURITIES, LLC Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

and “contra-revenues” related to the tablet business, Intel may have turned down some tablet processor business in the quarter. ƒ Sales for Intel’s Data Center (server) group decreased 10.1% sequentially and increased 19.2% yr/yr. • Data Center platform ASP decreased 3% sequentially and increased 5% yr/yr. • Data Center units decreased 7% sequentially and increased 15% yr/yr. ƒ Sales into Intel’s Internet of Things Group (mostly Intel’s embedded products), amounted to $533 million, down 9.8% sequentially and up 10.6% yr/yr, driven by strength in retail and digital security segments. ƒ Software & Services revenue decreased 4.1% sequentially and decreased 3.4% yr/yr.

Microprocessor comments from AMD:

Computing & Graphics - This segment primarily includes desktop and notebook processors and chipsets, discrete GPUs (graphics processor units) and professional graphics. • AMD’s Computing & Graphics segment revenue decreased 20% sequentially (primarily due to decreased desktop and notebook processor revenue) and decreased 38% yr/yr. o AMD stated that desktop and notebook processor sales decreased sequentially. ƒ On a year-over-year basis mobile revenues increased while desktop revenues decreased. o AMD stated that Client ASP decreased sequentially and increased yr/yr driven by product mix. o AMD stated that GPU ASP increased sequentially primarily due to higher channel GPU and Professional Graphics ASPs and decreased year-over-year due to lower channel ASP. • AMD’s operating income for its Computing & Graphics segment amounted to a loss of $75 million in the quarter (primarily due to lower desktop and notebook processor sales, partially offset by lower operating expenses), versus a loss of $56 million in the previous quarter.

Enterprise, Embedded & Semi-Custom - This segment primarily includes server and embedded processors, dense servers, semi-custom SoC (system on chip) products, development services and technology for game consoles. • AMD’s Enterprise, Embedded & Semi-Custom revenue decreased 14% sequentially (primarily driven by seasonally lower semi-custom SoC (system on chip) sales) and decreased 7% year-over-year. • AMD’s Enterprise, Embedded & Semi-Custom operating income decreased 59% sequentially (due to lower game console royalties, product mix and higher R&D spending) and decreased 47% year-over- year. • AMD said that it expects semicustom units to increase modestly on a sequential basis in the June quarter.

Figures 1-4 provide more details on Mercury’s estimates of unit market share shifts.

Mercury Research Processor Market Share Estimates

Figure 1 contains estimates for overall x86 microprocessor unit market share, including game console processors for AMD and tablet processors for Intel. According to Mercury, Intel lost around 0.1 percentage points of overall microprocessor unit share sequentially in the March quarter, while AMD’s market share held flat. • Mercury remarked that overall processor shipments decreased 16.8% sequentially in the March quarter and increased 4.0% yr/yr. • However, if tablet processors and game console processors are excluded from the numbers, overall share dropped on sequential basis since AMD’s share fell in traditional desktop processors are remains relatively unchanged in traditional notebook processors.

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Figure 1: Total x86 Microprocessor Market Share Vendor Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Intel 83.0% 80.2% 81.6% 82.8% 83.5% 84.8% 86.3% 86.2% AMD 16.5% 19.3% 18.1% 16.9% 16.3% 15.1% 13.6% 13.6% VIA 0.5% 0.4% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% * These numbers include game console processors, which are the primary driver of AMD’s sequential jump in share in the September 2013 quarter, and tablet processors, which help drive Intel’s sequential gains in the June 2014, September 2014, and December 2014 quarters. Sources: Mercury Research, Wells Fargo Securities, LLC

Servers According to Mercury, Intel gained 0.1 percentage points of server unit share sequentially to a share of 98.8% in the March quarter. • Mercury estimates that the server segment saw a 7.5% sequential decrease in units (+19.6% yr/yr) in the March quarter with AMD’s units decreasing 15.1% sequentially (-49.2% yr/yr)(off a small base) and Intel’s units decreasing 7.4% sequentially (+21.6% yr/yr). Mercury stated that the quarterly results were slightly below the seasonal average and that the yr/yr results were well above the average of the past year. Mercury stated that the growth was centered around cloud-based servers, but noted that non-traditional server businesses continue to provide significant growth and revenue boosts, explaining why on year growth exceeds that of just Intel’s data center business. Mercury stated that lower MP (multi-processor – i.e. 4-way processor) shipments combined with large DP (dual processor) cloud server shipments lowered overall mix and reduced Intel’s ASP in the quarter. Mercury stated that AMD’s declines appear to be due to ongoing attrition of older design-ins slipping out of production. • With a 98.8% unit share Intel continues to dominate the server processor market. On its last earnings call AMD announced its immediate exit from the dense server systems business, formerly SeaMicro, but stated it was still committed to x86 servers. We think that AMD might at some point choose to discontinue development of future x86 server-specific processors.

The preliminary release of the Mercury Research data did not include ASP information. For the December quarter, Mercury Research data implies that Intel’s server processor ASP (excluding ) was $697 (versus $644 in the September quarter) and that AMD’s server ASP was $318 (versus $312 in the September quarter). • Intel said that its Data Center platform ASP decreased 3% sequentially and increased 5% year over year in the March quarter. Using Mercury’s Q1’14 and Q4’14 ASP estimates, it would appear that Intel’s March 2015 quarter ASP could have been in the $650-$670 range. • Mercury said that growth statements pertaining to Intel’s Data Center Group (DCG) are unlikely to sync perfectly with Mercury’s numbers due to Intel’s revenue recategorization of DCG to include storage and communications products and the fact that Mercury’s estimates include server central processing units (CPU) that are part of embedded.

Figure 2: Server x86 Microprocessor Market Share Vendor Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Intel* 95.0% 96.6% 96.8% 97.2% 97.8% 98.3% 98.7% 98.8% AMD 5.0% 3.4% 3.2% 2.8% 2.2% 1.7% 1.3% 1.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100% 100.0% 100.0% Note: Except for Q1’15, data excludes Intel’s Itanium and Phi server processor shipments; however recent Itanium and Phi shipments have been relatively insignificant. Sources: Mercury Research, Wells Fargo Securities, LLC

Mobile According to Mercury, market share between Intel and AMD was unchanged on a sequential basis in the mobile space, if tablet processor shipments by Intel (AMD does not participate in any meaningful way in tablets) are excluded. In the March 2015 quarter Intel’s unit market share was 89.8% and AMD’s 10.2%. • Mercury estimates that the mobile segment (excluding tablets) saw a 15.1% sequential decrease in units (+0.8% yr/yr) in the March quarter with AMD’s units decreasing 15.1% sequentially (-15.2% yr/yr) and Intel’s units decreasing 15.1% sequentially and increasing 3,1% yr/yr. Mercury stated that the quarter was impacted by an inventory adjustment. • Mercury estimates that Intel shipped 12.8 million tablet (including an increasing number of phone/phablet) chips in the quarter with shipments of 7 million conventional tablet CPUs and that

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WELLS FARGO SECURITIES, LLC Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

Intel’s share of the overall tablet market is now around 28.7%, (based off estimated shipments of 31.7 million ARM tablets, which Mercury said it may need to revise). Mercury estimates that Intel’s December quarter tablet share stood at around 26.8% and that its September quarter tablet share stood at around 37.3%.

The preliminary release of the Mercury Research data did not include ASP information. For the December quarter, Mercury Research data implies Intel’s notebook processor ASP (excluding tablets) was $107 (versus $103 in the September quarter) while AMD’s ASP was $59 (versus $54 in the September quarter). • For the March quarter Intel reported that its notebook ASP decreased about 3% yr/yr; given Mercury’s implied March 2014 quarter notebook ASP of $105, we calculate that Intel’s notebook ASP might have been around $102 in the March 2015 quarter.

Figure 3: Mobile (excluding tablet) x86 Microprocessor Market Share Vendor Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Intel 83.4% 84.7% 89.1% 87.8% 88.2% 90.7% 89.8% 89.8% AMD 16.6% 15.3% 10.8% 12.2% 11.8% 9.3% 10.2% 10.2% VIA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% * Includes Intel Atom shipments as well as AMD Brazos shipments. Sources: Mercury Research, Wells Fargo Securities, LLC

Desktop According to Mercury Intel gained 0.9 percentage points of desktop unit market share sequentially (to an 88.7% share), while AMD lost 1.0 percentage points of unit market share (to a 10.7% share). • Mercury stated that the desktop segment saw a 19.1% sequential decrease in units (-18.0% yr/yr) with AMD’s units decreasing 25.9% sequentially (-46.0% yr/yr) and Intel’s units decreasing 18.3% sequentially (-12.4% yr/yr). • Mercury stated that the steep decline in desktop shipments was due to inventory corrections.

The preliminary release of the Mercury Research data did not include ASP information. For the December quarter, Mercury Research data implies that Intel’s desktop ASP (including Atom) was about $102 (versus $103 in the September quarter) and that AMD’s desktop processor ASP was about $47 (versus $51 in the September quarter). • Intel reported that desktop ASP increased 2% yr/yr; given Mercury’s implied March 2014 desktop ASP of $107, we calculate that Intel’s March 2015 quarter ASP might have been around $109.

Figure 4: Desktop x86 Microprocessor Market Share Vendor Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Intel* 80.3% 79.4% 79.7% 83.1% 84.5% 82.7% 87.8% 88.7% AMD 18.4% 19.4% 19.6% 16.3% 15.0% 16.9% 11.7% 10.7% VIA 1.3% 1.2% 0.6% 0.6% 0.5% 0.5% 0.5% 0.6% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% * Includes Intel Atom shipments as well as AMD Brazos shipments. Sources: Mercury Research, Wells Fargo Securities, LLC

Recent Microprocessor Product Ramps/New Products

April 2, 2015. Intel unveils 750 Series SSDs (solid-state drives). Intel introduced its 750 Series of SSDs, the company’s highest performing SSD for use in client PC storage devices and workstations. The 750 utilizes four PCIe 3.0 lanes for an estimated 4x the performance of SATA-based drives and is available as an add-in card or as a 2.5 inch small form factor solution. Intel also announced availability of its 535 Series for mainstream client PC storage devices. March 31, 2015. Microsoft announces Surface 3 based on Atom x7 processor. Microsoft introduced the 10.8-inch Surface 3, which features an Atom x7 processor. Surface 3 is optimized to run full 64-bit Windows 8.1. Previous versions of the non-Pro Surface tablets featured processors and ran Windows RT. The Surface 3 will come in Wi-Fi and 4G LTE variants. The Surface 3 will be available for pre- order starting on March 31 and will be on sale beginning May 5 with availability in 26 markets by May 7. The

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Wi-Fi SKUs are priced at $499 (64GB) and $599 (128GB), compared to Apple iPad Air 2 Wi-Fi SKUs priced at $499 (16GB), $599 (64GB), and $699 (128GB).

March 30, 2015. INTC: New PC Chips Including First 14nm Braswell Value Chips. On March 30, 2015 Intel issued a new price list, showing eleven new desktop processors and 6 new mobile uLV processors. The new products include: (1) four new 14nm and chips for notebooks and three new chips for desktops, which we think are the first Braswell (Atom) chips. (2) Two additional 14nm Broadwell Core i3 chips for notebooks. Eight additional desktop chips from the older 22nm technology generation, the Haswell refresh family. We think it is notable that Intel rolled out some additional 22nm desktop chips rather than 14nm higher end Broadwell desktop chips for its Core series. We expect though that Intel will introduce Broadwell desktops chips at some point in the June quarter. We think Intel’s ability to steadily move its high volume PC processors into new families on advanced manufacturing technology provides the foundation for its leadership position in data center processors and its ability to penetrate new markets such as tablets, smartphones and internet-of-things. Please refer to our March 30th note for additional details.

March 10, 2015. Apples refreshes mobile lineup with Broadwell processors. Apple refreshed its mobile lineup to include Broadwell Core-M processors in its new Macbook and Broadwell Core i5 and i7 (we believe U-series) processors in its Macbook Air models and 13-inch Macbook Pro Retina display model. We believe that some investors had been concerned about the risk that Apple might consider using its own processor in the Macbook Air. We think these latest announcements help confirm Apple’s commitment to using Intel processors in all of its Macbook products. Also, we think that Apple’s decision to use the Broadwell Core-M processor, which is designed for ultra-thin notebooks and fanless tablets, in its thinnest mainstream Macbook products highlights the fact that has interesting low power high end processor offerings which might at some point in the future be considered for high end tablets such as iPad.

March 9, 2015. Intel introduces D-Series processors. Intel announced the Xeon D family, a 14nm Xeon processor-based SoC for microserver, storage, network and IoT applications. Intel released the D- 1520 (4-core) priced at $199.00 and the D-1540 (8-core) priced at $581.00, both are now available. The extended Xeon D family including microserver, network, storage and IoT optimized SoCs is expected to be available in H2 2015.

March 5, 2015. Nvidia introduces new Shield device and Titan X GPU. Nvidia introduced the Shield Android TV console, which features a Tegra X1 processor with 256-core Maxwell GPU with 3GB RAM, as well as 4K playback ability and wireless connectivity. The device is expected to be available in May for $199. Nvidia also introduced the Titan X GPU, which has eight billion transistors and a 12GB framebuffer. The company said it would disclose more details at its GPU Technology Conference (March 17th).

March 2, 2015. Samsung introduces new universal flash storage. announced that it is mass producing 128GB ultra-fast embedded memory based on the Universal Flash Storage (UFS) 2.0 standard for smartphones. The new UFS embedded memory conducts 19,000 IOPS for random reading (2.7x faster than eMMC 5.0 and 12x faster than a typical 1,500 IOPS high-speed memory card) and 14,000 IOPS for random writing (28x as fast as a conventional external memory card). Samsung’s offerings come in 128GB, 64GB and 32GB versions. In addition, Samsung's UFS embedded memory package represents a new embedded package on package solution that can be stacked directly on top of a logic chip in order to take up less space.

March 2, 2015. unveils Snapdragon 820. At Mobile World Congress, Qualcomm announced its Zeroth platform that uses its next-generation processors including the Snapdragon 820. Qualcomm did not disclose much about the Snapdragon 820, but noted that it is designed on a leading edge FinFET process node and features a new 64-bit custom Kryo processor core. The Snapdragon 820 processor is expected to begin sampling in the second half of 2015E.

March 2, 2015. Broadcom introduces Wifi combo chip and UltraHD SoCs. At Mobile World Congress, Broadcom introduced a 5G WiFi combo chip with dual band support. Broadcom announced a 5G WiFi 2x2 Multiple Input Multiple Output (MIMO) combo chip with real simultaneous dual band (RSDB) support for mobile devices. The BCM4359 enables devices to transmit and receive over two bands simultaneously. With RSDB support, the BCM4359 can connect to the 5GHz and 2.4GHz bands simultaneously. Broadcom also introduced the BCM43455, an integrated 1x1 5G WiFi combo chip for mass market smartphones. Both devices are now sampling. In addition, Broadcom announced the BCM7448S and BCM7449S UltraHD SoCs for home gateways and IP clients, featuring integrated MoCA 2.0 interface for cable home networking, dual core ARMv7 CPUs, and support for Ultra HD HEVC. Both devices are currently sampling.

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WELLS FARGO SECURITIES, LLC Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

March 2, 2015. MediaTek introduces tablet and smartphone processors. MediaTek introduced tablet and smartphone processors in conjunction with Mobile World Congress. The Quad-core MT8173 tablet processor features a 64 bit quad core processor (2x Cortex-A72 and 2x Cortex-A53) at up to 2.4GHz, Imagination PowerVR GPU, Ultra HD 30fps H.264/HEVC(10-bit)/VP9 hardware video playback. The MT8173 is available now and is expected be featured in commercial tablets in H2 2015. The Octa-core MT6753 smartphone processor is designed for the mid-range market, features eight Cortex-A53 64-bit processors at up to 1.5GHz, Mali-T720 GPU, integrated Cat. 4 FDD/TDD LTE, DC-HSPA+, TD-SCDMA and EDGE are supported for legacy 2G/3G. Supports dual-band Wi-Fi and Bluetooth 4.0. The MT6753 is sampling now with the first commercial devices to be available in Q2 2015.

February 25, 2015. Intel introduces new Atom branding. Intel announced that its Atom processors will now be offered in three distinct brand levels in a “good/better/best”, which will be Atom x3, x5 and x7 beginning with the next generation of processors. Atom x3 processors provide basic tablet, phablet and smartphone performance; Atom x5 processors have capabilities and features compared to x3; and Atom x7 processors provide the highest level of performance and capabilities for the Atom family.

February 19, 2015. Details on AMD chips. CPU World reported that, despite AMD not yet listing the chip on their website, it is now possible to purchase a 3.3GHz AMD Kaveri (Steamroller-based) A8-7650K quad- core (two dual-core modules) chip with 4MB of L2 and a 95W TDP for around $105 on sites like Amazon and NewEgg.

February 18, 2015. Qualcomm introduces new Snapdragon 600 and 400 processors. Qualcomm introduced four new Snapdragon processors. The Snapdragon 620 and Snapdragon 618 processors feature integrated 64-bit ARM Cortex A-72 CPUs and the X8 LTE modem. The Snapdragon 425 and Snapdragon 415 processors both feature octa-core CPUs. The Snapdragon 425 has an integrated X8 LTE modem, while the Snapdragon 415 integrates X5 LTE. The Snapdragon 415 chipset is sampling now and expected to be in commercial devices in H1 2015. The Snapdragon 620, 618 and 425 processors are expected to be in commercial devices in H2 2015.

February 16, 2015. Samsung announces mass production of 14nm FinFET mobile application processor. Samsung announced it started mass production of its 14nm FinFET process technology. Compared to Samsung’s 20nm process technology, the 14nm process offers up to 20% faster speed, 35% less power consumption and 30% productivity gain. Samsung’s 14nm FinFET process will be used by its 7 Octa mobile application processor and will be expanded to other products throughout the year. We believe that Apple might be planning to use Samsung’s 14nm processor for its next generation iPhone processors in 2015.

February 3, 2015. Intel introduces embedded Xeon processor. Intel updated its ARK website to include embedded Xeon E5 processor, the E5-2658A. The new Xeon processor has 12 cores and all standard features of E5-2600 v3 lineup. According to Intel's product database, the new processor is already launched. The E5-2658A v3 has 12 cores clocked at 2.2GHz, 30 MB L3 cache, a TDP of 105W and has a quad-channel , that supports up to 768GB of DDR4-2133 memory. Intel did not disclose pricing details.

February 3, 2015. ARM announces new processor core. ARM announced its 2.5GHz TSMC based 16nm FinFET+ 64-bit ARMv8-A Cortex-A72 (Maya) processor cores, Mali T-880 graphics cores, and CoreLink CCI-500 interconnect. The Cortex-A72 is expected to deliver 3.5x the performance of Cortex-A15 devices while consuming 75% less power, while the Mali-T880 graphics cores are expected to support up to 4K pixels at 120 frames/second, and the CoreLink interconnect is expected to provide 2x the bandwidth and 30% more performance than ARM’s earlier version. Smartphones using the new cores are expected to appear in 2016 and ARM supposedly has over 10 partners at the moment, including Mediatek, and HiSilicon.

January 29, 2015. Intel announces availability of 14nm Broadwell processors for business applications. On January 29, 2015 Intel announced availability of its 5th generation 14nm Broadwell vPro processor family for business computers. It appears to us that the processors listed in Intel’s press release were part of the range of Broadwell chips announced at the beginning of January in conjunction with the CES Trade show. Nevertheless, this latest announcement underscores, we think, rapidly growing availability of systems using Intel’s new 14nm chips. Intel stated that new 2 in 1s, Ultrabooks, clamshells and mini PCs based on the new Core vPro processors are available now from 12 leading PC manufacturers and that additional devices are expected to be announced in the coming weeks. In a separate keynote presentation Intel listed vPro connections with Acer, Dell, Fujitsu, HP, Lenovo, Panasonic, and Toshiba.

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January 28, 2015. Intel expands data center storage options. Intel announced the availability of the SSD DC S3710 Series and SSD DC S3610 Series. The SSD DC S3710 Series delivers up to 25% more write performance than the previous generation SSD. The SSD DC S3610 Series is a mid-level SSD.

January 21, 2015. Intel launches two mobile processors. CPU World reported that Intel launched two 22nm Haswell processors, the i7-4720HQ and i7-4722HQ, which are upgrades of Core i7-4710HQ and i7- 4712HQ models. Both processors are priced at $378 and feature the following specifications: • Core i7-4720HQ: 4 cores, 2.6GHz, 6 MB L3 cache, HD 4600 graphics, 47W TDP • Core i7-4722HQ: 4 cores, 2.4GHz, 6 MB L3 cache, HD 4600 graphics, 37W TDP

January 14, 2015. Intel launches Xeon embedded CPUs. Intel updated its ARK site to include the following Haswell-EN embedded processors for the Grantley-EN platform, these products being listed as launches as of Q1, 2015: • Xeon E5-1428L v3, 8C, 2.0GHz, 20MB cache, DDR3-1600, 65W, $608 • Xeon E5-2408L v3, 4C, 1.80GHz, 10MB cache, DDR3-1600, 45W, $256 • Xeon E5-2418L v3, 6C 2.0GHz 15MB cache, DDR3-1600, 50W, $472 • Xeon E5-2428L v3, 8C, 1.80GHz, 20MB cache, DDR3-1600, 55W, $811 • Xeon E5-2438L v3, 10C, 1.80GHz, 25MB, DDR3-1600, 70W, $1555

The following is a list of scheduled new processor product introductions that we have seen suggested in press and web articles including articles on Fudzilla, SemiAccurate, CPU World, TweakTown, X-Bit Labs and DigiTimes. ƒ Q2 2015. AMD possibly releasing: o Carrizo-L for entry level notebooks (replacing Beema and Mullins APUs). ƒ Q2 2015. Intel possibly releasing: o 14nm Morganfield processors o Broadwell K o Haswell-EX CPUs for Mission Critical and Enterprise Class applications, 4-way servers. Xeon E7 v3, Jordan Creek 2 Scalable Memory Buffers, C602J chipset ƒ Xeon E7-4809 v3, ƒ Xeon E7-4820 v3, ƒ Xeon E7-4830 v3 ƒ Xeon E7-4850 v3 ƒ Xeon E7-8860 v3 ƒ Xeon E7-8867 v3 ƒ Xeon E7-8870 v3 ƒ Xeon E7-8880 v3 ƒ Xeon E7-8880L v3 ƒ Xeon E7-8890 v3 ƒ Xeon E7-8891 v3 ƒ Xeon E7-8893 v3 o Xeon E5-4600 v3 (Haswell processors for 4-way server applications) ƒ E5-4610 v3 ƒ E5-4620 v3 ƒ E5-4640 v3 ƒ E5-4650 v3 ƒ E5-4660 v3 ƒ E5-4627 v3 ƒ E5-4655 v3 ƒ E5-4667 v3 ƒ E5-4669 v3 o Xeon E3-2400 v3 o Single core Liffy Island Quark SoCs (instead of Dublin Bay SoCs) with improved security features and TDPs around the same range as current Quark X1000 products ƒ June 2015. AMD possibly releasing: o Radeon R9 390X GPU ƒ Summer 2015. AMD possibly releasing: o 28nm Godavari APUs ƒ AMD A10-8850K - 4 CPU Cores, 3.7/4.1 GHz CPU Clock, 4 MB L2 Cache, R7 GPU, 512 GPU Cores,856 MHz GPU Clock, 95W TDP ƒ AMD A10-Pro 8850B - 4 CPU Cores, 3.7/4.1 GHz CPU Clock, 4 MB L2 Cache, R7 GPU, 512 GPU Cores,800 MHz GPU Clock, 95W TDP

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WELLS FARGO SECURITIES, LLC Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

ƒ AMD A8-8650 - 4 CPU Cores, 3.2/3.8 GHz CPU Clock, 4 MB L2 Cache, R7 GPU, 384 GPU Cores,760 MHz GPU Clock, 65W TDP ƒ AMD A8-8650K - 4 CPU Cores, 3.2/3.5 GHz CPU Clock, 4 MB L2 Cache, R7 GPU, 384 GPU Cores,760 MHz GPU Clock, 95W TDP ƒ AMD A10-8750 - 4 CPU Cores, 3.0/3.5 GHz CPU Clock, 4 MB L2 Cache, R7 GPU, 512 GPU Cores, 65W TDP ƒ AMD A6-8550K - 2 CPU Cores, 3.1/3.5 GHz CPU Clock, 2 MB L2 Cache, R5 GPU, 256 GPU Cores, 65W TDP ƒ AMD A10 PRO-8750B - 4 CPU Cores, 3.0/3.5 GHz CPU Clock, 4 MB L2 Cache, R7 GPU, 512 GPU Cores, 65W TDP ƒ AMD A8 PRO-8650B - 4 CPU Cores, 2.9/3.2 GHz CPU Clock, 4 MB L2 Cache, R7 GPU, 384 GPU Cores,760 MHz GPU Clock, 65W TDP ƒ AMD A6 PRO-8550B - 2 CPU Cores, 3.1/3.5 GHz CPU Clock, 2 MB L2 Cache, R5 GPU, 256 GPU Cores, TBD 65W TDP ƒ AMD A4 PRO-8350B - 2 CPU Cores, 3.0/3.5 GHz CPU Clock, 2 MB L2 Cache, R5 GPU, 256 GPU Cores, 757 MHz 65W TDP ƒ AMD X4 870K - 4 CPU Cores, 3.5/3.7 GHz CPU Clock, 2 MB L2 Cache, 95W TDP ƒ AMD Athlon X4 850 - 4 CPU Cores, 2.9/3.2 GHz CPU Clock, 2 MB L2 Cache, 65W TDP ƒ H1 2015. Intel possibly releasing: o 22nm Haswell-E HEDT platform, known as Lituya Bay o Qualification samples of 47W TDP Broadwell H mobile/desktop SKUs are expected to begin in week 6 of 2015 with production beginning in weeks 11-16 of 2015, and shipments beginning at some point in mid-May to the end of June (possibly delayed to weeks 29-36 along with S-variants). ƒ Mid 2015. AMD possibly releasing: o Carrizo APUs for mainstream performance notebooks (replacing Kaveri APUs) with four 28nm Excavator cores and support DDR3-2133 memory. ƒ Q3 2015. Intel possibly releasing: o Broadwell-E – Core i7 6xxx, 140W TDP o Broadwell H processors o Broadwell-EP Xeon E5-2600 v4 microprocessors, 8-12 cores, up to 2.6 GHz, TDP range of 85W-135W. o Xeon D - 8 cores, Server, 45W TDP o Xeon D - 8 cores, Embedded, 35W & 45W TDP o Xeon D - 6 cores, Server, 45W TDP o Xeon D - 6 cores, Embedded, 35W TDP o Xeon D - 4 cores, Server, 45W TDP o Xeon D - 4 cores, Embedded, 25W & 35W TDP o Xeon D - 2 cores, Embedded, 25W TDP o Pentium - 2 cores, Embedded, less than 20W TDP ƒ Q3 2015. AMD possibly releasing: o Nolan x86 tablet platform o Amur HSA Android/Linux tablet platform (with ARM Cortex A57 processors) ƒ H2 2015. Intel possibly releasing: o 14nm Sky Lake desktop platform using Sunrise Point (100-Series) chipsets. Within Sky Lake, desktop variants are expected to be available in 35W & 65W dual-core and 35W, 65W, & 95W quad-core options, while H series variants are expected to be available in 45W, 55W, 65W, & 95W quad-core options, U series variants are expected to be available in 15W & 25W dual-core options, and Y series variants are expected to be available in 4.5W dual-core options. o Skylake processors may have been delayed from an early-Q3’15 release to a late- Q3’15-to-early-Q4’15 release. o Xeon E3-1200 v4 – mid-2015, Broadwell Architecture, compatible with Denlow platform and C220 chipsets, up to 4 CPU cores, up to GT3 graphics with 128MB of embedded DRAM, LGA package, support for up to 32GB of DDR3 and DDR3L memory. o Xeon E3-1200 v5 – Greenlow platform, C230 chipsets, LGA package, compatible with socket 1151, up to 4 CPU cores, up to GT2 graphics, DDR3 and DDR4 compatible, up to 64MB of RAM. o Xeon E3-1200 v5 – end of 2015/beginning 2016, BGA package, up to GT4 GPU with 128MB of embedded DRAM, 4 CPU cores, only DDR4 memory support.

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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

o Knights Landing Xeon Phi - three variants, in co-processor, standalone, and standalone with integrated fabric variants. The variants are expected to be available in multiple SKUs with different core count and TDPs; however, all are expected to feature double precision floating point performance of 3+ TFlops. The processor is expected to have two DDR4 memory controllers that allow 6-channel memory support for up to 384GB of RAM. The high-end variant will feature 16GB of high bandwidth on die memory. ƒ 2015. AMD possibly releasing o Project Skybridge 20nm products, + cores and ARM57 cores. o Toronto server SoCs ƒ 3Q 2016. AMD possibly releasing: o x86 architecture - up to 8 CPU cores, support DDR4 memory, TDPs up to 95W, FM3 socket, manufactured on either Samsung or Globalfoundries’ 14nm process o Bristol Ridge processors - 28nm, up to four Excavator cores, DDR4 support, 95W TDP ƒ 2H2016 onwards. AMD possibly releasing: o Radeon R9 400 Series Artic Islands GPUs ƒ 2016. AMD possibly releasing: o K12 64-bit ARM processors o Greenland high bandwidth memory (HBM) GPUs on either GlobalFoundries’ 14nm process or TSMC’s 16nm process, may represent a shrunk derivative of AMD’s Fiji generation architecture. o Zen architecture - may feature up to 16 cores, four channel DDR4 support, PCIe3, Greenland GPUs, and Coherent Fabric (for decreased PCIe latency). ƒ 2016. Intel possibly releasing: o Single core Seal Beach Quark SoCs, which are expected to feature improved performance as a result of added support for SSE2 instructions and integrated 2D/3D graphics controllers o Skylake-U Core i5 and i7 processors in Q1’16.

Intel Earnings

We are impressed with Intel's earnings report and guidance. Intel is guiding for June quarter revenue and gross margin to both improve sequentially and the company cut its 2015 capital spending plan by more than a billion dollars. However, full year gross margin guidance implies some gross margin pressure in 2H15.

March quarter results ƒ Intel reported March quarter revenue of $12.781 billion (down 13.2% qtr/qtr and flat yr/yr), in line the $12.8 billion midpoint of Intel’s revised guidance. ƒ Gross margin came in at 60.5%, above the 60% midpoint of Intel’s guidance. Gross margin in the quarter was below the prior quarter’s 65.4% gross margin, affected, according to Intel, by the following factors: • - 2.5 points: Higher platform (Computing Group, Data Center Group, and Internet of Things Group microprocessors and chipsets) unit costs (primarily on higher mix of 14nm products) • - 2.0 points: Lower platform volumes • - 0.5 point: Higher platform write-offs (primarily higher pre-qualification product costs on 14nm) • - 0.5 point: Higher factory start-up costs • + 0.5 point: Higher platform average selling prices (ASP) ƒ Intel reported total operating expenses of $4.948 billion, down from $5.039 billion in the prior quarter, though a little above the company’s $4.9 billion guidance. ƒ GAAP diluted EPS amounted to $0.41 in the quarter, compared to the consensus estimate of $0.41 prior to the call and our own estimate of $0.40 prior to the call, helped by the slightly higher-than- expected gross margin and equity investment gains. ƒ Inventory increased 3.4% sequentially to $4.418 billion at the end of the quarter from $4.273 billion at the end of the prior quarter. • Intel stated it believes there was an inventory burn across the worldwide PC supply chain in the March quarter and it expects a further reduction of inventory supply chain levels in the June quarter in anticipation of a launch this summer. ƒ Gains from Equity Investments & Interest and Other amounted to a $58 million net gain in the quarter.

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WELLS FARGO SECURITIES, LLC Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

ƒ Intel’s tax rate for the quarter amounted to 25.5%. ƒ Intel’s diluted shares outstanding decreased by 26 million shares in the quarter, driven largely by $750 million in share repurchases in the quarter. ƒ Intel paid cash dividends of $1.1 billion in the quarter. ƒ Intel’s capital spending amounted to $2.0 billion in the quarter.

June quarter guidance ƒ Intel guided for sales of $13.2 billion (plus or minus $500 million) in the upcoming quarter. The midpoint of this range is below the consensus estimate of $13.468 billion and above our estimate of $12.900 billion prior to the call. The midpoint of Intel’s guidance implies a 3% sequential increase in the upcoming quarter. ƒ Intel guided for a gross margin of 62% [±2 percentage points (pp)] in the upcoming quarter. Intel’s reconciliation for the difference between the most recent quarter’s gross margin and next quarter’s gross margin is as follows: • +1.5 points: Higher platform average selling prices • +1.0 point: Lower platform write-offs (primarily on 14nm products) • +0.5 point: Lower factory start-up costs • -1.5 points: Higher platform unit costs (primarily on higher mix of 14nm products) ƒ Operating expenses (SG&A + R&D) are expected to amount to $4.9 billion in the upcoming quarter, flat from $4.9 billion in the just reported quarter. ƒ Depreciation is expected to amount to $2.0 billion in the upcoming quarter, up from the $1.8 billion in the just reported quarter. ƒ Intel expects to see a $120 million restructuring charge in the upcoming quarter. ƒ Intel expects amortization of acquisition-related intangibles to amount to approximately $60 million. ƒ Intel expects to see a gain in ‘equity investments and interest and other’ of $60 million in the upcoming quarter. ƒ Intel expects its tax rate to be approximately 20% in the upcoming quarter.

Full Year 2015 guidance. Intel’s 2015 guidance is for revenues to be flat with gross margin below 2014 levels, spending roughly in line with 2014, and capital spending below 2014. ƒ Revenue is expected to be flat, down from Intel’s previous expectation for revenue to increase mid- single-digits percent. Intel said that the PC market remains challenging and that it expects its total addressable market (TAM) to decline in the mid-single-digit percent range in 2015. ƒ Gross margin is expected to be 61% ± a couple percent, down from Intel’s previous expectation for gross margin to be 62% ± a couple percent. Intel said the decrease is a result of higher platform unit costs on lower utilization and increased mix to server, and lower platform volumes. This is partially offset by higher platform average selling prices and lower factory start-up costs on 14nm. ƒ R&D & MG&A is expected to amount to $19.7 billion ± $400 million, down from Intel’s previous expectation for R&D & MG&A to be $20.0 billion ± $400 million. ƒ Amortization of acquisition related intangibles is expected to amount to $250 million, down from Intel’s previous expectation for amortization to amount to $255 million. ƒ Depreciation is expected to amount to $8.0 billion ± $100 million, compared to depreciation of $7.4 billion in 2014 and down from Intel’s previous expectation for depreciation to amount to $8.1 billion ± $100 million. ƒ The tax rate is expected to be 25% for the September and December quarters, which implies a full year tax rate of 24% in 2015, down from 25.9% in 2014. ƒ Capital expenditures are expected to amount to $8.7 billion ±$500 million, down from Intel’s previous expectation for capital expenditures to be $10.0 billion ±$500 million and down from guidance issued at Intel’s Investor Day in November 2014 for the midpoint of capex to be $10.5 billion. Intel’s capital spending for 2014 was $10.1 billion. Intel said that the reduction is driven by increased reuse of capital on 14nm and the alignment of capacity with demand. • The new midpoint is the lowest in 5 years, below $10.1 billion spent in 2014 and $10.7-11 billion in each of the years 2011-2013.

AMD Earnings

AMD’s March quarter sales and June sales guidance fell below expectations. The company announced it is exiting the dense server systems (SeaMicro) business, which we think is an appropriate decision. The company reported a net loss of $180 million. At the end of the quarter AMD’s cash and equivalents and marketable securities were just above $900 million. The company said that its goal in 2015 is to maintain cash, cash equivalents and marketable securities in the range of $600 million to $1 billion. This represents a dropping of

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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT the lower end of the expected range from the prior expectation that the company would be able to keep cash, equivalents and marketable securities at close to $1 billion.

We now think that it is important to emphasize the substantial risks AMD faces given the continuing drop in sales and the ongoing losses the company is reporting. Nevertheless, we do believe that AMD has valuable expertise in microprocessor and graphics circuit design from which, in time, it should be able to generate a profit.

March Quarter Results • AMD reported revenue of $1.030 billion (down 16.9% sequentially and down 26.3% year over year), below the midpoint of guidance for revenues to decrease 15% (±3 percentage points) sequentially. o AMD attributed the sequential drop to lower sales of client and graphics processor products and seasonally lower semi-custom sales. • GAAP gross margin was 31.7%. This was below the guidance midpoint for gross margin to be 34%, though up from the company’s prior quarter GAAP gross margin of 29.1%. The prior quarter gross margin was however impacted by inventory write downs. o AMD noted that non-GAAP gross margin was 32%, down 2 percentage points sequentially from the prior quarter, driven down primarily by product mix and lower game console royalties. • R&D expenses amounted to $242 million (versus $238 million in the prior quarter), while SG&A expenses amounted to $131 million (versus $144 million in the prior quarter). • AMD reported a GAAP EPS loss of ($0.23) on a net loss of $180MM. This was below the consensus GAAP estimate of ($0.09) and also below our own GAAP estimate of ($0.10) prior to the call. o The net loss included a $75 million special charge (mostly intangibles impairment) connected with closing down its dense server systems business. • AMD’s inventory exiting the quarter amounted to $688 million, versus $685 million exiting the prior quarter. • AMD’s cash, short term equivalents and long term marketable securities exiting the quarter amounted to $906 million, versus $1.040 billion exiting the previous quarter. • AMD’s total debt amounted to $2.268 billion exiting the quarter, versus $2.12 billion exiting the previous quarter. o Long term debt amounted to around $2.0 billion. o AMD sequentially decreased its capital lease obligations by $2 million in the quarter and increased its borrowings from its secured revolving line of credit by $58 million. o On April 14, 2015, AMD amended and restated its $500 million asset-backed credit facility to more favorable terms, including the elimination of the prior domestic cash requirement, reduced pricing and an extended maturity date to April 2020.

June Quarter Guidance • AMD guided for revenues to decrease 3% (±3 percentage points) sequentially in the upcoming quarter. This guidance implies sales of about $1.00 billion, a fair amount below our estimate of $1.10 billion and the consensus estimate of $1.13 billion prior to the call. • AMD expects to see non-GAAP gross margin of around 32% in the upcoming quarter. • AMD’s non-GAAP operating expenses are expected to amount to around $355 million in the upcoming quarter. • AMD expects interest expense, taxes and other to amount to around $45 million in the upcoming quarter. • AMD expects its inventory levels to be up approximately $100 million from Q1 2015 levels, in support of semi-custom product revenue and new product shipments.

Full Year 2015 Guidance • AMD expects non-GAAP operating expenses to be between approximately $340 million and $370 million per quarter. • AMD expects to pay taxes of approximately $3 million per quarter. • AMD expects to maintain cash, cash equivalents and marketable securities, in the range of $600 million to $1 billion in 2015. • AMD expects capital expenditures of $100 million for the year. • AMD expects inventory levels to remain approximately flat yr/yr. • AMD did not provide an outlook on FY’15 profitability this quarter; o Last quarter the company provided an outlook of achieving non-GAAP profitability for the year.

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WELLS FARGO SECURITIES, LLC Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

Figure 5: Quarterly Income Statement—Intel (Figures in $MM, Except Per Share Data) INTC Q1 14 Q2 14 Q3 14 Q4 14 FY14 Q1 15 Q2 15E Q3 15E Q4 15E FY15E Q1 16E Q2 16E Q3 16E Q4 16E FY16E Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Revenue 12,764 13,831 14,554 14,721 55,870 12,781 13,200 14,200 15,700 55,881 14,000 14,000 15,500 17,000 60,500 % Ch. Y/y 1.5% 8.0% 7.9% 6.4% 6.0% 0.1% -4.6% -2.4% 6.7% 0.0% 9.5% 6.1% 9.2% 8.3% 8.3% % Ch. Seq. -7.7% 8.4% 5.2% 1.1% -13.2% 3.3% 7.6% 10.6% -10.8% 0.0% 10.7% 9.7% Cost of Goods Sold$ 5,138 4,914 5,096 5,100 20,248 5,051 5,016 5,538 6,123 21,728 5,460 5,180 5,425 5,695 21,760 Cost of Goods Sold% 40.3% 35.5% 35.0% 34.6% 36.2% 39.5% 38.0% 39.0% 39.0% 38.9% 39.0% 37.0% 35.0% 33.5% 36.0% Gross Margin$ 7,626 8,917 9,458 9,621 35,622 7,730 8,184 8,662 9,577 34,153 8,540 8,820 10,075 11,305 38,740 Gross Margin% 59.7% 64.5% 65.0% 65.4% 63.8% 60.5% 62.0% 61.0% 61.0% 61.1% 61.0% 63.0% 65.0% 66.5% 64.0% R&D$ 2,846 2,859 2,842 2,990 11,537 2,995 2,900 2,950 3,000 11,845 3,100 3,150 3,175 3,200 12,625 R&D% 22.3% 20.7% 19.5% 20.3% 20.6% 23.4% 22.0% 20.8% 19.1% 21.2% 22.1% 22.5% 20.5% 18.8% 20.9% SG&A$ 2,037 2,061 1,979 2,049 8,126 1,953 2,000 1,950 1,950 7,853 2,000 2,000 2,100 2,150 8,250 SG&A% 16.0% 14.9% 13.6% 13.9% 14.5% 15.3% 15.2% 13.7% 12.4% 14.1% 14.3% 14.3% 13.5% 12.6% 13.6% Total Op. Exp. 4,883 4,920 4,821 5,039 19,663 4,948 4,900 4,900 4,950 19,698 5,100 5,150 5,275 5,350 20,875 % of revenue 38.3% 35.6% 33.1% 34.2% 35.2% 38.7% 37.1% 34.5% 31.5% 35.2% 36.4% 36.8% 34.0% 31.5% 34.5% % Ch. Seq. 1.1% 0.8% -2.0% 4.5% -1.8% -1.0% 0.0% 1.0% 3.0% 1.0% 2.4% 1.4% Special Charges Amortization 73 72 77 72 294 62 60 65 65 252 65 65 65 65 260 Restructuring charge 137 81 20 57 295 105 120 225 0 Purch in proc. R&D Special Charges & Amortization 210 153 97 129 589 167 180 65 65 477 65 65 65 65 260 Operating Income 2,533 3,844 4,540 4,453 15,370 2,615 3,104 3,697 4,562 13,978 3,375 3,605 4,735 5,890 17,605 Operating Margin 19.8% 27.8% 31.2% 30.2% 27.5% 20.5% 23.5% 26.0% 29.1% 25.0% 24.1% 25.8% 30.5% 34.6% 29.1% Interest & Other 112 -17 -25 -27 43 26 Gain/Loss on Equity Sec. 48 95 35 233 411 32 60 Other Income 160781020645458600011800000 Pretax Income 2,693 3,922 4,550 4,659 15,824 2,673 3,164 3,697 4,562 14,096 3,375 3,605 4,735 5,890 17,605 Income Taxes 746 1,126 1,233 998 4,103 681 633 924 1,141 3,379 945 1,009 1,326 1,649 4,929 Tax Rate 27.7% 28.7% 27.1% 21.4% 25.9% 25.5% 20.0% 25.0% 25.0% 24.0% 28.0% 28.0% 28.0% 28.0% 28.0% Net Income 1,947 2,796 3,317 3,661 11,721 1,992 2,531 2,773 3,422 10,717 2,430 2,596 3,409 4,241 12,676 NI % of revenue 15.3% 20.2% 22.8% 24.9% 21.0% 15.6% 19.2% 19.5% 21.8% 19.2% 17.4% 18.5% 22.0% 24.9% 21.0% Avg.Shs.Diluted (MM) 5,117 5,123 5,054 4,940 5,059 4,914 4,914 4,914 4,914 4,914 4,939 4,939 4,939 4,939 4,939 EPS$ 0.38 $ 0.55 $ 0.66 $ 0.74 $ 2.32 $ 0.41 $ 0.52 $ 0.56 $ 0.70 $ 2.18 $ 0.49 $ 0.53 $ 0.69 $ 0.86 $ 2.57 Sources: Intel, and Wells Fargo Securities, LLC estimates

Figure 6: Quarterly Income Statement--AMD (Figures in $MM, Except Per Share Data) AMD Q1 14A Q2 14A Q3 14A Q4 14A FY14A Q1 15A Q2 15E Q3 15E Q4 15E FY15E Q1 16E Q2 16E Q3 16E Q4 16E FY16E ($ in Millions) Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Revenue 1,397 1,441 1,429 1,239 5,506 1,030 1,000 1,050 1,100 4,180 1,000 1,050 1,100 1,150 4,300

Y/Y % Chg 28.4% 24.1% -2.2% -22.0% 3.9% -26.3% -30.6% -26.5% -11.2% -24.1% -2.9% 5.0% 4.8% 4.5% 2.9% Q/Q % Chg -12.1% 3.1% -0.8% -13.3% -16.9% -2.9% 5.0% 4.8% -9.1% 5.0% 4.8% 4.5% CGS 910.0 943.0 935.0 879.0 3,667.0 704.0 680.0 714.0 748.0 2,846.0 680.0 714.0 748.0 782.0 2,924.0 Gross Profit 487.0 498.0 494.0 360.0 1,839.0 326.0 320.0 336.0 352.0 1,334.0 320.0 336.0 352.0 368.0 1,376.0 Gross Margin 34.9% 34.6% 34.6% 29.1% 33.4% 31.7% 32.0% 32.0% 32.0% 31.9% 32.0% 32.0% 32.0% 32.0% 32.0%

R&D 279.0 277.0 278.0 238.0 1,072.0 242.0 240.0 240.0 245.0 967.0 245.0 250.0 250.0 255.0 1,000.0 % Rev 20.0% 19.2% 19.5% 19.2% 19.5% 23.5% 24.0% 22.9% 22.3% 23.1% 24.5% 23.8% 22.7% 22.2% 23.3% SG&A 156.0 154.0 150.0 144.0 604.0 131.0 130.0 135.0 140.0 536.0 140.0 140.0 145.0 150.0 575.0 % Rev 11.2% 10.7% 10.5% 11.6% 11.0% 12.7% 13.0% 12.9% 12.7% 12.8% 14.0% 13.3% 13.2% 13.0% 13.4% Operating Exp 435.0 431.0 428.0 382.0 1676.0 373.0 370.0 375.0 385.0 1503.0 385.0 390.0 395.0 405.0 1575.0 % Rev 31.1% 29.9% 30.0% 30.8% 30.4% 36.2% 37.0% 35.7% 35.0% 36.0% 38.5% 37.1% 35.9% 35.2% 36.6% Special Charges and Amortization 3.0 4.0 3.0 308.0 318.0 90.0 3.0 3.0 3.0 99.0 3.0 3.0 3.0 3.0 12.0 Operating Profit 49.0 63.0 63.0 (330.0) (155.0) (137.0) (53.0) (42.0) (36.0) (268.0) (68.0) (57.0) (46.0) (40.0) (211.0) Operating Margin 3.5% 4.4% 4.4% -26.6% -2.8% -13.3% -5.3% -4.0% -3.3% -6.4% -6.8% -5.4% -4.2% -3.5% -4.9% Interest & Other (20.0) (49.0) (1.0) 4.0 (66.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest Expense (47.0) (46.0) (43.0) (41.0) (177.0) (40.0) (45.0) (43.0) (43.0) (171.0) (43.0) (43.0) (43.0) (43.0) (172.0) Pretax Income (18.0) (32.0) 19.0 (367.0) (398.0) (177.0) (98.0) (85.0) (79.0) (439.0) (111.0) (100.0) (89.0) (83.0) (383.0)

Income Taxes 2.0 4.0 2.0 (3.0) 5.0 3.0 3.0 3.0 3.0 12.0 3.0 3.0 3.0 3.0 12.0 Tax Rate -11.1% -12.5% 10.5% 0.8% -1.3% -1.7% -3.1% -3.5% -3.8% -2.7% -2.7% -3.0% -3.4% -3.6% -3.1% Equity interest in joint venture 0.0 0.0 0.0 Net Income (20.0) (36.0) 17.0 (364.0) (403.0) (180.0) (101.0) (88.0) (82.0) (451.0) (114.0) (103.0) (92.0) (86.0) (395.0) Net Income (incl. Discontinued) Class B Accretion Diluted Srs 761 764 785 776 772 777 778 779 780 779 781 782 783 784 783 EPS$ (0.03) $ (0.05) $ 0.02 $ (0.47) $ (0.52) $ (0.23) $ (0.13) $ (0.11) $ (0.11) $ (0.58) $ (0.15) $ (0.13) $ (0.12) $ (0.11) $ (0.50) Source: AMD and Wells Fargo Securities, LLC estimates

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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

Required Disclosures

Advanced Micro Devices Inc. (AMD) 3-yr. Price Performance

$9.00

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

Security Price $2.00

$1.00 6/ 6 /1 2 8/ 1/ 12 6/5/13 4/9 /1 4 5 / 7/ 14 6/4/14 7/2/14 22/14 5/9/12 7/4/12 5/8/13 7/3/13 4/8/15 2/ 13/ 13 2/1 2 /1 4 9/24/14 1/ 14 /1 5 3/ 11 /1 5 4/11/12 8/29/12 9/ 26 /1 2 4/10/13 7/ 3 1/ 13 8/28/13 9/ 25 / 13 1/ 15 /1 4 3/ 12 /1 4 7/30/14 8/27/14 2/11/15 1/16/13 3/13/13 10/24/12 11 /2 1 /1 2 12/ 19 / 12 12 /1 8/ 13 10/23/13 11 /2 0 /1 3 10/ 11 / 19 /14 12/17/14 Date

Date Publication Pric e ($) Rating Code Val. R ng . Low Val. R ng. Hi g h Close Price ($) 4/11/ 2012 Wong 4/11/ 2012 NA 1 8.0 0 10.00 7 .64 z 4/20/ 2012 7 .97 1 9.0 0 11.00 7 .76 z 7/10/ 2012 5 .62 1 7.0 0 9.0 0 4 .99 z 10/12 /201 2 3 .20 1 6.0 0 8.0 0 2 .74 z 10/19 /201 2 2 .62 1 5.0 0 7.0 0 2 .18 z 10/17 /201 4 2 .64 1 3.5 0 4.0 0 2 .72

Source: We lls Fargo Securities, LLC estim ates and Re uters data

Symbol K ey Ra t in g C o de Ke y d R ating Down grade ‹ In itiati on, Resumption, Drop or Suspend 1 Outp erfo rm/Buy SR Suspe nded c R ating Upgr ade „ Anal yst Ch ange 2 Market Per form/Hold NR Not Rated z Val uation Ra nge Ch ange ˆ Split Adj ustment 3 U nderpe rfo rm/Sel l NE No Estimate

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WELLS FARGO SECURITIES, LLC Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

Intel Corp.Corp. (INTC)(INTC) 3-yr.3-yr. PricePrice PerformancePer formanc e

$43.00

$41.00

$39.00

$37.00

$35.00

$33.00

$31.00

$29.00

$27.00

$25.00

$23.00

$21.00 Security Price Security Price $19.00

$17.00 7/13 1/ 9/ 14 24/14 16/14 11/14 4/5/12 5/ 3/ 12 3/7/13 5/2/13 3/6/14 4/3/14 5/1/14 1/8/15 2/5/15 3/5/15 29/14 2/ 4/4/13 2/6/14 4 /2/ 15 5/31/12 7/2 6/ 1 2 9/ 19 /1 3 7/ 9/1 8 / 14 6/ 28 /1 2 8/23/12 9/20/12 1/10/13 5/30/13 6/ 27 /1 3 7/25/13 8/ 22 /1 3 5/ 6/26/14 8/ 21 / 14 10/17/13 11/ 1 4/ 13 12/12/13 11 /1 3/ 14 1 0/18/12 11/15/12 1 2/13/12 10/ 12/ Date

Date Publication Pric e ($) Rating Code Val. R ng . Lo w Val. R ng . Hi g h Clos e Pric e ($ ) 4/5/2 012 Wong 4/5/2 012 NA 1 3 0.0 0 36.00 28.07 z 4/17/ 2012 28.47 1 3 3.0 0 39.00 28.47 z 10/17 /201 2 22.35 1 2 8.0 0 33.00 21.79 z 10/16 /201 3 23.39 1 2 6.0 0 30.00 23.70 z 1/16/ 2014 26.54 1 2 9.0 0 34.00 26.54 z 7/15/ 2014 31.71 1 3 5.0 0 42.00 31.71 z 10/14 /201 4 32.14 1 3 6.0 0 43.00 32.14 z 1/2/2 015 36.95 1 4 0.0 0 50.00 36.36

Sou rce: We lls Fa rgo Securities, LLC estim ates and Reuters data

Symbol K ey Ra t in g C o de Ke y d R ating Down grade ‹ In itiati on, Resumption, Drop or Suspend 1 O utp erfo rm/Buy SR Suspe nded c R ating Upgr ade „ Anal yst Ch ange 2 Market Per form/Hold NR Not Rated z Val uation Ra nge Ch ange ˆ Split Adj ustment 3 U nderpe rfo rm/Sel l NE No Estimate

Additional Information Available Upon Request

I certify that: 1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and 2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report.

ƒ Wells Fargo Securities, LLC maintains a market in the common stock of Inc., Intel Corp. ƒ Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for Advanced Micro Devices Inc. within the past 12 months. ƒ Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from Advanced Micro Devices Inc., Intel Corp. ƒ Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from Advanced Micro Devices Inc. in the past 12 months. ƒ Advanced Micro Devices Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to Advanced Micro Devices Inc. ƒ Intel Corp. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related services to Intel Corp. ƒ Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from Intel Corp. in the past 12 months.

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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

ƒ Wells Fargo Securities, LLC or its affiliates has a significant financial interest in Intel Corp.

AMD: Company-specific risks include the fact that AMD has yet to clearly demonstrate an ability to stabilize its sales and reduce its losses. Sector risks include uncertainty as to what long term secular growth might be. INTC: Company-specific risks include competition from AMD and rising capital spending. Sector risks include the possibility of decelerating growth in PC shipments.

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STOCK RATING 1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY 2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD 3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL SECTOR RATING O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. VOLATILITY RATING V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.

As of: April 19, 2015 44% of companies covered by Wells Fargo Securities, LLC Wells Fargo Securities, LLC has provided investment banking Equity Research are rated Outperform. services for 41% of its Equity Research Outperform-rated companies. 54% of companies covered by Wells Fargo Securities, LLC Wells Fargo Securities, LLC has provided investment banking Equity Research are rated Market Perform. services for 31% of its Equity Research Market Perform-rated companies. 2% of companies covered by Wells Fargo Securities, LLC Wells Fargo Securities, LLC has provided investment banking Equity Research are rated Underperform. services for 29% of its Equity Research Underperform-rated companies.

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WELLS FARGO SECURITIES, LLC Microprocessors Q1 2015: Weak Q1 2015 Might Be Bottom EQUITY RESEARCH DEPARTMENT

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