31 August 2016 Asia Pacific/ Equity Research Devices

Asia Semiconductor Sector Research Analysts THEME Randy Abrams, CFA 886 2 2715 6366 [email protected] expands its foundry focus to China Keon Han 82 2 3707 3740 Figure 1: Samsung logic capacity between SMIC & UMC, trails TSMC [email protected] WPM capacity in 8" equivalents (K) Haas Liu 1,800 886 2 2715 6365 1,600 [email protected] 1,400 1,200 1,000 800 600 400 200 0 TSMC UMC Samsung SMIC 12" capacity 8" capacity

Source: Company data, Credit Suisse estimates ■ Samsung forum targets the high-growth China IC market. Samsung held its first China forum targeting its foundry service for Chinese customers. Samsung has low volume in China (GalaxyCore is leveraging its CIS). However, it is targeting a wide range of leading Chinese design houses to capitalise on China's target for 20% domestic IC growth and domestic fabless share gains now at US$10 bn sales (see our earlier China report). ■ Pitch spans advanced nodes, mainstream 12" and 8" legacy. Samsung is marketing several advantages: (1) technology leadership to rival TSMC on 14nm/10nm variations and goals to leapfrog in late 2018 with 7nm using EUV, (2) FD-SOI for 28nm IoT/Auto (STM and are customers), (3) 8" service leveraging in-house capability for CMOS sensors, driver IC, embedded flash and power ICs, and (4) turnkey support using in-house IPs and back-end options (panel fan-out, flip chip, PoP, SiP, 2.5D and 3D-IC). ■ Samsung diversification to offset Apple/ reliance. Samsung is looking to China, 8" and new customers to offset the impact from Apple's move back to TSMC and Qualcomm's multi-source strategy. Samsung LSI has maintained ~80-90% peak season utilisation with 50% of sales from foundry (Qualcomm, Cavium, Ambarella, AMD/, GalaxyCore and still some Apple), 20% application processors and 30% in-house chips though a mild 10% capacity ramp from 135k 12" and 90k 8" WPM in the next year suggests only modest shifts in the overall landscape. ■ TSMC and SMIC outlook intact, Samsung / competition stays on the radar. Samsung is marketing 8" through advanced nodes aggressively although customer development takes time. We expect SMIC to retain local advantage with Chinese design houses and is on track to +30% YoY growth with a strong 2H16, although full capacity may prompt some diversification. We also see TSMC intact with Apple, Mediatek and Hi- Silicon on 10nm in 2017 and early 7nm in 2018 could maintain the first wave, though Samsung could challenge by late 2018 with 7nm using EUV; Intel remains a long-tail risk if it can capture Apple. We stay OUTPERFORM on TSMC and SMIC which should protect their incumbency in leading edge and China through 2017. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

31 August 2016

Focus charts Figure 2: Samsung targeting more China and 8" Figure 3: Manufacturers provide value—Only four business after Apple shifts back to TSMC16nm leading edge chip manufacturers vs. 22 at 130nm 16nm/14nm WPQ 12" shipments (K) 300

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0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E 4Q16E TSMC Quarterly 16nm Samsung Quarterly 16nm

Source: Company data, Credit Suisse Research Source: Samsung

Figure 4: Samsung capacity expansion is modest Figure 5: 7nm ex-EUV—Less scaling/more masks

Source: Samsung Source: Samsung

Figure 6: Samsung offers a design ecosystem Figure 7: Samsung 10nm LPP IP ready in 4Q16

Source: Samsung Source: Samsung

Figure 8: Samsung back-end packaging solutions Figure 9: Samsung in-house 8" capabilities

Source: Samsung Source: Samsung

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Samsung expands its foundry focus to China We attended Samsung’s inaugural China foundry forum in Shanghai Tuesday featuring 25-30 local Chinese design houses and additional business partners in the IP and EDA ecosystem. The company featured presentations overviewing its foundry business, advanced technology offering, FD-SOI solution, back-end packaging solutions, design/IP enablement and 8” foundry service. Samsung pitching its Key takeaway is Samsung’s foundry service now offers the breadth to deliver an advanced advanced technologies, technology for leading edge customers, low power offering through FD-SOI for automotive FD-SOI and 8" at its and IoT and 8” solutions leveraging its in-house capabilities in driver ICs, CMOS sensors, Shanghai forum power management and smart cards/embedded flash. Samsung can provide a good capacity source and alternative on the advanced nodes to TSMC and one more China support option with local foundry SMIC full on capacity and Hua Hong above 90% utilisations. Samsung's capacity is Based on Samsung's disclosed capacity of 190k WPM on 8" and 135 WPM on 12", we between UMC and SMIC, believe its capacity is between UMC and SMIC though still well behind TSMC. Samsung though its 16nm/14nm noted at the event its ability to leverage the industry leading size of the memory business ramp now trails TSMC for process R&D and fab economies of scale. Samsung's 14nm ramp started ahead of with a broader customer TSMC with ramp of its own product, majority of Apple and some Qualcomm by late 2015 base although TSMC's recovery of Apple business this year and ramp of some 2nd wave graphics and mobile SoCs is allowing it to regain the shipment advantage on the advanced node. Figure 11: Samsung targeting more China and 8" Figure 10: Samsung logic capacity rivals UMC / SMIC business after Apple shifts back to TSMC16nm WPM capacity in 8" equivalents (K) 1,800 16nm/14nm WPQ 12" shipments (K) 1,600 300 1,400 250 1,200 1,000 200 800 150 600 100 400 200 50 0 TSMC UMC Samsung SMIC 0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E 4Q16E 12" capacity 8" capacity TSMC Quarterly 16nm Samsung Quarterly 16nm

Source: Company data, Credit Suisse Research Source: Company data, Credit Suisse Research

Samsung LSI will need to overcome the limitations as an IDM where its chip design division also develops similar products to its customers across most of its target verticals (application processor, connectivity, consumer, driver IC, image sensor, smart cards). Samsung is pitching these as an advantage by providing good intelligence on features needed in the market and supplemental in-house IPs to complement customer IPs. We expect that its value proposition and heightened focus on broadening its customer base and offering will allow some traction to supplement its existing customer base (largest customers include Qualcomm, Cavium, Ambarella, AMD, NVIDIA and still some Apple), though a modest capacity build-out plan still telegraphs limited shifts in the overall foundry landscape. We still believe SMIC has good access to high growth applications in China (fingerprint IC, power management, consumer IoT, CMOS sensors, connectivity) while TSMC is protecting its incumbent position at most of its key customers through next year (Apple, Mediatek, Hi-Silicon, NVIDIA, AMD’s game consoles, ) while it also should recover some Qualcomm designs including new projects in servers, VR and ADAS.

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We profile the key messages from Samsung’s marketing of its foundry solution to its customer base and ecosystem at the Shanghai forum: Samsung Technology leadership and Strategy Presenter: Ben Suh, Senior Vice President

Samsung's foundry ■ China market offers huge potential and attention in the industry. Samsung business targeting believes that the China market offers the opportunity for chip industry growth but also China's high growth now more innovation, noting some areas the local supply chain leads, including (1) potential and rising smart wallet (AliPay), (2) drones, (3) electric car and (4) autonomous vehicles. innovation Samsung believes its technology, ecosystem and capacity puts it in a good position to meet the local IC design companies requirements.

■ Industry needs choices in foundry. Samsung highlighted how foundry revenue share relative to fabless and the industry has grown as manufacturing complexity has increased and the number of manufacturing companies has dropped (From 22 companies on 130nm to 4 companies on 16/14nm). As one of few remaining manufacturers, Samsung can provide an advanced capacity choice for customers.

■ Samsung capacity and R&D scale. The Samsung semiconductor group invested US$15bn capex in 2015 (21% of industry) giving logic leverage to the scale benefits of the memory investments, has 4,036 patents and leading R&D. Samsung cited its capabilities across manufacturing (Samsung mechatronics center), process technology (IBM Joint Development Alliance for the past decade), packaging, masks and also has an advanced institute of technology to incubate future technology nodes. The company plans mass production 10nm at year-end and EUV planned for its 7nm. Figure 12: Manufacturers provide value: Only 4 leading edge chip manufacturers vs. 22 at 130nm Figure 13: Samsung logic leverage memory IP/R&D

Source: Samsung Source: Samsung

■ Pathfinding new materials to overcoming challenging physics limitations. Samsung cited several physics limitations to Moore’s Law scaling, citing that the contact to poly pitch below 60nm degrades the DC performance due to contact resistance, capacitance increase and lower abilities to stress silicon. The reduction in metal pitch is also coming up against higher sheet resistance. Samsung is looking at new materials, FIN structures, and materials compositions by pathfinding solutions in nanowire, tunneling FET, high mobility channel material, defect free EUV mask infrastructure and 2.5D interposers to solve some of these advanced technology challenges.

Samsung is planning ■ EUV preparing for 7nm at its Hwasung campus. Samsung believes without EUV, EUV on 7nm vs. TSMC's scaling declines and mask requirements increase. The company is planning to early 7nm but without introduce EUV on 7nm while competitors wait until 5nm. Samsung has prepared an EUV EUV zone ready within its memory line at its Hwasung campus that is adjacent to a logic manufacturing building for its implementation of EUV in 7nm production. The

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company is now doing joint collaboration between the memory and logic division to allow a similar timetable for EUV implementation for both memory and logic. Samsung’s Foundry Process Offering Presenter: Yongjoo Jeon, Principal Engineer

■ Samsung foundry continues its developments. Samsung recapped its timeline of development in the foundry industry: 1) 2004: Entered foundry with its S1 line, 2) 2006: Started its IBM joint R&D in 2006, 3) 2009: introduced its logic process R&D center, 4) 2010: Started its 1st HKMG process development in 2010, 5) 2011: ramped its S2 line in Austin in 2011, 6) 2014: Developed FinFet in cooperation with Global Foundries, and 7) 2016: S3 capacity being added. For the future, Samsung is now targeting its advanced roadmap through 7nm including EUV, offering 28nm and below FD-SOI and now marketing its 8” fabs for 65nm-130nm.

Figure 14: Samsung targets mass production on 7nm by 2H18

Source: Samsung

Samsung has 135-140k ■ Samsung capacity scale. Samsung’s logic division consists of: 1) S1 8” fab in 12" per month and Korea, 2) S2 fab for 45nm to 14nm production in Austin Texas, and 3) S3 Hwasung 190k 8" wafer per month fab for 10nm and test and 4) back-end facilities in Ouyang Korea and Suzhou China. capacity The company’s fabs have 12” capacity of 140k WPM and 8” of 190k WPM with about 50% of revenue from foundry, 20% from internal application processors and 30% from other internal products (CMOS sensors, driver ICs, connectivity and smart card ICs). Samsung showed plans to expand at a mild 10% capacity ramp from 135K 12" and 90k 8" WPM through 2017. The company also has design service, in-house mask, wafer sort, package and final test but also options for 3rd party sort, package and final test.

Figure 15: Samsung’s foundry development history Figure 16: Samsung capacity expansion is modest

Source: Samsung Source: Samsung

Samsung is bypassing ■ Technology roadmap bypasses a couple less suitable technologies. Samsung the EUV-less 7nm option noted it has skipped a couple generations it viewed as offering trade-offs, including as it also bypassed 20nm 20nm and now EUV-less 7nm. The company noted it skipped 20nm as it saw performance limitations on 20nm planar and focused on introducing 14nm FinFET to leap frog the normal industry trend. For 7nm, the company believes a non-EUV node does not make sense for cost so the company is skipping that node to introduce 7nm

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EUV. We note that the strategy has trade-offs for both TSMC and Samsung. TSMC did introduce 20nm in 2H14 and ramped high volume with Apple and Qualcomm in 2H14 although it did come into 16nm slightly later than Samsung’s 14nm and shared some of the Apple business initially, with Qualcomm shifting its high-end to Samsung, also impacting TSMC’s growth relative to its early year expectations. For 7nm, TSMC should be earlier in early 2018 with a non-EUV based solution and 60% shrink that could help it gain early business (we see potential to retain Apple and gain back some high-end qualcomm) while Samsung is waiting for a full shrink with EUV which may come a year later but could step ahead on technology if executed well.

Figure 17: Samsung bypassed 20nm and is bypassing 7nm without EUV

Source: Samsung

■ Design Technology Co-Optimization (DTCO) to provide IC designers additional scaling. Samsung is managing complexity by combining process and design technology together to increase the design flexibility which it cites would allow customers to have higher gate density to give a scaling benefit and smaller chip size. A few technical advantages Samsung is pitching include (1) single diffusion break vs. double diffusion break (10% additional area scaling), (2) 1 CPP cross-coupling (an additional scaling benefit), and 3) bi-directional routing – can route X and Y directions together for more flexibility (another area scaling benefit).

Samsung is planning a ■ 14nm technology moving through several technology enhancements. Samsung compact version of its highlighted that it has shipped over 780,000 14nm wafers from 1Q15 to 3Q16 (about 14nm process 35k WPM). On a wafer per quarter basis, however, we believe TSMC is now out- shipping Samsung as it ramps toward about 80,000 WPM versus about 50,000 WPM for Samsung. Samsung cited its 14nm has 1.6x performance boost over 28nm LPP at same leakage, 55% less power and 0.55x the chip area. The company has matched TSMC’s strategy of advanced and lower cost derivatives of its technology as the mode matures: − 14nm LPP. The 14nm LPP offers a 14% higher performance at same design rules as 14nm LPE and requires customers to use fewer mask layers to save cost. The defect density trend of 14nm LPP has now matched the 14nm LPE defect density by sharing design rules and 90-95% compatibility between processes. − 14nm LPC. Samsung will also introduce a 14nm LPC (process optimized) with RF and in late 2016 a 4th generation 14nm. − Automotive version. Samsung is also paralleling TSMC’s variation by making derivatives of its 14nm available for automotive that can handle wide variability in operating conditions and higher reliability.

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Figure 18: Samsung has shipped 780k 14nm wafers Figure 19: 14nm power/perf/area boost over 28nm

Source: Samsung Source: Samsung

10nm planned for year- ■ 10nm planned for production by year-end. Samsung maintained its target for 10nm end 2016 production, volume production by year-end and expects the node to have a long life-time. The with a performance company’s device performance is now at 97% AC performance and its application version to follow processor test vehicle yield is at a mature 82%. The company’s 10nm area scaling is 32% over 14nm with 10%+ performance at the same leakage. The company is also planning several derivatives to extend the life of the node. The 10nm LPE process will be followed by a 10nm LPP process that can also allow 10% performance increase over 10nm LPE with the same design rules. Management cited its 10nm LPP now has AC performance at 93%, a little shy of its internal target but though it expects to catch up by year-end. The 10nm Fin structure is a little tighter and more vertical for better performance.

■ 7nm planned to include EUV. Samsung’s 7nm will be introduced as a full node alongside EUV implementation and also have more vertical fins in the FinFET structure. The company believes EUV is needed at this node to provide more scaling and lower requirements and showed samples where EUV performance, variation and uniformity was better than using immersion lithography. Samsung’s EUV target is 1,500 wafers per day and 250 watts source power by 4Q18. The company demonstrated 210 watts source power early this year and more than 1,000 wafers per day at 120 watts source power. Management acknowledged issues to be resolved on EUV still include source power, throughput, and mask defects (since EUV does not allow the pellicle on the mask to prevent defects).

Figure 20: Samsung targets 1,500 WPD EUV by 4Q18 Figure 21: 7nm ex-EUV: Less scaling/more masks

Source: Samsung Source: Samsung

FD-SOI in production – ■ FD-SOI in mass production. Samsung is pitching FD-SOI for automotive and IoT we believe Sony and applications and noted that it has shipped more than 2mn wafers based on FD-SOI STM are customers technology with yields improving. The company outlined a few benefits of SOI: (1) body biasing for better performance, (2) soft error rate immunity critical for automotive reliability, (3) superior analog gain which is useful in IoT and connectivity, and (4) smaller mismatch. The company showed its defect rate on 28nm FD-SOI falling and dropping to levels achieved by its 28nm LPP by 2Q17, with FD-SOI showing the improvements by sharing the same design rules and back-end of line process as 28nm LPP. The company’s roadmap offers several enhancements to its FD-SOI process:

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− Late 2016. FD-SOI with logic combining with integrated RF technology. − 2017. 2nd generation that adds eFlash (embedded flash) − 2018. Embedded flash, with a solution adding eMRAM and phase change memory. Figure 23: 28nm FD-SOI claimed advantages on Figure 22: FD-SOI will add RF and embedded flash performance, power and area over 28nm bulk

Source: Samsung Source: Samsung

Samsung's 8" foundry ■ 8” technology offering. Samsung’s 8” foundry offering targets embedded flash, offering targets to power devices, driver IC and image sensors, all areas its internal system LSI company leverage its in-house has delivered for its own products. The company believes its 8” offering can provide expertise in driver ICs, 45% gains in Power FET at 5 volts. It also has launched an 8” embedded flash offering image sensors, power on 65nm (versus rival foundries on 8” at 90-110nm) which can achieve 40% better devices and embedded performance at same leakage, 57% lower power at same speed and 56% smaller flash area. The company also has introduced metal tungsten back-end interconnect vs. the aluminum interconnect on most 8” fabs for a 38% area reduction.

Figure 24: Samsung has built in-house 8" capabilities it can market for foundry

Source: Samsung Design Enablement and Ecosystem Presenter: Jaehong Park, Senior VP

■ Samsung’s design enablement. Samsung showcased it has the major ecosystem tools of a broadline foundry including: (1) silicon proven IP and foundation library (analog and high speed interface), (2) design enablement PDKs (Spice, PEX, CDS, ESD), (3) reference design flows and (4) collaboration with design partners. The company’s design service partners include , VeriSilicon, eSilicon and Uniquify.

■ 10nm IPs approaching readiness. The company’s 10nm LPE PDK, library, IP and design methodology is ready for chip design work. The 10nm LPP PDK is ready and design methodology complete in 3Q16 and library and IP ready in 4Q16. The 28nm FD-SOI reference flow will be finished for Cadence and Synopsys by November. Samsung is collaborating together from internal and external IP vendors on memory

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USB and high speed interfaces. The company also can provide multimedia soft IPs for internal products for its customers.

■ Database analysis tools for yield improvement. The company’s in-house Prism tool is built on Mentor Calibre which creates a defect database from test and initial production chips to inspect new chips relative to the database for yield risk and areas to improve the design or optimize the process. The flare tool identifies the defect source with most impact on the yield from EDS results to map the defect source against the data base to prioritise process improvement candidates.

■ Design methodology from internal products. The company has over 75 documents of best practices, reference scripts and sign off recommendations. Samsung can provide support on low power designs, power integrity and test methodology.

■ SoC platform IP. Samsung has in-house building blocks from its chip designs that it can join with customers logic to speed time to market and can also provide support in design automation, IP development and chip design methodology.

Figure 25: Samsung offers a design ecosystem Figure 26: Samsung 10nm LPP IP ready in 4Q16

Source: Samsung Source: Samsung Advanced Package Solution Presenter: Yoonha Jung, Principal Engineer

Samsung's back-end is ■ Packaging capability. Samsung has 30 years in packaging including capabilities built developing packaging up from its memory division to provide an integrated solution with logic and memory. types spanning flip chip, The company noted it leads the industry in package on package technology with 1bn+ fan-out, 2.5D, 3D and parts shipped and on TSVs with a 3D-IC stack of DDR 4 in mass production. The SiP company can provide a wide range of service (board level reliability, SMT guide, and thermal, electrical and mechanical simulation) and offers a a pipe cleaning lab to get products ready for mass production.

■ Packaging introductions. The company’s package types span (1) thin and small (fan-out package on package and flip chip package on package), (2) high speed and density (SiPed Package on Package), and (3) high thermal performance (2.5D with interposer and FC-FBGA and Low temperature Chip on Film). The company has introduced 0.8mm thin PoP and can scale fan-out PLP below 0.8mm with its fan-out technology offering. The company is also developing panel based fan-out vs. TSMC’s wafer based pan-out, which allows a larger panel size to be processed than a 12” wafer for better efficiency and less edge waste (panel allows 95% area usage vs 85% area usage on wafer based fan-out.

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Figure 27: Back-end includes 2.5D/3D and fan-out Figure 28: SiPed-PoP integrates memory and logic

Source: Samsung Source: Samsung

■ 2.5D silicon interposer. Samsung developed a 2.5D silicon interposer last year and is scaling that now to allow a 4x HBM (high bandwidth memory) to reach 2TB/second bandwidth. The company also has a system in package implementation that can reduce board area by 40-50% by merging several chips in one package.

■ Other package types. For driver ICs, Samsung offers a low temperature chip on film package to reduce the die temperature by 40-50%. The company’s heat slug FC-BGA has an exposed die molded on the underfill of the package for a thinner package used in tablets and SSD controllers.

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Companies Mentioned (Price as of 30-Aug-2016) , Inc. (AMD.OQ, $7.59) Alchip Tech (3661.TW, NT$24.8) Ambarella (AMBA.OQ, $70.54) Apple Inc (AAPL.OQ, $106.82) Cavium (CAVM.OQ, $55.09) GlobalFoundries (Unlisted) Hi Silicon (Unlisted) Intel Corp. (INTC.OQ, $35.55) International Business Machines Corp. (IBM.N, $159.72) MediaTek Inc. (2454.TW, NT$249.0) NVIDIA (NVDA.OQ, $61.99) QUALCOMM Inc. (QCOM.OQ, $62.98) STMicroelectronics NV (STM.PA, €6.75) (005930.KS, W1,645,000, OUTPERFORM, TP W1,790,000) Semiconductor Manufacturing International Corp. (0981.HK, HK$0.9, OUTPERFORM, TP HK$0.93) Sony (6758.T, ¥3,326) Taiwan Semiconductor Manufacturing (2330.TW, NT$174.5, OUTPERFORM, TP NT$185.0) United Microelectronics (2303.TW, NT$11.6) Xilinx (XLNX.OQ, $54.15)

Disclosure Appendix Important Global Disclosures Randy Abrams, CFA, and Keon Han each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Samsung Electronics (005930.KS)

005930.KS Closing Price Target Price Date (W) (W) Rating 23-Sep-13 1,360,000 1,900,000 O 27-Jan-14 1,292,000 1,760,000 07-Jul-14 1,292,000 1,740,000 08-Jul-14 1,295,000 1,720,000 28-Aug-14 1,242,000 1,700,000 07-Oct-14 1,162,000 1,680,000 03-Sep-15 1,122,000 1,630,000 29-Oct-15 1,325,000 1,785,000 11-Jan-16 1,152,000 1,690,000 28-Jan-16 1,145,000 1,550,000 OUTPERFORM

01-Jun-16 1,333,000 1,702,000 28-Jul-16 1,507,000 1,790,000 * Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Semiconductor Manufacturing International Corp. (0981.HK)

0981.HK Closing Price Target Price Date (HK$) (HK$) Rating 23-Oct-13 0.57 0.68 N 30-Apr-14 0.63 0.73 21-Jul-14 0.77 0.80 23-Mar-15 0.68 0.86 O 16-Apr-15 0.85 1.00 08-May-15 0.84 0.90 N 12-Aug-15 0.74 0.80 12-Nov-15 0.88 0.97 O 19-Feb-16 0.66 0.93 * Asterisk signifies initiation or assumption of coverage. NEUTRAL OUTPERFORM

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3-Year Price and Rating History for Taiwan Semiconductor Manufacturing (2330.TW)

2330.TW Closing Price Target Price Date (NT$) (NT$) Rating 10-Oct-13 105.00 116.00 O 19-Feb-14 108.00 122.00 12-Mar-14 113.00 130.00 18-Apr-14 123.00 137.00 10-Jul-14 134.50 150.00 17-Jul-14 124.50 145.00 08-Jan-15 138.00 145.00 N 17-Jul-15 140.00 150.00 16-Oct-15 137.50 156.00 11-Dec-15 139.50 163.00 O OUTPERFORM NEUTRAL 31-Mar-16 162.00 177.00 11-Jul-16 170.00 185.00 * Asterisk signifies initiation or assumption of coverage. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in ope ration from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:

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Asia Semiconductor Sector 12 31 August 2016

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Samsung Electronics (005930.KS) Method: Our 12-month target price of W1,790,000 for Samsung Electronics is based on a price-to-book (P/B) target multiple of 1.25x, which is the mid-cycle P/B multiple for the past 7 years. Our TP of W1,790,000 implies an undemanding 1.0x 2016 P/B on a ROE of 12%. The dividend yield should rise for the next few years, driving P/E multiple expansion as Samsung’s yield approaches the global tech average of about 2.5%. We assign an OUTPERFORM rating given our confidence on higher earnings and dividends led by faster 3D NAND/OLED penetration, better than feared profitability in DRAM or smartphones and more proactive shareholder return policy. Risk: Risks that may impede the achievement of our 12-month target price of W1,790,000 and our Outperform rating for Samsung Electronics include: (1) Heavy earnings dependence on the strength of its smartphone products and its margin sustainability given the intensifying competition within the smartphone industry; (2) A meaningful downgrade in the PC and handset industry outlook; and (3) Samsung’s System LSI and OLED businesses which are ultimately tied to its handset business, and to a certain extent the growth of its key customers' businesses. Target Price and Rating Valuation Methodology and Risks: (12 months) for Semiconductor Manufacturing International Corp. (0981.HK) Method: Our HK$0.93 target price for Semiconductor Manufacturing International Corp. is based on 1.4x P/B (price-to-book), at the high end of its 1-1.4x past three-year range. We maintain our OUTPERFORM on SMIC due to (1) its premium to book given its opportunity to benefit from China's push to support its local manufacturing, and (2) better execution filling its fabs to drive improving growth at good margins. Risk: Risks that could impede achievement of our HK$0.93 target price and cause us to change our OUTPERFORM rating for SMIC include: (1) the global semiconductor up-cycle is not as strong as market expected (being an upstream company, SMIC tends to be more cyclical than other tech plays). (2) Price competition from peers is more severe than expected. (3) SMIC, like its peers, will be affected by any unexpected slowdown in the global economy. (4) Its advanced technology products do not come out as the company has scheduled them to. Target Price and Rating Valuation Methodology and Risks: (12 months) for Taiwan Semiconductor Manufacturing (2330.TW) Method: Our NT$185 target price for TSMC is based on 14x 2017 EPS (earnings per share), implying 3x P/B (price-to-book), near the midpoint of its average 11-15x and 2.5-3.5x range. We are seeing business outlook improving and technology leadership should keep market share and profitability intact and dividends will likely rise again as capex moderates; we therefore have an OUTPERFORM rating on the stock. Risk: Risks that could impede achievement of our NT$185 target price and OUTPERFORM rating for TSMC would include: fierce competition, demand failing to pick up or Apple orders not being as strong as expected.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (005930.KS, 2330.TW, STM.PA, 6758.T, QCOM.OQ, AMD.OQ, AAPL.OQ, INTC.OQ, XLNX.OQ, 2303.TW, IBM.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (005930.KS, AMD.OQ, AAPL.OQ, INTC.OQ, IBM.N) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (INTC.OQ, IBM.N) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (AAPL.OQ) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (005930.KS, AMD.OQ, AAPL.OQ, INTC.OQ, IBM.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (005930.KS, 2330.TW, 0981.HK, STM.PA, 6758.T, QCOM.OQ, AMD.OQ, AAPL.OQ, 2454.TW, INTC.OQ, XLNX.OQ, 2303.TW, IBM.N) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (INTC.OQ, IBM.N) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (6758.T, QCOM.OQ, AMD.OQ, AAPL.OQ, INTC.OQ, XLNX.OQ, IBM.N). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2330.TW, 0981.HK, 2454.TW, 2303.TW).

Asia Semiconductor Sector 13 31 August 2016

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Asia Semiconductor Sector 14 31 August 2016

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