March 5, 2017 Equity Research
Chip Weekly: Recovery Drives Up Estimates
Last week Broadcom reported January quarter sales that were above its original guidance midpoint and gave April quarter guidance that was above estimates. Micron raised its February quarter sales and gross margin guidance. The Semiconductor Industry Association (SIA) reported that global semiconductor Semiconductors sales rose 13% year/year in the month of January.
Worldwide semiconductor sales reported by the SIA increased 13% yr/yr in January, following 18% yr/yr growth in December, 12% growth in November, 8% growth in October, 3-4% growth in each of the months July-September and 3-8% year/year declines in each of the months of the first half of 2016. The three- month rolling average of semiconductor sales was down 1% month over month in January, following a flat month over month in December and 2% month over month growth in November. In our view this is a better-than-normal seasonal pattern. We are maintaining our 2017 semiconductor industry growth projection of 11-17%. Micron raised its February quarter guidance, noting that the increase in expectation is driven by mix, cost improvements, and pricing. Micron now expects its FQ2-17 revenue to be $4.65 billion +/- 500 million, compared to previous expectation of $4.35-$4.70 billion. Micron noted that overall demand continues to be healthy and expects positive momentum to extend into the May quarter. Micron now forecasts FQ2-17 gross margin to be 37.5% +/- 0.5%, compared to previous expectation of 31-34%. Micron now expects FQ2-17 EPS to be $0.86 +/- a few cents, compared to previous expectation of $0.58-$0.68. Broadcom reported January quarter revenue of $4.139 billion (flat sequentially), above the midpoint of the company’s guidance range for $4.065 billion. The strength in the quarter was driven by growth in wired, enterprise storage and industrial offset by a seasonal decline in wireless. The $4.09 billion midpoint of Broadcom’s April quarter guidance range is above our $3.8 billion estimate prior to the release. Qualcomm announced that it is expanding the Qualcomm Snapdragon X50 5G modem family to include 5G New Radio multi-mode chipset solutions. The first commercial products featuring Snapdragon X50 5G NR modems are expected to be available in 2019. At Mobile World Congress, MediaTek announced the availability of its MediaTek Helio X30 system on chip targeting high end smartphones. Smartphones powered by the Helio X30 chipset will be available in the June quarter of 2017. Spreadtrum Communications introduced its 14nm 8- core 64-bit LTE SoC platform, SC9861G-IA at the 2017 Mobile World Congress. The Spreadtrum SC9861G-IA is manufactured on Intel’s foundry platform, uses and Intel Airmont x87 processor core, and is expected to enter mass production in the June quarter of 2017. David Wong, CFA, PhD, Senior Analyst Last week, from the first comprehensive third party performance reviews of (212) 214-5007 AMD’s Ryzen chip posted on various websites, we conclude the AMD Zen core [email protected] probably has performance that is close to, but perhaps a little behind, Intel’s Amit Chanda, Associate Analyst newest processor cores. The on-schedule launch of Ryzen is another milestone (314) 875-2045 which builds our confidence in AMD meeting its schedules for launch of its Zen [email protected] server chips and its mainstream notebook and desktop chips. Keith Kan, CPA, Associate Analyst In the coming week, we are hopeful that the monthly Taiwanese electronics sales (212) 214-5066 data for the month of February will show that the positive demand trends seen in [email protected] the second half of 2016 continued into 2017. Joy Zhang, Associate Analyst
(212) 214-8017 [email protected]
Please see page 12 for rating definitions, important disclosures and required analyst certifications. All estimates/forecasts are as of 03/05/17 unless otherwise stated. 03/05/17 21:00:12 ET Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.
WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT
Our View - New data points showing continuing recovery, AMD Ryzen reviews
Last week there were three new data points which we think show that the recovery which began in 2H16 is continuing into 2017:
Broadcom reported revenue of $4.139 billion (flat sequentially), above the midpoint of the company’s guidance range for $4.065 billion. The strength in the quarter was driven by growth in wired, enterprise storage and industrial offset by a seasonal decline in wireless. The $4.09 billion midpoint of Broadcom’s April quarter guidance range (up 16% year/year) is above our $3.8 billion estimate prior to the release.
Micron said it now expects its February 2017 revenue to be $4.65 billion +/- 500 million (midpoint up 58% year/year, compared to previous expectation of $4.35-$4.70 billion. Micron noted that its raised expectation is driven by mix, cost improvements, and pricing.
Worldwide semiconductor sales reported by the SIA increased 13% yr/yr in January, following 18% yr/yr growth in December, 12% growth in November and 8% growth in October. The three-month rolling average of semiconductor sales was down 1% month over month in January, following a flat month over month in December and 2% month over month growth in November. In our view this is a better-than-normal seasonal pattern.
We see these multiple pieces of new as support for our view that the recovery of the chip industry is well underway, and we expect it to last through 2017. We are maintaining our 2017 semiconductor industry growth projection of 11-17% and our Overweight semiconductor sector rating.
However, chip company earnings estimates for the current and next year appear to be rising to reflect an expectation of a continuing recovery, and with many chip stocks commanding what we consider to be relatively high multiples off these higher estimates we see growing valuation risk in the group. In mid-February we reduced our rating on Analog Devices (ADI, $83.18) to Market Perform from Outperform, though the company has a strong January quarter earnings report and gave solid April quarter guidance. Nevertheless, we continue to see good investment opportunities in several chip stocks that we consider to be reasonably valued, including Intel (INTC, $35.90, Outperform), Qualcomm (QCOM, $56.44, Outperform), Microsemi (MSCC, $52.49, Outperform) and Micron. In addition to raising sales guidance, Micron now expects that for its February 2017 quarter its gross margin will be 37.5% +/- 0.5%, compared to previous guidance of 31-34%, an EPS to be $0.86 +/- a few cents, compared to previous guidance of $0.58-$0.68. In response to Micron’s announcement we raised our estimates and valuation range on Micron. Our new valuation range is $30-$35 (up from a prior $27-$32, based on approximately 7.7-9x our FY18 EPS estimate of $3.92.)
AMD Ryzen 7 Performance Reviews
Last week, with the beginning of worldwide availability of AMD’s first chips with it new Zen Cores, the first comprehensive third party performance reviews of this chip were posted on various websites. We have included a selection of comments and scores from these reviews below. Our conclusions are:
The AMD Zen core probably has performance that is close to, but perhaps a little behind, Intel’s newest processor cores. o Ryzen’s performance appears to be comparable in many ways to Intel’s top end Broadwell-E chips. o However, though Intel’s most recent top end desktop chips are from the Broadwell family, for mainstream notebooks and desktops Intel has moved ahead two generations of chips – Skylake and Kaby Lake. In the second half of this year (when AMD is scheduled to bring out its mainstream Zen-based notebook and desktop chips), we expect Intel to launch its fourth generation 14nm family, Coffee Lake. o Intel’s current mainstream server chips (2-way and 4-way servers) have Broadwell cores, but we expect that later this year (mid 2017 or 2H17) Intel will introduce its next generation Skylake server processors on its Purley family. o Although we think that Intel’s new 2017 server and PC processor families might extend to somewhat better performance than AMD’s new Zen-based server and mainstream notebook and desktop products slated for launch this year, AMD has been far behind Intel in its various processor offerings. We think that AMD’s Zen lineup significantly reduces, without
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WELLS FARGO SECURITIES, LLC Chip Weekly: Recovery Drives Up Estimates EQUITY RESEARCH DEPARTMENT
completing closing, the performance gap. This should allow AMD to gain a little traction in the server processor and the mainstream PC processor segments this year, if it brings out its products on schedule.
The on-schedule launch of Ryzen is another milestone which builds our confidence in AMD meeting its schedules for launch of its Zen server chips and its mainstream notebook and desktop chips. o Ryzen is a CPU without integrated graphics designed to be used in top end desktops, together with a discrete graphics card. Hence, in our view, the volume opportunity of Ryzen is small. We think that the timely launch of the upcoming AMD server and mainstream notebook/desktop processor is far more significant. o AMD’s Zen server chips are structurally very similar to Ryzen in that we expect them to be CPUs without integrated graphics. Nevertheless, server processor typically have more stringent reliability and other requirements than desktop chips. Hence, in our view that timely launch of Ryzen is a positive indicator though AMD will need to continue executing smoothly in order to launch Zen as expected in the June 2017 quarter. o Similarly, the mainstream notebook and desktop processors slated for introduction in 2H17 are more complex than Ryzen in that they have integrated graphics circuitry. The launch and ramp of Ryzen chips is a positive indicator though AMD will need to continue executing smoothly in order to launch its mainstream notebook and desktop chips as expected in 2H17.
AnandTech noted that Ryzen 7 processors offer great price for performance. For example, 499 Ryzen 7 1800X was able to perform equally or better than a $1,049 i7-6900K processor for a multitude of tests, which translates into a 2x in price/performance. According to AnandTech, AMD’s Ryzen 7 has shown equal or better single-threaded and multi-threaded performance compared to Intel’s high end desktop processors. However, AnandTech noted that there were a few cases in which AMD’s Ryzen 7 lagged by 10-20% in terms of performance compared to Intel’s Broadwell chips. Under CineBench R15 benchmarks for single threaded performance, Ryzen 7 1800X ($499) scored 161 points, Broadwell-E Core i7-6900K ($1,089) scored 155 points, Ryzen 7 1700X ($399) scored 151 points, and Ryzen 7 1700 ($329) scored 145 points. Under CineBench R15 benchmarks for multi- threaded performance, Ryzen 7 1800X scored 1,628 points, Ryzen 7 1700X scored 1,540 points, Core i7-6900K scored 1,477 points, and Ryzen 7 1700 scored 1, 419 points.
Under CPU Legacy 3D PM v1 benchmarks for single threaded performance, Core i7-6900K scored 125.58 million operations per second while Ryzen 7 1800X scored 103.61 million operations per second, Ryzen 7 1700X scored 98.59 million operations per second, and Ryzen 7 1700 scored 93.51 million operations per second. Anandtech noted the results of these edge cases can result from unoptimized code.
According to the website TechReport.com, AMD’s Zen core has shown as much as a 50% single-core boost from its predecessor Piledriver, and that the Zen architecture can deliver single-threaded performance on par with Intel’s Broadwell core. TechReport noted that Ryzen achieved only half the 256-bit SIMD throughput of its competitor Intel when running operations with AVX instructions, and also memory-bandwidth-constrained applications such as Euler3D would run better on Haswell-E and Broadwell-E quad memory controller compared to Ryzen’s. However, with games that favor high IPC (Instruction Per Clock), memory bandwidth and clock speeds, Intel chips appeared to outperform AMD’s Ryzen 7 chips in terms of multithreading gaming performance.
According to the website chiphell.com, Intel Core i7-7700K outperformed both Core i7-6900K and Ryzen 7 flagship 1800X in single-threaded benchmarks; while Core i7-6900K and Ryzen 1800X showed similar single- threaded performance. In some multi-threaded benchmarks such as Winrar and SuperPI, Intel Core i7-7700K outperformed Ryzen 7 1800x. In the graphics tests, Core i7 6800K and Core i7 7700K led in all tests ahead of Ryzen 7 1800X.
I on Intel
February 27, 2017. Spreadtrum launches 5G chip manufactured on Intel foundry platform. Intel announced that Spreadtrum Communications launched its new 5-mode LTE (Long Term Evolution) SoC (System-on-Chip) (SC9861G-IA) based on Intel’s 14-nanometer Airmont architecture. The new integrated Category 7 modem SoC is designed to be power-efficient and supports multi-domain security system architecture with Intel Virtualization Technology. The new SoC is expected to enter mass production in the second quarter of 2017 targeting the mid-level and premium smartphone markets. Spreadtrum noted in a press release that this product will be manufactured at Intel on Intel’s foundry platform.
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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT
February 27, 2017. AT&T plans to launch new 5G trail with Intel and Ericsson. AT&T announced that it plans to launch another 5G trial with Intel and Ericsson in Spring 2017. The trial is based on Intel 5G Mobile Trial Platform, and is expected to allow residential and small-to-medium business customers in Austin, Texas to stream DIRECTV Now and access better entertainment and broadband services.
February 26, 2017. Intel collaborates with key players to accelerate 5G. Intel said that it is collaborating with key players in the industry to develop a 5G standard and establish new solutions and products. Nokia introduced 5G FIRST solution, who allows operators to quickly address demands of connected people and industries. Nokia 5G First solution features Intel’s 5G modem in its initial deployments, Nokia AirScale massive MIMO (multiple input/multiple output) Adaptive Antennas, packet core, and mobile transport solutions, and is set for initial deployments beginning in 2017. Intel along with AT&T, NTT DOCOMO INC., SK Telecom, Vodafone, Ericsson, Qualcomm, British Telecom, Telstra, Korea Telecom, LG Uplus, KDDI, LG Electronics, Telia Company, Swisscom, TIM, Etisalat Group, Huawei, Sprint, Vivo, ZTE, and Deutsche Telekom announced support to accelerate the 5G New Radio (NR) standardization schedule to allow for large-scale trials and deployments as early as 2019. Samsung Mobile launched two new Galaxy Book devices with Intel’s 7th generation core processors and Intel LTE connectivity. Moreover, Intel and partners including AT&T, China Mobile, NTT DOCOMO, Vodafone, Ericsson, Huawei, Keysight, Nokia, Qualcomm, RS and ZT are collaborating to promote a unified 3GPP (3rd Generation Partnership Project)standard for 5G.
Data Roundup
Global chip shipment data for January. Worldwide semiconductor sales reported by the Semiconductor Industry Association (SIA) increased 13% yr/yr in January, following 18% yr/yr growth in December, 12% growth in November, 8% growth in October, 3-4% growth in each of the months July-September and 3-8% year/year declines in each of the months of the first half of 2016. The three-month rolling average of semiconductor sales was down 1% month over month in January, following a flat month over month in December and 2% month over month growth in November. In our view this is a better-than-normal seasonal pattern. We are maintaining our 2017 semiconductor industry growth projection of 11-17%. IC (integrated circuit) sales increased 14% yr/yr in January, following 19% yr/yr growth in December and 12% yr/yr growth in November. IC units increased 14% yr/yr in January (see figure 1). In January memory boosted IC growth by 10 percentage points. The SIA numbers suggest that growth of ICs excluding memory was 4%. Analog sales increased 15% yr/yr in January, following 15% yr/yr growth in December and 18% yr/yr growth in November. Discrete sales increased 7% yr/yr in January. We consider analog and discrete growth to be a broad indicator of demand across most end market. According to the SIA data DRAM price per megabit increased 13% month over month in January, following 6% month over month growth in December and a 1% month over month increase in November. The SIA data suggests that DRAM sales increased 56% yr/yr NAND sales increased 33% yr/yr in January. The ratio of worldwide semiconductor equipment sales to semiconductor IC sales was 16.6% in January compared to a ratio of 14.7% in December. We believe that the transition to 3D NAND might be driving some spending by memory chip makers. We think rising demand for foundry wafers could help support semiconductor equipment investment by chip foundries. Intel expects to increase capital spending for its core logic manufacturing in 2017 over 2016 levels, and also to increase its capital spending for its memory fab in China. North-American semiconductor equipment data showed that billings decreased 1% month/month and increased 52% year/year to $1.86 billion in January 2017. For more details please see our industry note dated 3/5/2017.
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WELLS FARGO SECURITIES, LLC Chip Weekly: Recovery Drives Up Estimates EQUITY RESEARCH DEPARTMENT
Figure 1: Year/Year Growth of IC Sales and Units 80%
60%
40%
20%
0% Yr/Yr Growth Yr/Yr (20%)
(40%)
(60%)
Dec-87 Dec-95 Dec-03 Dec-84 Dec-85 Dec-86 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Total IC $ yr/yr Total IC units yr/yr Our Sales Projections (14% growth in 2017) Dec-17E
Source: Semiconductor Industry Association, Wells Fargo Securities, LLC estimates
U.S. Durable Goods January: Tech still trending up. On Feb 27, 2017, the U.S. Census Bureau released the U.S. Durable Goods data for the month of January. Shipments were up 0.5% month-over-month in January for the Computers and Electronics aggregate, with Communications Equipment down 2.1% month- over-month and Computer and Related products up 4.8% month-over-month (see figure 2). Year-over-year shipments were up 5.8% for the Computer and Electronics aggregate driven by a 12.4% year-over-year decline in Computer and Related products and an 8.6% year-over-year gain in Communications Equipment. Orders decreased 1.6% month-over-month for the Computer & Electronics aggregate in January, with Computer & Related products up 3.9% and Communications Equipment down 5%. Inventory levels for the Computer & Electronics aggregate increased 0.5% on a sequential basis, while Computer and Related inventory decreased 1.7% and Communications Equipment inventory increased 2.1% sequentially. We think that the continuing trend of yr/yr growth over the past several months is evidence that a recovery in the semiconductor sector driven by growing global demand is well underway. For more details, see our note dated February 27th.
Figure 2: Durable Goods – Computing Hardware Shipments ($billions, seasonally adjusted data) Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Shipments Comp & Elec(Agg) $26.6 $27.3 $27.4 $27.3 $27.5 $27.8 $28.0 $28.1 MoM % Change 0.4% 2.4% 0.5% -0.6% 0.9% 0.9% 0.8% 0.5% YoY % Change 1.5% 4.5% 3.6% 2.8% 3.9% 4.3% 6.5% 5.8%
Comp & Related $1.8 $1.9 $1.8 $1.7 $1.8 $1.8 $1.7 $1.8 MoM % Change -5.6% 11.3% -5.1% -10.5% 9.5% -2.4% -3.8% 4.8% YoY % Change -23.1% -9.9% -11.4% -19.9% -12.2% -10.8% -9.7% -12.4%
Comm Equp $3.6 $3.4 $3.5 $3.5 $3.3 $3.5 $3.6 $3.5 MoM % Change 5.4% -5.3% 3.0% 1.5% -5.2% 4.2% 2.1% -2.1% YoY % Change 5.0% -1.8% 2.8% 3.2% -0.5% 2.3% 0.9% 8.6% Sources: U.S. Census Bureau/Durable Goods Report and Wells Fargo Securities, LLC.
Memory Pricing Spot Market Last week, 4Gb DDR4 spot price remained flat, 8Gb DDR4 spot price decreased, while NAND spot prices increased, according to DRAMeXchange (see Figure 4). The spot price for a 4Gb DDR4 chip was $3.44, flat with $3.44 at the end of the prior week. The spot price for an 8Gb DDR4 chip decreased to $6.85 versus $6.89 at the end of the prior week. The 128Gb MLC (multi-level cell) NAND spot price increased to $5.47 versus $5.43 at the end of the prior week.
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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT
The 256Gb MLC (multi-level cell) NAND spot price increased to $11.19 versus $11.13 at the end of the prior week.
Contract Market The DRAMeXchange data shows a substantial jump in both DRAM and NAND contract prices in the month of January.
The contract price for a 8Gb DDR4 chip increased to $5.69 in the second half of January 2017 compared to $4.19 in the second half of December and $4.19 in the second half of November. The contract price for a 4Gb DDR4 chip increased to $2.69 in the second half of January 2017 compared to $1.94 in the second half of December and $1.94 in the second half of November.
The contract price for a 128Gb NAND chip increased to $4.54 in the second half of January 2017, compared to $4.22 in the second half of December and $4.11 in the second half of November.
Current quarter bit growth expectations: For the March quarter, SK Hynix expects both DRAM and NAND bit shipment to decrease by low – single digits quarter-over-quarter. For the March quarter, Samsung expects DRAM market bit growth to decline high single digit and Samsung’s bit growth to decline in low teens. For the March quarter, Samsung expects NAND market bit growth to decline mid-single digit and Samsung’s NAND bit growth to decline in the high single digit range.
Figure 4. Memory Chip Prices 256Gb NAND 4Gb DDR4 8Gb DDR4 128Gb NAND MLC MLC
Date Spot Contract Spot Contract Spot Contract Spot 03/03/2017 $3.44 $6.85 $5.47 $11.19 02/24/2017 $3.44 $6.89 $5.43 $11.13 02/17/2017 $3.44 $6.93 $5.33 $10.43 02/10/2017 $3.44 $6.93 $5.21 $10.30 02/03/2017 $3.41 $6.85 $5.18 $10.24 01/26/2017 $3.33 $2.69 $6.76 $5.69 $5.16 $4.54 $10.24 01/20/2017 $3.23 $6.65 $5.16 $10.24 01/13/2017 $3.20 $6.30 $5.14 $10.20 01/06/2017 $3.04 $6.03 $5.12 $10.20 12/30/2016 $2.83 $1.94 $5.73 $4.19 $5.04 $4.22 $10.08 12/23/2016 $2.83 $5.66 $5.03 $10.08 12/16/2016 $2.81 $5.56 $5.03 $10.04 12/09/2016 $2.73 $5.43 $5.02 $10.00 12/02/2016 $2.61 $1.94 $5.28 $4.19 $5.06 $4.11 $10.00 11/25/2016 $2.53 $5.16 $4.97 $10.00 11/18/2016 $2.55 $5.23 $4.85 $9.97 11/11/2016 $2.53 $5.15 $4.83 $9.97 11/04/2016 $2.52 $5.09 $4.83 $9.97 Source: DRAMeXchange, Wells Fargo Securities, LLC.
News Items: March 3, 2017. Nvidia reportedly reduces prices for GeForce GTX 1080 and GeForce GTX 1070 Graphics cards. According to WCCFTech, Nvidia is expected to update its current GeForce 10 series lineup with price cuts and better specifications. WCCFTech noted that Nvidia is expected to sell its GTX 1080 for USD$499 (originally launched at $599) and GTX 1070 for USD$349 (originally launched at USD$379). In addition, Nvidia’s partners are expected to sell GeForce GTX 1080 and GTX 1060 GB cards with faster
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WELLS FARGO SECURITIES, LLC Chip Weekly: Recovery Drives Up Estimates EQUITY RESEARCH DEPARTMENT memory; GTX 1080 graphics card’s memory is expected to increase to 11Gbps (gigabit per second) GDDR5x (Graphics Double Data Rate) from original memory clock of 10Gbps GDDR5x and GTX 1060 6B graphics card’s memory is expected to increase to 9Gbps GDDR5 from original memory clock of 8Gbps GDDR5x. As of March 3rd, Nvidia has published new prices for both the GTX 1080 Founders Edition (FE) and GTX 1070 Founders Edition (FE); GTX 1080 FE is now priced at $549 ($150 price cut) while GTX 1070 FE is now priced at $399 ($50 price cut).
March 2, 2017. Micron Raises FQ2-17 Guidance. On March 2nd, 2017, Micron raised its February quarter guidance, noting that the increase in expectation is driven by mix, cost improvements, and pricing. Micron noted that overall demand continues to be healthy and expects positive momentum to extend into the May quarter. We are reiterating our Outperform rating on Micron. We have not yet included one-time or ongoing amortization charges from the Inotera acquisition in our model. Micron now expects its FQ2-17 (February quarter) non-GAAP results to be at or above high end of guidance. Micron now expects its FQ2-17 revenue to be $4.65 billion +/- 500 million, compared to previous expectation of $4.35-$4.70 billion. Micron now forecasts FQ2-17 gross margin to be 37.5% +/- 0.5%, compared to previous expectation of 31-34%. Micron now expects FQ2-17 EPS to be $0.86 +/- a few cents, compared to previous expectation of $0.58-$0.68. For additional details, please see our note dated March 2nd. March 2, 2017. AMD Ryzen 7 desktop processors available worldwide. AMD announced that the three 8-core Ryzen 7 models are now available worldwide. AMD expects to launch 6- and 4- Core Ryzen 5 processors beginning in the second quarter of 2017, followed later this year by Ryzen 3 processors. AMD announced the product specifications of its Ryzen 7 processors and two of its Ryzen 5 processors, and demonstrated that its flagship Ryzen 5 1600X shows a 69% multi-threaded performance advantage over Intel’s Core i5-7600K. Ryzen 7 – 1800X: 8 cores, 16 threads, Base 3.6GHz (gigahertz)/Boost 4.0 GHz, 95 TDP (Thermal Design Power), available now Ryzen 7 – 1700X: 8 cores, 16 threads, Base 3.4GHz/Boost 3.8GHz, 95 TDP, available now. Ryzen 7 – 1700: 8 cores, 16 threads, Base 3.0GHz/Boost 3.7GHz, Wraith Spire cooler, 65 TDP, available now. Ryzen 5 – 1600X: 6 cores, 12 threads, Base 3.6GHz/Boost 4.0GHz, Wraith Spire cooler, 95 TDP, expected inQ2’17 Ryzen 5 – 1500X: 4 cores, 8 threads, Base 3.5GHz/Boost 3.7GHz, Wraith Spire, cooler, 65 TDP, expected in Q2’17
March 2, 2017. Unsatisfactory 10nm yield rates delay smartphone SoC shipments. Digitimes cited industry sources in noting that unsatisfactory yield rates for 10nm (nanometer) process technology have delayed smartphone SoC product shipments. The sources indicated that the schedule for shipments of MediaTek’s Helio X30, reportedly the first 10nm smartphone SoC from TSMC, has been delayed as yield rates for TSMC’s 10nm process technology are unsatisfactory. In addition, the sources indicated that yield rates for Samsung’s 10nm process technology have also been low, affecting production of Samsung’s Exynos 8895 and Qualcomm’s Snapdragon 835 chips; the unsatisfactory 10nm yield rates have delayed Samsung’s launch of its next generation Galaxy S8 smartphone.
March 2, 2017. Broadcom delivers industry’s first 16nm Nx56G PAM-4 PHYs for Wired Network Infrastructure. Broadcom Limited announced a comprehensive portfolio of Nx56G PAM-4 (pulse amplitude modulation) PHY (physical layer) devices enabling 50Gbe (gigabit Ethernet), 100Gbe, 200Gbe and 400Gbe connectivity for wired network infrastructure that includes enterprise, cloud scale data center and service provider networks. The portfolio includes the BCM81330, BCM81328, BCM81141, BCM81128 and BCM81118 product solutions. Broadcom started shipping the 16nm PAM-4 PHY devices and is currently accepting orders for these products.
March 2, 2017. Wearables market grew 17% yr/yr in Q4 2016. According to an IDC press release, the global wearables market hit a new high in Q4 2016, with shipments up to 33.9 million units and 16.9% yr/yr. Wearables shipment for the entire year of 2016 was up 25% yr/yr as new vendors entered the market and total shipments came out to be 102.4 million unit. IDC says that in the early days, the wearables market was divided between smart wearables (i.e. those capable of running third-party apps) and basic wearables (i.e. single- purpose wearable devices). But the wearables market is changing, where basic wearables are morphing into multi-purpose wearable devices that fuse together multiple health and fitness capabilities and smartphone notifications. Ramon Llamas from IDC says that the progression of basic wearables have now blurred the lines between them and smart wearables, to the point where first generation smartwatches are on par with most fitness trackers. Llamas said that with the entrance of multiple new vendors, the wearables market is expected to maintain a positive outlook, driven by vendor push rather than consumer demand. Fitbit was the largest vendor in Q4 2016 and CY 2016, with Xiaomi and Apple in second and third places, respectively.
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March 2, 2017. Global notebook shipments to grow yr/yr in 1Q17. According to Digitimes, global notebook shipments excluding 2-in-1 devices was down 1.2% yr/yr in Q4 of 2016, surpassing 40 million units. Shipments from Taiwanese notebook ODMs saw yr/yr shipment growth in 4Q16, driven by strong demand from the US and Europe, due to seasonality and US brand vendors expanding into the notebook market. According to Digitimes, notebook shipments are expected to grow yr/yr in Q1 of 2017, driven by adoption of Windows 10 and Microsoft’s new free Windows licensing plan. HP was the number one vendor in Q4 2016 and Lenovo was second, with Lenovo shipping nearly two million units. Dell was the third largest notebook vendor. For ODMs, Compal’s notebooks were 30% of Taiwan’s total shipment in Q4 2016. Quanta saw its shipments drop due to decreased orders from Lenovo.
March 1, 2017. TSMC reportedly seeks to invest in Toshiba’s memory business. Digitimes cited industry sources in noting that TSMC is interested to expand into the 3D NAND sector through investing in Toshiba’s memory business. The sources identified TSMC as one of Toshiba’s preferred bidders as TSMC meets the condition of not being involved in manufacturing NAND flash chips and not requiring government funds for the investment. Digitimes also noted that other bidders for Toshiba’s memory business include Apple, Foxconn Electronics (Hon Hai Precision Industry), Micron Technology, Microsoft, SK Hynix, and Western Digital, and other capital funds.
March 1, 2017. AMD’s Vega GPUs to power LiquidSky platform. In a press release, AMD announced that its upcoming Vega GPUs (Graphics Processing Units) will be powering the LiquidSky platform, which allows gamers to benefit from the performance of Vega GPUs by connecting to any of the 13 LiquidSky global data centers. LiquidSky currently allows 1.4 million beta users to play any PC video game on Android phone or tablet, low specs Windows, Mac, and Linux devices. AMD also noted that Vega-based GPU products are expected to ship in the second quarter of 2017.
March 1, 2017. Broadcom : Earnings - sales strong, GAAP gross margins falling. Broadcom is, in our view, doing very well in terms of top line momentum, though the GAAP gross margin is trending downward. Our FY17 GAAP EPS estimate increases to $3.09 from $1.59 and our FY18 GAAP EPS estimate increases to $6.99 from $2.30, though our adjusted EPS numbers (which back out some acquisition amortization) fall in FY17 and increase in FY18. Broadcom reported revenue of $4.139 billion (flat sequentially), above the midpoint of the company’s guidance range for $4.065 billion. The strength in the quarter was driven by growth in wired, enterprise storage and industrial offset by a seasonal decline in wireless. The $4.09 billion midpoint of Broadcom’s April quarter guidance range is above our $3.8 billion estimate prior to the release. Reported GAAP gross margin in the quarter was 48.3%, down 4.2 percentage points sequentially and slightly above the midpoint of the guidance range of 47% (+/- 1%). Broadcom guided for GAAP gross margin to be 46% (+/-1 %) in the coming quarter. GAAP EPS was $0.57 per share. On February 22nd, Broadcom reached an agreement with Arris to divest Brocade’s Ruckus Wireless and ICX Switch business for $800 million in cash. Broadcom expects the Brocade acquisition to close in the July 2017 quarter. The wired infrastructure business increased 0.5% sequentially in the quarter and increased 440% yr/yr. For the April quarter, the wired infrastructure business is expected to show sequential growth. The wireless communications business decreased 12.7% on a sequential basis and grew 103.3% yr/yr, which was stronger than expected. Wireless revenue is expected to decline by high single digits in the April quarter. Enterprise storage represented 17% of sales, or roughly $707 million (up 26% sequentially and up 4% yr/yr). Although backlog for enterprise storage continues to be strong, seasonality is expected to start slowing demand in the July quarter or late in the April quarter. The industrial/other segment increased 11.6% sequentially and increased 34% yr/yr. For the April quarter, Broadcom expects industrial to improve seasonally and to increase by high single digits sequentially. For additional details, please see our note dated March 2nd.
March 1, 2017. Seagate pushes into SSD products. According to Digitimes, Seagate and other HHD (Hard disk drive) manufacturers have been pushing into the SSD (solid state drive) market through various acquisitions and alliances with SSD partners. While demand for SSD has been rising steadily in the notebook market, Seagate thinks that SSDs and HDDs can co-exist together. Seagate expects for 90% of notebooks globally to be shipped with built-in SSDs in the next 5 years. The company states that it will continue to invest in HDD R&D, as it sees the market still demanding the larger storage capacity of HDDs. Seagate spent $450 million to acquire the flash business of LSI and has already shipped more than 20 million units of SSDs. Seagate is planning to introduce a 60TB SSD in 2017.
February 28, 2017. AMD and Bethesda Softworks partner to accelerate game technology development. At 2017 Game Developers Conference, AMD and Bethesda Softworks announced a long-term partnership to accelerate game technology development. The collaboration will focus on the implementation of new technologies such as Vulkan and computing and graphics power of AMD’s products across existing
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WELLS FARGO SECURITIES, LLC Chip Weekly: Recovery Drives Up Estimates EQUITY RESEARCH DEPARTMENT
Bethesda franchises.
February 28, 2017. AMD RX Vega reportedly launching May 30th. According to WCCFTech, AMD is expected to launch its new RX Vega Series (Vega 10 and Vega 11) later in the second quarter, between May 30th and June 2nd in 2017 and its Polaris-based Radeon RX 500 series in the beginning of April 2017. Vega 10, the high end GPU (Graphics Processing Unit), is expected to feature64 next generation compute unis with a total of 4096 GCN (Graphics Core Next) stream processors and 8GB of 2nd generation High Bandwidth Memory. Vega 11, a smaller chip compared to Vega 10, is expected to be AMD’s high performance mid-range contender. WCCFTech noted that the first of Radeon RX 500 series refresh is expected to feature RX 580 and RX 570, which are expected to arrive on April 4th; RX580 and RX570 are expected to feature higher clocked versions of AMD’s Polaris 10XT and Polaris 10 GPUs. The lineup is also expected to feature RX560 and RX550, which are expected to arrive on April 11th; the RX560 and RX550 are expected to be based on the smaller Polaris 11 GPUs.
February 28, 2017. Nvidia launches GeForce GTX 1080 Ti. Nvidia launched its GeForce GTX 1080 Ti graphics cards, which will be available (along with the Founders Edition) beginning March 10th, starting at USD$699; Nvidia noted that pre-orders will begin on March 2nd. According to Nvidia, GTX 1080 Ti features 3,584 CUDA cores and 11GB (gigabyte) of GDDR5x (Graphics Double Data Rate) memory (running at 11 Gbps – gigabit per second)) and is capable of handling 4K and 5K gaming, DX12, HDR, and virtual reality. Nvidia noted that the new graphics card delivers up to 35% faster performance than GeForce GTX 1080 and up to 78% faster performance than GeForce GTX 1080. In addition, the new GTX 1080 Ti is faster than Nvidia Titan X Pascal which retails for $1,200.
February 28, 2017. Microsemi announces open source Switchtec PCIe Switch Linux drivers. Microsemi announced the availability of its Switchtec PCIe (peripheral component express) switch Linux drivers and software utilities to the open source community. Microsemi’s Switchtec PCIe switches powered systems can provide support for a wide range of applications including data center, enterprise storage, server, communications, defense and industrial systems. Microsemi has been collaborating with Facebook, the Open Compute Project and other industry leaders as ongoing support builds for open collaboration and innovation. Microsemi’s Switchtec PCIe switch Linux drivers and software utilities are available to the public via the open source community now at no cost.
February 27, 2017. MediaTek introduces Helio X30 system on chip. At Mobile World Congress, MediaTek announced the availability of its MediaTek Helio X30 system on chip targeting high end smartphones. The Helio X30 is entering mass production and gaining design wins. The MediaTek Helio X30 is a 10-core chipset with Tri-Cluster architecture manufactured on its 10nm fabrication technology. The 10- cores are comprised of two ARM Cortex A73 at 2.5GHz, four ARM Cortex A53 at 2.2GHz and four ARM Cortex A35 at 1.9GHz. The GPU used is the Imagination PowerVR series 7XT. Smartphones powered by the Helio X30 chipset will be available in the June quarter of 2017.
February 27, 2017. MediaTek and Nokia work together to enable first wave of 5G networks and devices. MediaTek and Nokia announced plans to collaborate on next generation 5G technology. Both companies are contributing actively to 5G standardization in line with the Third Generation Partnership Project. The joint effort will develop a standards compliant pre-commercial platform for 5G New Radio communications technology beginning in 2018. MediaTek’s chipset is to be optimized around the modem, radio, data processing and across applications like multimedia that can benefit from 5G performance.
February 27, 2017. Qualcomm aptX HD gains momentum among leading consumer electronics brands. Qualcomm announced growing momentum for its Qualcomm aptX HD audio codec among leading consumer electronics brands. Leading manufacturers of smartphones, media players, headphones, speakers and other Bluetooth audio products worldwide are steadily embracing the aptX HD audio technology with a number of products now available since launching a little over a year ago. The aptX HD will be supported by the Qualcomm Snapdragon 835 chipset.
February 27, 2017. Qualcomm and Mercedes-AMG Petronas Motorsport conduct trials utilizing 802.11ad multi-gigabit WiFi for Racecar Data Communications. Qualcomm and Mercedes-AMG Petronas Motorsport announced they are conducting field trials to test high speed wireless download of vehicle sensor information utilizing 802.11ad WiFi technology in the 60GHz band. Qualcomm and Mercedes-AMG Petronas Motorsport plan to continue technology development and conduct additional trials during the British Grand Prix in July. During these field trials, race engineers utilize both 5GHz 802.11ac and Multi-gigabit 802.11ad Wi-Fi technology, which operates in the millimeter wave 60GHz band. The system will feature a Qualcomm Snapdragon 820 processor with up to 128 GB of Universal Flash Storage memory to collect telemetry data while the car is on circuit. A Qualcomm QCA9500 chip will be used to
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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT support the 802.11ad Wi-Fi. Qualcomm has achieved more than 150 automotive design wins, and car manufacturers across the globe have selected Snapdragon processors for their next generation infotainment solutions.
February 27, 2017. Qualcomm Drive Data Platform powers TomTom’s plans to crowdsource high definition mapping data for autonomous driving. Qualcomm announced it is working with TomTom, a global leader in navigation and mapping products on using Qualcomm Drive Data Platform for high definition map crowdsourcing, to accelerate the future of autonomous driving. Qualcomm Drive Data Platform uses technologies to collect and analyze data from different vehicle sensors, supporting smart vehicles to determine their location, monitor and learn driving patterns, perceive their surroundings and share this perception with the rest of the world. The Qualcomm Drive Data Platform is supported by the Qualcomm Snapdragon 820Am automotive processor.
February 27, 2017. Qualcomm, Ericsson and NTT DOCOMO announce collaboration on 5G NR trials to accelerate wide scale 5G deployments in Japan. Qualcomm announced plans to conduct interoperability testing and over the air field trials in Japan based on the new 5G New Radio specifications being developed by 3GPP. The trials will operate in the mid band spectrum at 4.5GHz, as well as millimeter wave spectrum at 28GHz, showcasing the unified 5G NR design across diverse spectrum bands. The trials intend to drive the mobile ecosystem toward rapid validation and commercialization of 5G NR technologies at scale, enabling timely commercial network launches based on 3GPP Rel-15 standard compliant 5G NR infrastructure and devices. The trials will use device prototype and base station solutions from Qualcomm and Ericsson, along with trial environments from NTT DOCOMO, to simulate real world scenarios. The trial will include 5G NR operation at 4.5GHz, which allows a large bandwidth resulting in high data rates and good capacity with reasonable coverage to address the large number of 5G use cases. The interoperability testing and trials, which will launch in Japan starting in the first half of 2018, are intended to track closely with, as well as help accelerate, the first 3GPP 5G NR specification that will be part of Release 15, the global 5G standard that will make use of both sub-6GHz and mmWave spectrum bands.
February 26, 2017. Qualcomm expands its 5G modem family to support 5G NR with integrated Gigabit LTE multimode for premium mobile devices. Qualcomm announced that it is expanding the Qualcomm Snapdragon X50 5G modem family to include 5G New Radio multi-mode chipset solutions. The new modems are designed to provide a unified 5G design for all major spectrum types and bands. Commercial products integrating 5G NR modems from the Snapdragon X50 family are expected to be available to support the first large –scale 5G NR trials and commercial network launches starting in 2019. The new members of the Snapdragon X50 5G modem family are designed to support multi-mode 2G/3G/4G/5G functionality in a single chip. The single chip solutions also support integrated Gigabit LTE capability. The expanded Snapdragon X50 5G modem family builds on Qualcomm’s technology leadership with 5G NR prototype systems as well as joint tests and trials with leading network operators and network equipment vendors. The first commercial products featuring Snapdragon X50 5G NR modems are expected to be available in 2019.
Upcoming Events
March 1-10, 2017. Month of February Taiwanese electronic sales data. The first day of Chinese New Year started on January 28 (compared to February 8 in 2016), and so we expect the month of February figures to be affected by typical Chinese New Year factory shutdowns. Nevertheless, we are hopeful that the January+February year/year comparisons for our chip and system/sub-systems composites will show that the positive demand trends seen in the second half of 2016 continued into 2017.
Mergers and Acquisitions
The following is a list of what we consider to be some of the more significant mergers and acquisitions in the chip space that have been announced over the last 1-3 years.
Table A: Recent M&A transactions
Transaction Date first Date Value Announced Closed Acquirer Target (US$MM) 12/21/2016 Pending TDK Invensense ~1,300 11/21/2016 01/26/2017 MACOM Technology Applied Micro Circuits 770 11/02/2016 Pending Broadcom Limited Brocade ~5,900 10/27/2016 Pending Qualcomm NXP Semiconductor ~47,000
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WELLS FARGO SECURITIES, LLC Chip Weekly: Recovery Drives Up Estimates EQUITY RESEARCH DEPARTMENT
9/12/2016 02/24/17 Renesas Electronics Intersil ~3,200 8/17/2016 12/02/16 GlobalWafers SunEdison Semiconductor ~$683 6/27/2016 Pending Analog Devices Linear Technology ~14,800 07/17/2016 09/05/2016 SoftBank ARM Holdings ~32,000 12/14/2015 12/06/2016 Micron Inotera ~3,200 11/18/2015 9/19/16 ON Semiconductor Fairchild ~2,400 10/21/2015 5/12/16 Western Digital SanDisk ~19,000 10/21/2015 Terminated 10/5/16 LAM Research KLA-Tencor ~11,000 10/05/2015 01/15/16 Microsemi PMC-Sierra ~2,500 09/20/2015 04/04/16 Microchip Atmel ~4,600 09/07/2015 3/16 MediaTek RichTek ~900 06/01/2015 12/28/15 Intel Altera 15,359 05/28/2015 2/1/2016 Avago Broadcom ~34,000 05/07/2015 08/03/15 Microchip Micrel 702 03/18/2015 04/28/15 Microsemi Vitesse 348.6 03/08/2015 12/7/15 NXP Freescale 15,945 10/20/2014 07/01/15 GlobalFoundries IBM Semiconductor (1,500)* 08/20/2014 01/13/15 Infineon International Rectifier 2,255 06/09/2014 07/22/14 Analog Devices Hittite Microwave 2,500 02/24/2014 01/02/15 RF Micro Devices TriQuint Semi 1,646 12/16/2013 05/06/14 Avago LSI 6,600 *IBM paid $1.5 billion to GlobalFoundries Source: FactSet, Company Reports and Wells Fargo Securities, LLC
Our Coverage
The following are the stocks we cover.
Table B: Stocks we cover/Dividend monitor: Annualized Price Annual Dividend Company Name Ticker 03/03/17 Dividend Yield Rating Advanced Micro Devices AMD $13.03 - - Outperform Analog Devices ADI $83.18 $1.80 2.2% Market Perform Broadcom Limited AVGO $218.32 $2.52 1.2% Market Perform Intel INTC $35.90 $1.04 2.9% Outperform Linear Technology LLTC $64.86 $1.32 2.0% Market Perform Maxim Integrated Products MXIM $44.32 $1.32 3.0% Market Perform Micron Technology MU $25.57 - - Outperform Microsemi MSCC $52.49 - - Outperform Monolithic Power Systems MPWR $88.57 $0.80 0.9% Market Perform Nvidia Corporation NVDA $98.43 $0.56 0.6% Under Perform Qualcomm QCOM $56.44 $2.12 3.8% Outperform Texas Instruments TXN $77.86 $2.00 2.6% Market Perform Xilinx XLNX $58.74 $1.32 2.2% Outperform Source: FactSet, Wells Fargo Securities, LLC
Gartner disclaimer: All statements in this report attributable to Gartner represent Wells Fargo Securities’ interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice.
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WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT
Valuation Range Information: MU Basis and Risks: Our valuation range is based on approximately 7.7-9.0x our FY18 EPS estimate of $3.92. Risks include highly volatile pricing for DRAM and NAND flash, the need for relatively high levels of capital investment, and large swings in Micron's profitability that have occurred in the past and which we think are likely to continue in the future.
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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: March 5, 2017 42% of companies covered by Wells Fargo Securities, LLC Wells Fargo Securities, LLC has provided investment banking
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SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
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