01 May 2015 Asia Pacific/ Equity Research Devices

MediaTek Inc.

(2454.TW / 2454 TT) Rating NEUTRAL* Price (30 Apr 15, NT$) 395.00 RESULTS

Target price (NT$) 405.00¹ Upside/downside (%) 2.5 Mkt cap (NT$ mn) 708,117 (US$ 23,121) 2Q lacks growth, but a high bar is set for 2H Enterprise value (NT$ mn) 544,619 ■ 1Q15 results in line with CS, but below street. 1Q15 sales were already Number of shares (mn) 1,792.70 Free float (%) 89.1 reported at NT$47.5 bn, -14.3% QoQ. shipments were 85 mn 52-week price range 535.0 - 390.0 (30mn LTE), down from 95-100mn in 4Q14 due to seasonality and emerging ADTO - 6M (US$ mn) 101.0 market weakness. GMs met our 47.3% vs 46-48% guidance and OpM was also *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. in line at 16.1% on cost controls. Lower non-op income kept EPS only in line ¹Target price is for 12 months. with our NT$4.62 and below street's NT$4.97.

Research Analysts ■ 2Q15 guidance below, inventory elevated. Sales were guided -5% to +3% Randy Abrams, CFA QoQ, below CS/street's +9%/+18% QoQ on price pressure and 4G mix 886 2 2715 6366 [email protected] skewed to the entry level. Margins are in line, with GMs at 45.5-47.5% and Nickie Yue OpM at 12.5-16.5%. Inventory is elevated, at 102 days and guided to stay 886 2 2715 6364 98-110 days in 2Q15, requiring 2H15 acceleration. [email protected] ■ 2H15 bar still set high. Despite 1H weakness, Mediatek maintained the 450 mn smartphone target for 2015, requiring +57% 1H/2H ramp from 175 mn to 275 mn and 50% QoQ growth in 3Q15 to 135-140 mn vs 4Q seasonally of flat to down. Mediatek maintains a floor on GMs at 45-46%, with 2H15 support from refreshed high-tier (Helio X120), mid-range (MT6735/M and MT6753) and 3G entry tier products (MT6580). Management acknowledged sales falling to the low-end of its +10-20% 2015 sales target and trimmed opex from +20% YoY to 15-17% YoY. ■ Maintain low-end estimates, street finally to adjust. We keep our toned down view and well below street estimates at NT$23.50/NT$27 balancing acceleration on the entry-level LTE with pricing pressure and unit slowdown on 3G, still a drag at 65-70% of volumes. The street likely makes sharp adjustments from optimistic expectations, so we would get constructive with a sharp reset and evidence of a better 4G inflection that can turn around sales/margins.

Share price performance Financial and valuation metrics

Year 12/14A 12/15E 12/16E 12/17E Price (LHS) Rebased Rel (RHS) Revenue (NT$ mn) 213,062.9 220,271.4 239,732.2 258,966.0 600 140 EBITDA (NT$ mn) 50,007.1 42,429.5 48,486.8 54,124.1 500 120 400 EBIT (NT$ mn) 47,241.3 39,649.3 45,687.1 51,321.5 300 100 200 80 Net profit (NT$ mn) 45,356.5 36,726.1 42,204.9 49,839.4 EPS (CS adj.) (NT$) 29.40 23.50 27.00 31.89 Change from previous EPS (%) n.a. -0.0 0 Consensus EPS (NT$) n.a. 29.1 32.8 34.2 The price relative chart measures performance against the EPS growth (%) 46.1 -20.1 14.9 18.1 TAIWAN SE WEIGHTED INDEX which closed at 9820.05 on P/E (x) 13.4 16.8 14.6 12.4 30/04/15 On 30/04/15 the spot exchange rate was NT$30.63/US$1 Dividend yield (%) 3.8 5.6 4.5 5.1 EV/EBITDA (x) 10.7 12.8 10.8 9.3 Performance Over 1M 3M 12M P/B (x) 2.5 2.7 2.5 2.4 Absolute (%) -6.7 -18.2 -16.3 ROE (%) 20.5 15.4 17.9 19.7 Relative (%) -9.2 -23.1 -28.0 Net debt/equity (%) net cash net cash net cash net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, 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.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and

01 May 2015 Focus charts

Figure 1: Mediatek 1Q15—3Q15 and 2015/2016 estimates in millions, unless otherwise stated 1Q15 2Q15 3Q15 2015 2016 2017 (NT$ mn) Actual CS(old) Street Guidance CS CS(old) Street Guidance CS CS(old) Street CS CS(old) Street CS CS(old) Street Sales $47,536 $47,535 $47,914 NT$45.5-49.9bn $48,217 $51,855 $56,426 NT$45.2-49bn $60,388 $61,844 $66,735 $220,271 $224,731 $237,082 $239,732 $247,330 $261,280 Chg -14.3% -14.3% -13.6% 10% to -18% 1.4% 9.1% 17.8% -5% to +3% 25.2% 19.3% 18.3% 3.4% 5.5% 11.2% 8.8% 10.1% 10.2% GM% 47.3% 47.3% 47.0% 46-48% 46.5% 45.5% 46.7% 45.5-47.5% 46.5% 45.5% 47.5% 46.7% 46.0% 47.2% 46.7% 46.6% 46.7% R&D 10,851 11,982 Opex 30-34% 11,394 12,587 12,533 13,216 47,561 51,266 49,333 55,827 SG&A 3,976 3,548 3,900 3,726 3,939 3,912 15,745 15,176 17,021 16,405 OpM% 16.1% 14.6% 16.2% 12-18% 14.8% 14.0% 18.5% 12-17% 19.2% 17.8% 20.9% 18.0% 16.4% 19.6% 19.1% 17.4% 20.0% Net Inc. 7,226 7,247 7,761 NT$31.5 6,509 7,232 10,239 NT$30.7 10,689 10,799 13,628 36,726 36,737 45,256 42,205 42,208 50,472 EPS (NT$) $4.62 $4.64 $4.95 $4.16 $4.63 $6.49 $6.84 $6.91 $8.72 $23.50 $23.50 $28.57 $27.00 $27.00 $32.08 Source: the BLOOMBERG PROFESSIONAL™ service consensus, Company data, Credit Suisse estimates

Figure 2: Mediatek 2G/3G/LTE units vs ASPs Figure 3: Mediatek 2G/3G/LTE sales vs margins Units (mn) ASPs (US$) Sales (NT$mn) GM (%) 150 $25 32,500 65% 30,000 60% 27,500 55% 120 $20 25,000 50% 22,500 45% 90 $15 20,000 40% 17,500 35% 15,000 30% 60 $10 12,500 25% 10,000 20% 30 $5 7,500 15% 5,000 10% 2,500 5%

0 $0 0 0%

1Q06 3Q08 3Q06 1Q07 3Q07 1Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

3Q14 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 1Q15

3Q15E

3Q15E 1Q16E 3Q16E 2G units 3G (WCDMA+TD) units LTE units 2G sales 3G (WCDMA+TD) sales LTE sales 2G ASPs 3G ASPs LTE ASPs Blended ASPs 3G GM % LTE GM % Corporate GM % Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 4: MTK building inventory banking on a strong 2H Figure 5: Mediatek handset assumptions for 2012–17F Inventory Inventory Days NT$mn unless noted 2013 2014 2015F Prior 2016F 2017F (NT$mn) 3G (mn) 223.2 324.5 259.8 260.1 237.7 207.2 35,000 120 4G Smartphones (mn) 0.0 31.8 160.1 160.0 254.5 355.6 30,000 100 Smartphones (mn) 223.2 356.4 419.8 420.1 492.2 562.9 25,000 80 ASPs (US$) $9.93 $10.25 $9.66 $9.67 $9.38 $9.21 20,000 Tablets (mn) 21.9 41.3 45.1 45.1 50.1 54.7 60 15,000 ASPs (US$) $12.28 $10.94 $10.18 $10.18 $10.00 $9.80 Handset/Tablet Sales 93,424 138,934 150,586 153,450 166,987 183,350 40 10,000 Smartphone % of sales 47.7% 50.9% 56.9% 56.3% 59.1% 61.5% 5,000 20 Tablet % of sales 5.8% 6.3% 6.4% 6.4% 6.4% 6.3% Total Sales 135,968 213,062 220,271 224,731 239,732 258,966 - 0 GM % 44.0% 48.8% 46.7% 46.0% 46.7% 47.0%

Op M% 18.6% 22.2% 18.0% 16.4% 19.1% 19.8%

2Q00 1Q07 4Q13 1Q01 4Q01 3Q02 2Q03 1Q04 4Q04 3Q05 2Q06 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12 1Q13 3Q14

2Q15E EPS $20.13 $29.40 $23.50 $23.50 $27.00 $31.89 Inventory Inventory Days EPS growth 57.1% 46.1% -20.1% -20.1% 14.9% 18.1% Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 6: HoH momentum slowed as units Figure 7: Implied guidance suggests that 2H15 will have increased to rebound to +57% HoH from last year's +18% HoH Feature phone units (mn) HoH (%) Smartphone units (mn) HoH (%) 600.0 120% 600.0 160% 100% 140% 500.0 500.0 80% 120% 400.0 400.0 60% 100% 300.0 40% 300.0 80% 20% 60% 200.0 200.0 0% 40% 100.0 100.0 -20% 20% 0.0 -40% 0.0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Implied 2015 Feature Phone Units HoH Growth Smartphone units HoH Growth

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

MediaTek Inc. (2454.TW / 2454 TT) 2 01 May 2015 2Q lacks growth, but a high bar is set for a 2H recovery Mediatek is facing a challenging 1H15, with unit growth slowing sharply from the past few Mediatek's 1H15 weighed years due to some impact from emerging market currency weakness, inroads from a low base down by 3G weakness in by Spreadtrum and more recently SoFIA and a faster-than-expected compression of 3G China and low-end units in China. The company had a weak 1Q15 down 14% QoQ even with some pull-ins after competition and an LTE mix the Chinese New Year in March and is now guiding flat QoQ in 2Q15 vs historical +12% QoQ skewed to the entry tier growth, with blended pricing still down 0-5% QoQ even with LTE ramping up. 4G is ramping well, although the mix is still skewed toward the entry tier (MT6732 and the coming MT6735) with customers with Xiaomi, HTC, LG and planning modest volumes of their models using Mediatek's higher-end Helio X10 (MT6795). Despite the weaker 1H15, management is maintaining its aggressive targets to grow shipments from 350 mn to 450 mn, above our cut forecast to 420 mn. We believe the company still wants to keep in place these aspirational targets to strive for a good full-year performance, although believe that these set the bar high and place risk of another round of cuts in 2H, if the year has a more normal progression. We note that feature phones saw decelerating HoH growth to 10-30% after the first four years of ramp, requiring an against the grain reacceleration to 50-60% HoH growth at a more mature rate of smartphone penetration. We noted in our recent smartphone report following field visits the good traction for entry level LTE at the small-mid tier brands, though we do see some TAM erosion from Xiaomi and 's internal solutions, competition from Intel/Spreadtrum at the low-end and needing emerging markets following the share loss at . We cut estimates in our late March downgrade post AIC and again in our preview on 28 Maintaining our street low April, so maintain EPS well below street at NT$23.50/NT$27.00 vs street's prior of estimates after revising NT$29/NT$32, which may now issue sharp revisions after leaving estimates too high. We down two times ahead of would get more constructive on a lowering of expectations and more reasonable entry results price that balances out the on-going market pressures with better execution and improvement in the company's LTE position. We stay NEUTRAL with TP of NT$405. 1Q15 results in-line; 2Q15 guidance below

Figure 8: Mediatek 1Q15 results and 2Q15–3Q15 CS estimates vs street in millions, unless otherwise stated 1Q15 2Q15 3Q15 2015 (NT$ mn) Actual CS(old) Street Guidance CS CS(old) Street Guidance CS CS(old) Street Sales $47,536 $47,535 $47,914 NT$45.5-49.9bn $48,217 $51,855 $56,426 NT$45.2-49bn $60,388 $61,844 $66,735 Chg -14.3% -14.3% -13.6% 10% to -18% 1.4% 9.1% 17.8% -5% to +3% 25.2% 19.3% 18.3% GM% 47.3% 47.3% 47.0% 46-48% 46.5% 45.5% 46.7% 45.5-47.5% 46.5% 45.5% 47.5% R&D 10,851 11,982 Opex 30-34% 11,394 12,587 12,533 13,216 SG&A 3,976 3,548 3,900 3,726 3,939 3,912 OpM% 16.1% 14.6% 16.2% 12-18% 14.8% 14.0% 18.5% 12-17% 19.2% 17.8% 20.9% Net Inc. 7,226 7,247 7,761 NT$31.5 6,509 7,232 10,239 NT$30.7 10,689 10,799 13,628 EPS (NT$) $4.62 $4.64 $4.95 $4.16 $4.63 $6.49 $6.84 $6.91 $8.72 Source: the BLOOMBERG PROFESSIONAL™ service, Company data, Credit Suisse estimates 1Q15 sales were already reported at NT$47.5 bn, -14.3% QoQ, near the midpoint of 1Q15 sales in line with guidance for down 10-18% QoQ. Smartphone shipments were 85 mn (30 mn LTE), down guidance; smartphone from 95-100 mn in 4Q14 due to seasonality and emerging market weakness. Operating shipments declined due to profitability stayed in line, with GMs meeting our 47.3% vs 46-48% guidance and OpM in emerging market weakness line at 16.1% on cost controls. Lower non-op. income, however, kept EPS only in line with our NT$4.62 and below street's NT$4.97.

MediaTek Inc. (2454.TW / 2454 TT) 3 01 May 2015

2Q15 at the low-end of expectations, inventory also elevated Sales were guided -5% to +3% QoQ, below our lowered +9% QoQ and street's +18% QoQ as smartphone sales were flat off the lower base as slightly up units to 85-90 mn were offset by 0-5% price erosion due to 3G price pressure and 4G mix skewed to the entry level initially. We have trimmed our 3G expectation since March from 300 mn to 260 mn smartphones, 2Q15 guided +3% to -5%, down 20% YoY as China 3G continues to decelerate (MIIT units down 87% YTD) and below our +9% QoQ exports are impacted by depreciating currencies and low-end pressure from SPRD and now Intel SoFIA (see our China smartphone report) and SoFIA quad core on WCDMA phones selling at US$27-50 factory prices and targeting to ramp to 30 mn units this year. We also believe Mediatek’s high-end 3G octa-core market has declined as 4G ramps, with ASPs -50% YoY to US$10 and the company has delayed lower cost MT6570/6580 later in 2Q to 3Q to clear older product inventory.

Figure 9: China 3G declining more than 4G pick-up Figure 10: 4G net adds still ramping Shipments: mn Mkt share 4G monthly net adds (mn) Accumulative Total (mn) 70 100% 25.0 180.0 90% 60 160.0 80% 20.0 140.0 50 70% 120.0 60% 15.0 40 100.0 50% 80.0 30 40% 10.0 60.0 20 30% 20% 5.0 40.0 10 10% 20.0

0 0% 0.0 0.0

Jan Jan Jan Jan

Jul Jul Jul

Mar Mar Mar Mar

Sep Nov Sep Nov Sep Nov

May May May

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- 12 - 13 - 14 -

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12 13 14 15

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12 13 14

Jul-14

Oct-14 Apr-14

Jan-14 Jun-14 Jan-15

Feb-14 Mar-14 Feb-15 Mar-15

Aug-14 Sep-14 Nov-14 Dec-14 May-14

LTE % 2G 3G LTE Total Accumulative China Telecom

Source: MIIT, Credit Suisse Source: MIIT, Credit Suisse 4G volumes ramping but skewed to the entry tier and smaller brands Mediatek’s 4G is still rising at China brands outside the top five and into global tier-2 Mediatek's 4G volumes brands HTC, Sony and LG, keeping our LTE estimates intact at 160 mn and above the ramping up with the company's 150 mn guidance. The mix is skewed initially to lower GM 6735/M entry MT6735, but mix with the platform at US$8 and 6735 at US$10-11, whereas forecasts from brands for high-end high-end Helio remains 6795 at US$20-25 have dropped and the higher-end MT6753 octa-core is launching later modest in 2Q15. Mediatek is also still under penetrated at the top brands, with Huawei captive with Hi- Silicon on majority of 4G, ZTE mostly QCOM, and Xiaomi and Coolpad/ZTE still majority QCOM on 4G, keeping Mediatek’s ramp more at mid-tier and smaller Chinese brands and the now smaller global brands. We also view Samsung's entry as premature as noted by management on the earnings call.

MediaTek Inc. (2454.TW / 2454 TT) 4 01 May 2015

Figure 11: Mediatek entry tier LTE ramping well, but Entry 3G under pressure and the high-end mix still small

Source: Company data, Credit Suisse estimates Tablet market no longer seeing strong growth The tablet market has moved into a period of ex-growth due to only incremental innovations and cannibalisation from smartphones, with whitebox units potentially declining 8% YoY from 120 mn in 2014 to 110mn in 2015. Mediatek maintained its target for 50 mn units, up 20% YoY. To continue growth, Mediatek is introducing tablet versions of its LTE chipsets at the mainstream this quarter (MT8735/M), entry tablets in 2H15 and a new high-end octa-core version in 4Q15. We note that Intel also maintains targets to still grow units about 10 mn to 44 mn in 2015, and most customers have continued to widen use of Intel’s platforms. We are seeing SoFIA gain significant traction in low priced 7” tablets at US$40-100, Bay Trail mainstream for 8-11” tablets at US$70-200 and entry 2-1 devices and Core M for high priced (US$400) fanless notebook and 2-1 designs. Figure 12: Mediatek still bringing out product refreshes in Figure 13: Market share by chipset companies tablets but the market is slowing Timing 2Q15 3Q15 4Q15 4Q15 100% Other Other Other 24.4 Market tier Mainstream Entry High-end 90% TI OMAP NVIDIATI OMAP TI OMAP Qualcomm QualcommTI OMAP Chipset MT8735M MT8735 MT8321 MT8311 MT8783 Tegra Samsung Samsung 80% NVIDIA Tegra Qualcomm Exynos Node 28nm LP 28nm LP 28nm LP 28nm LP 28nm LP Qualcomm Samsung 70% Samsung Exynos Allwinner Allwinner Core Quad Quad Quad Dual Octa Exynos 60% Allwinner ARM core CA53 CA53 CA53 CA7 CA53 Allwinner Intel Intel Intel Intel 50% Mediatek Frequency 1.0GHz 1.3GHz 1.3GHz 1.3GHz 1.3GHz Mediatek Rockchip Mediatek GPU Mali T720 Mali T720 Mali 400 Mali 400 Mali T720 40% Mediatek Rockchip Modem Cat 4 Cat 4 Cat 4 Cat 4 Cat 4 30% Rockchip Display 1024x600 1280x800 1280x800 1280x800 1920x1200 Rockchip 20% Apple Ax Apple Ax Apple Ax 10% Apple Ax

0% 2012 2013 2014 2015 Source: Company data, Credit Suisse Source: Company data, Credit Suisse estimates

MediaTek Inc. (2454.TW / 2454 TT) 5 01 May 2015

2H15 bar is set high, putting risk on further revisions The company maintained 450 mn smartphone target for 2015 (versus our revised 420 mn), 2H15 target sets a high bar, requiring +57% 1H/2H ramp from 175 mn to 275 mn and 50% QoQ growth in 3Q15 to requiring +55-60% HoH 135-140 mn considering 4Q15 seasonally is flat to down in China after the October holiday. growth A look at feature phones showed HoH momentum decelerate progressively as unit growth moved toward a peak, with HoH momentum slowing to 20-40% by 2008-2012 once units passed 300 mn units. Smartphones already decelerated to 20% HoH growth in 2014 at 350 mn units, with now a high bar to reaccelerate to +50-60% growth this late in the unit growth cycle.

Figure 14: Feature phone HoH momentum slowed as units Figure 15: Implied guidance suggests that 2H15 will have increased to rebound 57% HoH from last year's 18% HoH Feature phone units (mn) HoH (%) Smartphone units (mn) HoH (%) 600.0 120% 600.0 160% 100% 140% 500.0 500.0 80% 120% 400.0 400.0 60% 100% 300.0 40% 300.0 80% 20% 60% 200.0 200.0 0% 40% 100.0 100.0 -20% 20% 0.0 -40% 0.0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Implied 2015 Feature Phone Units HoH Growth Smartphone units HoH Growth

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Mediatek inventory also at higher levels after the slower 1H15 Inventory is also elevated, at 102 days based on ending 1Q15 inventory and guided to stay 98- Inventory now elevated at 110 days in 2Q15, requiring the 2H15 speed-up to come through but a factor weighing on 102 days and staying at 98- current foundry/back-end momentum. Mediatek's higher inventory is consistent with other 110 days exiting 2Q15 fabless carrying higher inventory than last year—note that fabless companies reporting to date show inventory up 22 days YoY, a trend aggregated as foundries encouraged customers to build ahead of the high season. The foundry and back-end are now seeing that strength reverse in 2Q15 due to the weight of higher inventory.

Figure 16: Mediatek inventory rising back to pre-crisis peak levels Inventory Inventory Days (NT$mn) 35,000 120

30,000 100 25,000 80 20,000 60 15,000 40 10,000

5,000 20

- 0

2Q00 1Q07 4Q13 1Q01 4Q01 3Q02 2Q03 1Q04 4Q04 3Q05 2Q06 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12 1Q13 3Q14 2Q15E Inventory Inventory Days

Source: Company data, Credit Suisse estimates We analysed implied foundry builds based on Mediatek's revenue profile. Mediatek's sluggish 2Q15 guidance and high inventory level suggest foundries builds to be down 4%

MediaTek Inc. (2454.TW / 2454 TT) 6 01 May 2015

QoQ, a direction consistent with TSMC's down 7-8% QoQ in 2Q15 and more conservative tone from the back-end as other mobile companies are also resetting to the more mixed demand environment after building early.

Figure 17: Mediatek revenue/inventory highlights the 2Q15 correction in wafer demand in millions, unless otherwise stated Mediatek (NT$mn) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Revenue 46,005 54,133 57,472 55,453 47,536 48,217 60,388 64,131 Q/Q Change 16% 18% 6% -4% -14% 1% 25% 6% COGS 23,779 27,309 29,238 28,868 25,038 25,780 32,328 34,171 Gross Margin 48.3% 49.6% 49.1% 47.9% 47.3% 46.5% 46.5% 46.7% Chg in Inventory 7,303 2,677 5,138 -2,123 5,744 1,580 -1,323 -2,129 Foundry Prod (70% of COGs) 21,757 20,990 24,063 18,721 21,547 19,152 21,704 22,429 Outsourcing 100% 100% 100% 100% 100% 100% 100% 100% Manufacturing Builds 21,604 21,605 22,995 19,287 21,068 19,662 21,849 22,429 Foundry Implied QoQ (%) 50% 0% 6% -16% 9% -7% 11% 3%

MediaTek inventory 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Inventory $16,649 $19,326 $24,464 $22,341 $28,085 $29,665 $28,342 $26,213 Inventory Days 64 65 76 71 102 105 80 70 Source: Company data, Credit Suisse estimates Margins may find support from the new products Margins in 2Q15 are falling in line with expectations at about 100 bp, with GMs at 45.5- GMs in 2Q15 falling about 47.5% and OpM at 12.5-16.5%. Mediatek maintains a floor in trying to hold GM downside 100 bp to 45.5-47.5% to 45-46% for this year and hopes to keep them stable near the 45.5-47.5% margin range guided for 2Q15, a positive if they can hold at these levels. The company should see some margin support in 2H15 from refreshed high-tier (Helio X20), mid-range (MT6735/M and MT6753) and 3G-entry tier products (MT6580). For opex, management is prudently dialling back modestly, acknowledging sales now falling at the low-end of its 10-20% initial 2015 revenue growth target and is now adjusting its opex from +20% YoY to 15-17% YoY.

Figure 18: Mediatek 2G/3G/LTE units vs ASPs Figure 19: Mediatek 2G/3G/LTE sales vs margins Units (mn) ASPs (US$) Sales (NT$mn) GM (%) 150 $25 32,500 65% 30,000 60% 27,500 55% 120 $20 25,000 50% 22,500 45% 90 $15 20,000 40% 17,500 35% 15,000 30% 60 $10 12,500 25% 10,000 20% 30 $5 7,500 15% 5,000 10% 2,500 5%

0 $0 0 0%

1Q06 3Q08 3Q06 1Q07 3Q07 1Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15

3Q14 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 1Q15

3Q15E

3Q15E 1Q16E 3Q16E 2G units 3G (WCDMA+TD) units LTE units 2G sales 3G (WCDMA+TD) sales LTE sales 2G ASPs 3G ASPs LTE ASPs Blended ASPs 3G GM % LTE GM % Corporate GM % Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Maintaining 2015/2016E EPS We already revised our estimates following the AIC and ahead of the quarter to cut our Maintaining EPS at blended ASP assumptions due to competition and mix, and also revise down our 3G unit NT$23.50/NT$27.00 for projections. We maintain our 2015/2016E EPS at NT$23.50/NT$27.00, although we factor 2015/2016E in the lighter 2Q15 and put more weight on a 2H15 recovery. The high targets for 2H though does not fully de-risk expectations and could set the stage for another round of cuts at mid-year, if growth off the weak 1H tracks a more normal 2H growth trajectory, competition intensifies, or currency volatility continues to weigh on demand.

MediaTek Inc. (2454.TW / 2454 TT) 7 01 May 2015

Figure 20: CS vs street 2015-2016 estimate summary 2014 2015 2016 2017 (NT$ mn) Actual CS CS(old) Street CS CS(old) Street Sales $213,063 $220,271 $224,731 $237,082 $239,732 $247,330 $261,280 Chg 56.6% 3.4% 5.5% 11.2% 8.8% 10.1% 10.2% GM% 48.8% 46.7% 46.0% 47.2% 46.7% 46.6% 46.7% R&D 43,337 47,561 51,266 49,333 55,827 SG&A 13,290 15,745 15,176 17,021 16,405 OpM% 22.2% 18.0% 16.4% 19.6% 19.1% 17.4% 20.0% Net Inc. 45,357 36,726 36,737 45,256 42,205 42,208 50,472 EPS (NT$) $29.40 $23.50 $23.50 $28.57 $27.00 $27.00 $32.08 Source: Company data, Credit Suisse estimates The following are key operating assumptions for our estimates:

■ Smartphones maintained. We maintain our 2015 smartphone units at 420 mn, below the company's 450 mn target. We estimate 160 mn LTE units vs 150 mn+ guidance, but have 3G units down 20% YoY to 260 mn.

■ Tablets growing 10%. We maintain our tablet projection at 45 mn, +10% YoY and below the company's 50 mn target due to the market slowdown.

■ Feature phones down 20%. We model feature phones now down 20% YoY to 237 mn units, with growth lower than our prior forecast as sales are declining even into 2Q15, normally a growth quarter for units.

■ Non-handset relatively stable. We model DTV sales down 10% YoY as the company is seeing some inroads from local players and Novatek and Samsung insource some of its own controllers. The company is still seeing modest growth in connectivity and other products tied to automotive and IoT.

Figure 21: Mediatek operating assumptions in millions, unless otherwise stated Quarters Years NT$mn unless noted 1Q15 2Q15E 3Q15E 4Q15E 2011 2012 2013 2014 2015F Prior 2016F 3G Smartphones (mn) 58.9 57.2 70.4 73.3 21.8 109.8 223.2 324.5 259.8 260.1 237.7 4G Smartphones (mn) 24.9 32.4 47.0 55.7 0.0 0.0 0.0 31.8 160.1 160.0 254.5 Smartphones (mn) 83.8 89.6 117.4 129.0 10.0 109.8 223.2 356.4 419.8 420.1 492.2 ASPs (US$) $10.06 $9.70 $9.58 $9.49 $13.33 $10.82 $9.93 $10.25 $9.66 $9.67 $9.38 Tablets (mn) 8.8 10.5 12.6 13.2 0.0 0.0 21.9 41.3 45.1 45.1 50.1 ASPs (US$) $10.28 $10.23 $10.18 $10.13 $0.00 $0.00 $12.28 $10.94 $10.18 $10.18 $10.00 Feature phones (mn) 54.4 52.7 63.3 66.4 530.2 391.9 354.0 300.0 236.8 269.6 229.9 ASPs (US$) $1.56 $1.53 $1.50 $1.47 $3.58 $2.26 $1.88 $1.65 $1.51 $1.51 $1.40 Handset/Tablet Sales 32,067 32,473 41,371 44,675 59,512 61,419 93,424 138,934 150,586 153,450 166,987 DTV 7,686 7,674 9,448 9,772 10,722 13,490 16,104 38,283 34,581 35,589 35,677 PC Optical 1,678 1,622 1,721 1,654 10,596 11,489 10,476 8,759 6,674 6,805 5,427 Consumer DVD 552 607 693 614 4,160 3,515 3,515 2,945 2,467 2,551 2,044 WLAN () 3,312 3,480 4,604 4,963 1,867 9,365 12,450 15,726 16,360 16,674 18,290 LCD Monitor 648 647 662 645 0 0 0 2,532 2,602 2,621 2,585 STB 1,231 1,280 1,366 1,259 0 0 0 4,500 5,135 5,173 5,386 Other (GPS, RFID, IoT) 363 435 522 548 0 0 0 1,381 1,868 1,868 3,336 Total Sales 47,536 48,217 60,388 64,131 86,858 99,278 135,968 213,062 220,271 224,731 239,732 GM % 47.3% 46.5% 46.5% 46.7% 45.3% 41.4% 44.0% 48.8% 46.7% 46.0% 46.7% Op M% 23.5% 23.6% 24.0% 17.8% 14.2% 12.5% 18.6% 22.2% 18.0% 16.4% 19.1% EPS $6.85 $8.03 $8.51 $6.65 $12.52 $12.81 $20.13 $29.40 $23.50 $23.50 $27.00 Source: Company data, Credit Suisse estimates

MediaTek Inc. (2454.TW / 2454 TT) 8 01 May 2015

Balance sheet remains sold MediaTek retains a strong balance sheet with NT$154 bn net cash and investments MediaTek now has NT$99 (NT$99/share). The company also declared, on Thursday evening (30 April), an NT$22 net cash share and is dividend, a 75% payout off the NT$29.4, representing a 5.6% cash yield. paying out NT$22 cash dividend (75% payout) Figure 22: Balance sheet summary Balance Sheet (NT$ mn) 1Q15A 4Q14 Diff % 8 Yr Avg +/- Avg Cash and Investments 204,951 205,294 0% 90,271 114,680 Total Debt 50,988 46,253 7,518 43,470 Net Cash and investments 153,963 159,042 -3% 82,752 71,211 Net Cash/Share 98.50 101.75 -3.25 65.52 32.99

Accts. Receivable 13,347 12,552 6% 7,760 5,587 Receivable Days 26 21 5 27 -2

Inventory 28,085 22,341 26% 9,917 18,168 Inventory Days 102 71 31.7 66 36 Accounts Payable Days 72 46 25 64 7 Cash Conversion Cycle 56 45 11 29 27 SH Equity 253,142 247,168 2% 121,249 131,893 Book Value / Share 161.96 158.14 3.82 95.18 66.78 Source: Company data, Credit Suisse Free cash flow remains solid despite weaker sales Historically, MediaTek has generated strong free cash flows due to its high operating margins and small requirements for capex. We project the company to generate NT$45 bn FCF in 2015, up from NT$35 bn in 2014 as the company had above trend building expense in 2014. The company maintained its 75% payout or NT$22 dividend in 2015, representing a 5.6% cash dividend yield, up from NT$15 (3.1% yield) paid out in 2014. The company may need to raise payout or cut dividend next year if earnings decline as now expected, though with NT$100 cash/share has ample resources to maintain its dividend level or pursue a buyback to support the shares.

Figure 23: Cash flow summary for MediaTek—2006-14, FY15-17E Annual (NT$mn) CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15E CY16E CY17E CY03-14 Avg Revenue 52,942 74,779 90,402 115,512 113,522 86,857 99,263 136,056 213,063 220,271 239,732 258,966 92,250 Capital spending -1,987 -1,127 -1,705 -1,574 -2,122 -2,585 -2,268 -1,629 -9,828 -6,011 -2,000 -2,000 -2,328 Capex/Revenue (%) 3.8 1.5 1.9 1.4 1.9 3.0 2.3 1.2 4.6 2.7 0.8 0.8 2.4 Dep and amort 1,473 1,830 3,295 3,245 2,978 2,729 3,696 1,727 2,766 3,164 2,800 2,803 2,125 Depr/Revenue (%) 2.78 2.45 3.64 2.81 2.62 3.14 3.72 1.27 1.30 1.44 1.17 1.08 2.32 Operating cash flow 23,343 27,498 35,614 55,250 29,433 16,715 11,338 39,603 44,329 50,694 44,751 53,511 27,831 Free cash flow 21,356 26,371 33,910 53,677 27,310 14,130 9,069 37,974 34,500 44,683 42,751 51,511 25,503 FCF and Dividend Yields CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15E CY16E CY17E CY03-14 Avg FCF / Share (NT$) 21.10 25.52 32.06 49.86 25.11 12.99 7.45 28.31 22.36 28.59 27.35 32.96 22.82 FCF Yield (%) 5.3 6.5 8.1 12.6 6.4 3.3 1.9 7.2 5.7 7.2 6.9 8.3 5.8 FCF / EV (%) 4.6 5.7 7.3 11.6 5.9 3.0 2.0 8.2 7.4 9.6 9.2 11.1 5.5 Dividend per share (NT$) 11.00 15.00 18.86 13.90 26.00 20.22 8.33 9.00 15.00 22.00 17.62 20.25 13.65 Dividend Yield (%) 4.1 2.5 6.6 3.1 6.6 5.1 2.1 2.3 3.8 5.6 4.5 5.1 4.0 Source: Company data, Credit Suisse estimates Maintain NEUTRAL The stock is now trading at 17x our 2015E EPS of NT$23.50, slightly above its peer group Stock now trading at 17x our at 16x EPS. We keep a more toned down view on Mediatek balancing out an accelerating estimates, above peers at ramp and share gains on LTE with pricing pressure and unit slowdown on 3G, still a drag 16x at 65-70% of volumes. We would get more constructive on a reset to expectations and 4G inflection on sales/margins that can offset the 3G weakness and competition.

MediaTek Inc. (2454.TW / 2454 TT) 9 01 May 2015

Figure 24: Mediatek PE band—trading at 17x 2015 EPS Figure 25: Mediatek Qfii holding now at 62% NT$ NT$ stock % Mediatek Taiwan GAAP PE Band 23x 700 90.0%

690 80.0% 600 +2 STD 610 70.0% 500 60.0% 530 16x +1 STD 400 450 50.0% 12x 370 300 40.0% 30.0% 290 200 -1 STD 20.0% 210 100 5x -2 STD 10.0% 130 0 0.0%

50

Jul-01 Jul-04

Oct-02 Oct-05 Oct-08 Oct-11 Apr-14

Jun-09 Jan-10 Jun-12 Jan-13

Mar-02 Mar-05 Mar-08 Mar-11

Nov-14 Dec-03 Dec-06 Aug-07 Aug-10 Aug-13

May-03 May-06

Jul-07 Jul-09 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-08 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-01 Mediatek QFII % (RHS) Mediatek Price NT$ (LHS) Mediatek QFII as % of TAIEX QFII (%) Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse research, TEJ

Figure 26: Asian fabless comparisons—MediaTek trading in-line with its peer group Price Mkt Cap EV/Sales (x) P/E Multiple (x) P/B Multiple (x) ROE Trough/Peak (EV/Sales) Company Ticker 4/30/2015 (US$mn) 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 Select Asian fabless MediaTek 2454.TW $395.00 $23,121 2.5 2.4 2.1 13.4 16.8 14.6 2.5 2.4 2.3 18.4 14.5 15.8 Realtek 2379.TW $96.00 $1,583 1.0 1.0 0.9 15.7 14.3 13.3 2.2 2.3 2.2 14.0 15.8 16.2 Qualcomm QCOM $68.67 $111,903 3.9 4.2 4.2 13.0 14.3 12.4 3.0 3.2 3.4 23.1 22.3 27.4 XLNX $43.34 $11,331 4.8 4.8 4.8 19.0 17.5 20.1 4.2 4.4 3.6 24.0 26.1 18.7 Altera ALTR $40.72 $12,260 5.8 6.5 5.9 26.3 33.9 26.3 3.9 3.5 3.0 14.7 10.3 11.5 PMCS PMCS $8.58 $1,709 2.9 2.8 2.6 21.5 17.9 15.0 2.7 2.8 2.3 n.a. 14.1 14.9 Nvidia NVDA $22.14 $12,247 2.2 1.9 1.8 30.3 19.8 18.5 2.8 2.7 2.5 9.4 14.2 15.2 Broadcom BRCM $44.40 $26,551 3.0 2.9 2.7 14.9 13.0 12.7 2.9 2.7 2.4 20.5 21.2 19.4 Avago AVGO $117.03 $30,028 7.9 4.7 3.7 26.5 15.0 12.9 9.7 7.6 5.0 36.7 50.5 39.1 Marvell MRVL $14.06 $7,241 1.8 1.6 1.6 13.6 12.2 15.5 1.6 1.5 1.4 11.5 11.9 9.3 Silicon Labs SLAB $52.53 $2,244 3.2 2.9 2.7 25.1 22.9 19.4 2.9 2.7 2.4 12.2 10.2 11.7 Skyworks SWKS $93.59 $17,879 7.5 5.4 4.8 28.9 19.0 16.7 7.0 5.8 4.8 26.9 30.0 27.9 Median 3.2 2.9 2.7 21.5 17.5 15.5 2.9 2.8 2.5 17.6 15.8 16.2 Mean 4.0 3.5 3.2 21.3 18.2 16.6 3.9 3.5 3.0 19.3 20.6 19.2 Source: Company data, Bloomberg estimates for not covered companies, Credit Suisse estimates Mediatek financials and operating metrics

Figure 27: Mediatek income statement in millions, unless otherwise stated Summary Income Statement 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 2012 2013 2014F 2015F 2016F Net Sales 46,005 54,133 57,472 55,453 47,536 48,217 60,388 64,131 99,263 136,056 213,063 220,271 239,732 Sequential Change 15.6 17.7 6.2 -3.5 -14.3 1.4 25.2 6.2 Y/Y Change 91.9 62.7 47.3 39.3 3.3 -10.9 5.1 15.6 14.3 37.1 56.6 3.4 8.8 Cost of Goods Sold 23,779 27,309 29,238 28,868 25,038 25,780 32,328 34,171 58,203 76,250 109,194 117,317 127,691 Gross Profits 22,226 26,824 28,234 26,585 22,498 22,437 28,060 29,960 41,060 59,806 103,869 102,955 112,041 Gross Margin 48.3 49.6 49.1 47.9 47.3 46.5 46.5 46.7 41.4 44.0 48.8 46.7 46.7 Operating Exp. Promotion 1,134 2,072 1,521 2,646 2,169 2,147 2,169 2,212 3,115 4,562 7,373 8,697 9,470 % of Sales 2.5 3.8 2.6 4.8 4.6 4.5 3.6 3.4 3.1 3.4 3.5 3.9 4.0 Operating Exp. Administrative 1,363 1,589 1,381 1,584 1,807 1,753 1,770 1,717 2,912 3,546 5,917 7,047 7,551 % of Sales 3.0 2.9 2.4 2.9 3.8 3.6 2.9 2.7 2.9 2.6 2.8 3.2 3.1 Operating Expense R&D 8,915 10,403 11,538 12,481 10,851 11,394 12,533 12,784 22,630 26,454 43,337 47,561 49,333 % of Sales 19.4 19.2 20.1 22.5 22.8 23.6 20.8 19.9 22.8 19.4 20.3 21.6 20.6 Total Operating Exp 11,413 14,063 14,440 16,711 14,827 15,294 16,472 16,713 28,657 34,561 56,627 63,306 66,354 Income from Operations 10,813 12,760 13,794 9,874 7,671 7,143 11,588 13,247 12,404 25,245 47,241 39,649 45,687 % of Sales 23.5 23.6 24.0 17.8 16.1 14.8 19.2 20.7 12.5 18.6 22.2 18.0 19.1 Non Operating Income 335 812 895 803 221 200 200 200 2,858 1,338 2,844 821 800 Net Investment Income/ (Loss) 536 209 234 245 250 250 250 250 1,223 2,450 1,223 1,000 1,000 Pretax Income 11,501 14,153 14,914 11,782 8,142 7,593 12,038 13,697 16,485 29,033 51,309 41,470 47,487 % of Sales 25.0 26.1 25.9 21.2 17.1 15.7 19.9 21.4 16.6 21.3 24.1 18.8 19.8 Income Taxes Exp. /(Gains) 1,362 1,605 1,612 1,372 891 1,059 1,324 1,370 941 2,062 5,951 4,644 5,182 Tax Rate 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 5.7 7.1 11.6 11.2 10.9 Net Income after Extraordinaries 10,147 12,558 13,299 10,393 7,226 6,509 10,689 12,302 15,583 27,001 45,357 36,726 42,205 % of Sales 22.1 23.2 23.1 18.7 15.2 13.5 17.7 19.2 15.7 19.8 21.3 16.7 17.6 Net EPS 6.85 8.03 8.51 6.65 4.62 4.16 6.84 7.87 12.81 20.13 29.40 23.50 27.00 Share Count (weighted) 1,482 1,563 1,563 1,563 1,563 1,563 1,563 1,563 1,217 1,342 1,543 1,563 1,563 Source: Company data, Credit Suisse estimates

MediaTek Inc. (2454.TW / 2454 TT) 10 01 May 2015

Figure 28: MediaTek—key operating metrics Revenue by product (NT$mn) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 2012 2013 2014 2015F 2016F Handsets 27,416 31,033 33,550 33,294 29,233 29,175 37,434 40,562 61,419 85,450 125,293 136,404 151,623 DTV 7726 10,518 10,533 9,506 7686 7,674 9,448 9,772 13,490 16,104 38,283 34,581 35,677 PC Optical (traditional) 2,050 1,939 1,936 1,816 1,462 1,418 1,508 1,452 10,598 9,477 7,742 5,839 4,707 Blu-Ray Optical 263 256 266 233 216 204 213 202 891 999 1,018 835 720 DVD Player 379 368 359 314 245 238 238 203 2,401 2,050 1,420 924 643 Blu-Ray Player 316 391 426 393 307 369 456 411 1,114 1,465 1,525 1,543 1,401 WLAN (Ralink) 3,831 4,117 4,118 3,660 3,312 3,480 4,604 4,963 9,365 12,450 15,726 16,360 18,290 Total Revenue (NT$mn) 41980 48,623 51,188 49,217 42461 42,558 53,901 57,565 99,278 127,995 191,007 196,485 213,062 Handset Units (mn) 164 168 169 155 138 142 181 195 502 577 656 657 722 Handset ASPs (US$) 5.58 6.13 6.62 6.98 6.72 6.68 6.75 6.76 4.13 4.99 6.32 6.72 6.84 Handset Revenue (NT$mn) 27,416 31,033 33,550 33,294 29,233 29,175 37,434 40,562 61,419 85,450 125,293 136,404 151,623 2. units (mn - for all below) 88.7 79.8 71.1 60.4 54.4 52.7 63.3 66.4 391.9 354.0 300.0 236.8 229.9 WCDMA units 56.0 66.6 74.0 63.2 50.6 50.6 63.8 67.0 97.2 168.1 259.8 231.9 221.6 TD-SCDMA units 19.0 20.0 13.9 11.8 8.3 6.6 6.6 6.3 12.5 55.1 64.7 27.9 16.2 LTE units 0.0 1.9 10.0 20.0 24.9 32.4 47.0 55.7 0.0 0.0 31.8 160.1 254.5 China units 57.3 58.9 59.2 54.4 45.6 47.0 59.6 64.5 170.5 213.6 229.7 216.7 238.3 Emerging/developed mkt units 93.3 95.1 94.6 85.5 81.5 83.3 104.8 111.4 286.3 311.7 368.5 381.0 411.6 Tier one units 13.1 14.3 15.2 15.5 11.1 12.1 16.3 19.5 44.8 52.0 58.1 59.0 72.2 Feature phone units 88.7 79.8 71.1 60.4 54.4 52.7 63.3 66.4 391.9 354.0 300.0 236.8 229.9 Smartphone units 75.0 88.4 97.9 95.0 83.8 89.6 117.4 129.0 109.8 223.2 356.4 419.8 492.2 Tablet units 7.3 9.5 11.9 12.5 8.8 10.5 12.6 13.2 0.0 21.9 41.3 45.1 50.1 FX Rate (NT$/US$) 30.0 30.1 30.0 30.7 31.5 30.7 30.7 30.7 29.7 29.7 30.2 30.9 30.7 Source: Company data, Credit Suisse estimates Figure 29: MediaTek—balance sheet summary NT$ mn 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 2012 2013 2014 2015 2016 Cash, Cash Equivalent 173,917 196,431 194,721 205,294 204,951 213,070 200,865 220,698 90,276 139,219 205,294 220,698 239,523 Inventories 16,649 19,326 24,464 22,341 28,085 29,665 31,885 28,086 13,867 9,347 22,341 28,086 25,010 Account receivables 13,572 12,983 15,418 12,552 13,347 13,210 16,545 17,570 6,585 7,628 12,552 17,570 16,783 Other current assets 6,745 7,652 8,923 8,367 6,380 6,471 8,105 8,607 7,343 5,547 8,367 8,607 8,222 Total current asset 210,884 236,392 243,526 248,555 252,763 262,416 257,399 274,961 118,071 161,741 248,555 274,961 289,538 LT investment 10,122 9,918 12,179 15,001 17,236 17,236 17,236 17,236 65,120 68,040 15,001 17,236 17,236 Fixed Assets 14,770 15,180 16,736 23,295 27,334 26,480 25,625 24,771 10,708 11,312 23,295 24,771 21,354 Intangible Assets 60,584 59,488 59,259 60,758 63,007 63,007 63,007 63,007 15,842 15,509 60,758 63,007 63,007 Other Assets 2,183 2,879 3,382 3,511 3,494 3,494 3,494 3,494 502 2,035 3,511 3,494 3,494 Total Non-Current Assets 87,659 87,465 91,557 102,564 111,071 110,217 109,362 108,508 92,172 96,896 102,564 108,508 105,091 Total assets 298,543 323,857 335,083 351,119 363,834 372,633 366,761 383,469 210,243 258,637 351,119 383,469 394,628 Accounts payable 17,421 18,439 21,307 14,605 19,650 20,232 25,371 26,818 9,047 10,944 14,605 26,818 25,586 Other current liabilities 28,976 55,233 37,587 40,816 37,575 38,113 47,734 50,692 14,916 21,359 40,816 50,692 48,422 Total current liabilities 68,530 107,751 102,383 101,620 108,159 109,280 124,038 128,444 32,873 61,385 101,620 128,444 124,943 Other LT liabilities 1,535 1,721 1,660 1,839 2,001 2,001 2,001 2,001 1,482 1,812 1,839 2,001 2,001 Total Long Term liabilities 1,615 1,789 1,721 1,893 2,055 2,055 2,055 2,055 1,595 1,899 1,893 2,055 2,055 Total Liabilities 70,145 109,540 104,104 103,513 110,214 111,335 126,093 130,499 34,469 63,283 103,513 130,499 126,998 Total Equity 228,338 214,280 230,850 247,168 253,142 260,820 240,190 252,492 175,740 195,315 247,168 252,492 267,153 Total Liabilities & Equity 298,543 323,857 335,083 351,119 363,834 372,633 366,761 383,469 210,243 258,637 351,119 383,469 394,628 Profitability Ratios 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 2012 2013 2014F 2015F 2016F Return on Equity (ROE) 4.4 5.9 5.8 4.2 2.9 2.5 4.5 4.9 8.9 13.8 18.4 14.5 15.8 Return on Assets (ROA) 3.4 3.9 4.0 3.0 2.0 1.7 2.9 3.2 7.4 10.4 12.9 9.6 10.7 Return on Net Assets (RONA) 8.1 9.9 9.5 7.1 4.5 4.1 6.4 7.6 13.0 22.6 31.1 22.6 27.2 Return on Sales 22.1 23.2 23.1 18.7 15.2 13.5 17.7 19.2 15.7 19.8 21.3 16.7 17.6 Efficiency Ratios Asset Turns (Annualized Sales / Assets) 0.6 0.7 0.7 0.6 0.5 0.5 0.7 0.7 0.5 0.5 0.6 0.6 0.6 Days sales outstanding (DSO) 26.9 21.9 24.5 20.7 25.6 25.0 25.0 25.0 24.2 20.5 21.5 29.1 25.6 Days of inventory 63.9 64.6 76.4 70.6 102.4 105.0 90.0 75.0 87.0 44.7 74.7 87.4 71.5 Cash conversion cycle 24.0 24.9 34.3 45.1 56.4 58.4 43.4 28.4 54.4 12.8 47.4 33.1 23.9 Working Capital -31,564 -67,790 -53,578 -58,359 -60,347 -59,933 -67,504 -74,181 -5,078 -38,863 -58,359 -74,181 -74,928 (Increase)/Decrease in working capital (7,299) 36,226 (14,212) 4,781 1,988 (414) 7,571 6,677 (4,340) 33,784 19,497 15,822 747 Per Share Values Book Value per common share 154.07 137.10 147.70 158.14 161.96 166.87 153.67 161.54 144.45 145.59 160.21 161.54 170.92 Cash per common share 117.35 125.68 124.58 131.35 131.13 136.32 128.51 141.20 74.20 103.78 133.07 141.20 153.25 Net Cash per common share 102.37 103.83 96.72 101.75 98.50 103.70 95.89 108.58 66.79 82.04 103.09 108.58 120.62 Source: Company data, Credit Suisse estimates

MediaTek Inc. (2454.TW / 2454 TT) 11 01 May 2015

Figure 30: Mediatek cash flow summary (NT$ mn) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 2012 2013 2014 2015 2016 Net income 10,147 12,558 13,299 10,393 8,142 6,509 10,689 12,302 15,583 27,515 46,398 37,642 42,205 Depreciation & Amortization 729 572 737 728 1,054 708 694 708 3,696 1,727 2,766 3,164 2,800 Dec (inc)-A/R -5,945 589 -2,435 2,866 1,462 137 -3,334 -1,026 799 -1,043 -4,925 -2,761 787 Dec (inc)-Inventory -7,303 -2,677 -5,138 2,123 -5,643 -1,580 -2,220 3,799 -4,475 4,521 -12,995 -5,644 3,076 Inc (Dec)-A/P 6,477 1,017 2,868 -6,702 49 582 5,139 1,447 25 1,897 3,661 7,217 -1,231 LT investment loss (gain) -484 -144 -150 -207 0 -250 -250 -250 -1,074 -2,151 -984 -750 -1,000 Investment disposal loss (gain) 2 -409 -207 -12 -10 0 0 0 -538 535 -625 -10 0 Others 5,523 1,546 2,765 1,198 946 447 7,987 2,457 -2,679 6,603 11,033 11,836 -1,885 Operating Cash Flow 9,148 13,054 11,740 10,387 6,000 6,554 18,703 19,437 11,338 39,603 44,329 50,694 44,751

Sale(Pur) of ST Inv. -269 -10 -2,581 -657 -528 0 0 0 -169 93 -3,516 -528 0 Sale(Pur) of LT Inv. -862 645 -184 -824 -75 -250 -250 -250 401 -462 -1,224 -825 -1,000 Sale of FA 63 4 23 15 3 0 0 0 3 44 106 3 0 Capital Spending -603 -687 -1,784 -6,754 -4,511 -500 -500 -500 -2,268 -1,629 -9,828 -6,011 -2,000 Others 32,852 70 -165 -492 -1,844 -354 -339 -354 -2,143 -260 32,265 -2,891 -1,382 Investing Cash Flow 31,182 22 -4,690 -8,712 -6,955 -1,104 -1,089 -1,104 -4,177 -2,214 17,802 -10,252 -4,382 Inc (Dec) of Debt -6,956 11,935 9,402 2,703 4,773 0 0 0 4,768 20,145 17,084 4,773 0 Bonds Issued (Redeemed) 0 0 0 0 0 0 0 0 0 0 0 0 0 Dividend paid 0 0 -23,448 0 0 0 -31,319 0 -10,328 -12,074 -23,448 -31,319 -27,545 Others -789 293 320 384 86 1,169 0 0 139 -23 207 1,255 0 Financing Cash Flow -7,745 12,228 -13,726 3,086 4,859 1,169 -31,319 0 -5,421 8,048 -6,157 -25,291 -27,545 Exchange influence 1,424 -2,155 1,607 2,949 -558 0 0 0 -1,759 1,724 3,825 -558 0 Change in Cash Flow 34,009 23,149 -5,070 7,710 3,346 6,619 -13,705 18,333 -19 47,161 59,799 14,593 12,824 Cash equivalent - beginning 132,998 166,999 190,138 185,070 192,798 204,951 213,070 200,865 85,821 85,867 132,998 192,798 190,138 Cash equivalent - end 166,999 190,138 185,070 192,798 204,951 213,070 200,865 220,698 85,867 132,998 192,798 220,698 239,523 Operating cash per share 6.17 8.35 7.51 6.65 3.84 4.19 11.97 12.44 9.32 29.52 28.73 32.43 28.63 FCF per share 5.77 7.91 6.37 2.32 0.95 3.87 11.65 12.12 7.45 28.31 22.36 28.59 27.35 Source: Company data, Credit Suisse estimates

MediaTek Inc. (2454.TW / 2454 TT) 12 01 May 2015

Companies Mentioned (Price as of 30-Apr-2015) ARM Holdings (ARM.L, 1114.0p) Acer Group (2353.TW, NT$20.1) Actions (ACTS.OQ, $1.51) Amazon com Inc. (AMZN.OQ, $424.31) Apple Inc (AAPL.OQ, $125.63) Asustek (2357.TW, NT$325.5) Broadcom Corp. (BRCM.OQ, $44.07) China Mobile Limited (0941.HK, HK$110.7) China Telecom (0728.HK, HK$5.77) China Unicom Hong Kong Ltd (0762.HK, HK$14.56) Coolpad Group Limited (2369.HK, HK$2.9) , Inc. (GOOGL.OQ, $551.25) Hewlett Packard (HPQ.N, $33.09) HiSilicon (Unlisted) Huawei (002502.SZ, Rmb19.65) Imagination Technologies (IMG.L, 196.5p) Intel Corp. (INTC.OQ, $32.52) Group Ltd (0992.HK, HK$13.4) Marvell Technology Group Ltd. (MRVL.OQ, $14.01) MediaTek Inc. (2454.TW, NT$395.0, NEUTRAL, TP NT$405.0) QUALCOMM Inc. (QCOM.OQ, $67.93) Realtek Semiconductor (2379.TW, NT$96.0) ST-Ericsson (Unlisted) (005930.KS, W1,410,000) Sony (6758.T, ¥3,644) Sunny Optical Technology Group Co., Limited (2382.HK, HK$17.36) TCL Communication Technology Holdings Limited (2618.HK, HK$8.28) Taiwan Semiconductor Manufacturing (2330.TW, NT$147.0) ZTE Corporation (0763.HK, HK$26.15)

Disclosure Appendix

Important Global Disclosures I, Randy Abrams, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my 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 MediaTek Inc. (2454.TW)

2454.TW Closing Price Target Price Date (NT$) (NT$) Rating 30-Apr-12 253.00 260.00 N 25-Jun-12 280.50 300.00 29-Jun-12 273.00 R 27-Jun-13 328.00 400.00 O 09-Sep-13 370.00 440.00 01-Nov-13 404.50 480.00 06-Jan-14 431.50 500.00 08-Apr-14 460.00 540.00 01-May-14 472.00 570.00

07-Oct-14 455.50 540.00 NEUTRAL 10-Feb-15 454.00 520.00 REST RICT ED OUTPERFORM 29-Mar-15 419.00 425.00 N 27-Apr-15 410.50 405.00 * 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 *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

MediaTek Inc. (2454.TW / 2454 TT) 13 01 May 2015

Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings 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 American 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, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10- 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. 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.

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:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 43% (53% banking clients) Neutral/Hold* 38% (50% banking clients) Underperform/Sell* 16% (43% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for MediaTek Inc. (2454.TW)

Method: Our target price of NT$405 for Mediatek is based on 15x 2016E EPS (earnings per share). Its peer group average P/E (price-to-earnings) is 16x EPS.

Risk: Risks that could cause the share price to diverge from our NT$405 target price for Mediatek include the impact of competitive products and pricing, timely design acceptance by its customers, timely introduction of new technologies, ability to ramp new products into volume, industry-wide shifts in supply and demand for semiconductor products, industry overcapacity, availability of manufacturing capacity, and financial stability in end markets.

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 (2454.TW, MRVL.OQ, 2330.TW, INTC.OQ, 005930.KS, AAPL.OQ, HPQ.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 (MRVL.OQ, INTC.OQ, 005930.KS, AAPL.OQ, HPQ.N) within the past 12 months.

MediaTek Inc. (2454.TW / 2454 TT) 14 01 May 2015

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 (MRVL.OQ, INTC.OQ, 005930.KS, AAPL.OQ, HPQ.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (2454.TW, MRVL.OQ, 2382.HK, INTC.OQ, 005930.KS, AAPL.OQ, AMZN.OQ, HPQ.N) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (INTC.OQ, AAPL.OQ, AMZN.OQ, HPQ.N). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2454.TW, 2330.TW, 2379.TW). Credit Suisse has a material conflict of interest with the subject company (2330.TW) . Credit Suisse is acting as the financial advisor to Motech Industries Inc in relation to the share subscription by Taiwan Semiconductor Manufacturing Co., Ltd. Credit Suisse has a material conflict of interest with the subject company (INTC.OQ) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Intel Corp (INTL) on its announced proposed acquisition of LSI’s Axxia Networking Business from Avago Technologies Limited (AVGO). Credit Suisse has a material conflict of interest with the subject company (005930.KS) . Credit Suisse is acting as exclusive financial advisor to Samsung Electronics and Samsung Fine Chemicals in relation to the proposed sale of their ownership stakes in the semiconductor wafer joint ventures with SunEdison, SMP Ltd and MEMC Korea Company Ltd, to SunEdison. As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (AAPL.OQ). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of AAPL.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (2454.TW, MRVL.OQ, ARM.L, 2382.HK, 2330.TW, 2379.TW, INTC.OQ, 005930.KS, AAPL.OQ, AMZN.OQ, HPQ.N) within the past 12 months An analyst involved in the preparation of this report has visited certain material operations of the subject company (AAPL.OQ) within the past 12 months The travel expenses of the analyst in connection with such visits were not paid or reimbursed by the subject company, other than de minimus local travel expenses. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. An analyst involved in the preparation of this report received third party benefits in connection with this research report from the subject company (HPQ.N) Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (AAPL.OQ, HPQ.N) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse AG, Taipei Securities Branch ...... Randy Abrams, CFA ; Nickie Yue

MediaTek Inc. (2454.TW / 2454 TT) 15 01 May 2015

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MediaTek Inc. (2454.TW / 2454 TT) 16 01 May 2015

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