15 March 2013 Asia Pacific/Japan Equity Research Technology (Semiconductor Devices (Japan)/Electric Components (Japan)) / MARKET WEIGHT/MARKET WEIGHT
Technology Sector Research Analysts DOWNGRADE RATING Hideyuki Maekawa 81 3 4550 9723
[email protected] Asia Research Feedback: no change in our view on Akinori Kanemoto hardware trends; spring period to bring shift in SPE 81 3 4550 7363 [email protected] ■ Summary: From 4–8 March, we conducted field research on technology trends in Taiwan, China, and South Korea. Although there were no major changes in hardware production targets before and after the Chinese New Year, we confirmed that notebook PC (NB) production targets have weakened. Considering most companies have postoned roll-out schedules of new hardware, the only products likely to enjoy firm demand in 2Q 2013 are Korean smartphones/tablets so earnings trends at electronic component makers are likely to diverge based on customer portfolios. Meanwhile, semiconductors are recovering following an end to inventory corrections, while DRAM and NAND are seeing supply tightening on the back of restocking demand. Revisions to hitherto strong capex targets at Taiwanese foundries have emerged as an area of concern for front-end SPE makers. Back-end SPE makers, on the other hand, are seeing a recovery in small-lot orders fueled by improved conditions in the semiconductor market. ■ What’s new/key takeaways: (1) 1Q production targets for NBs have been lowered again. (2) PCs powered by Intel’s mainstream low-power Haswell chips will likely arrive on the market over the summer—too late to capture back-to-school demand. (3) In addition to Samsung, LG has issued bullish production targets for its mobile phones. (4) Production of low-end smartphones in China has picked up from March. (5) Foundry utilization rates (input basis) have recovered to 90% from February. (6) Mobile RAM supply has tightened from March, while PC DRAM is registering higher demand supported by restocking. (7) Tight supply conditions for NAND are necessitating careful supply allocation. (8) Foundries are reviewing their 28nm/20nm capex targets. (9) Amid tight memory supply, makers are reluctant to add new production capacity. (10) Despite our concerns, Apr–Jun MLCC price negotiations showed no sign of downward pressure due to the weaker yen. (11) NBs powered by a 17W Haswell chip will require a smaller number of MLCC. (12) Samsung has increased adoption of Qualcomm application processors (AP) in its upcoming Galaxy S4 phone. (13) AT&S will build a new factory in Chongqing to supply CPU packages to Intel from 2016. ■ Stock calls: Amid tight supply conditions for NAND, Toshiba is our top pick in the semiconductor and SPE sectors. We downgrade our stance on the SPE sector from Overweight to MARKET WEIGHT, and downgrade our ratings for front-end SPE makers Tokyo Electron, Dainippon Screen, and Hitachi Kokusai Electric to reflect the slowdown in capex at foundries. However, we do not anticipate major corrections in share prices as memory price trends and higher semiconductor utilization rates should fuel expectations of fresh investment. We regard Disco as a key beneficiary of the recovery in semiconductor utilization rates, and accordingly maintain our OUTPERFORM rating. In the electronic components sector, our top picks are Murata Mfg. and Wacom, two companies for which we forecast a favorable turn in fundamentals. Although hardware production is likely to slow in 1H 2013, our outlook for 2H remains bullish and is premised on a recovery in electronic component orders and hardware output in Jul–Sep. Forex-sensitive stocks (Ibiden, Shinko Electric, Nissha Printing, Taiyo Yuden) should get near-term downside support from the weaker yen. We believe May–Jun could provide favorable investment opportunities for Apple suppliers, in particular.
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15 March 2013 Table of contents
Summary and investment implications 3 Semiconductors/SPE: Outlook and investment implications 5 Electronic components: observations and investment implications 6 Demand/production trends in major hardware areas 8 PC demand/production: tardy rollout of Haswell processor means rebound in NB PC production is unlikely until summer at least 8 Cell phone and smartphone production and demand trends 10 Semiconductor/SPE sector 13 Semiconductor market outlook: mild recovery but no rapid rebound 13 DRAM: pickup in PC DRAM stockpiling on shortage concerns due to shift in production to mobile RAM 14 NAND supply–demand unusually tight in Apr–Jun, but too soon to say if this is due to actual demand 18 Front-end SPE: changes in the outlook for foundry investment plans 21 Back-end SPE: Recovery in memory-related investment 24 Electronic components 27 Trends in hardware production and electronic component orders 27 MLCC 29 Emergence of new Intel CPU package suppliers not a major concern considering the lower yen and technological hurdles 30 FC-CSP: Pressing need for Ibiden to start supplies to Qualcomm 30
Technology Sector 2 15 March 2013 Summary and investment implications As discussed in our January report, notebook makers and Apple (iPhone, iPad) suppliers continue to face a tough environment. Our recent fieldwork reaffirmed that the ramp-up in 1H 2013 production has been lackluster across the board, with Samsung Electronics’ smartphone and tablet supply chain being the sole exception. We did not see any noteworthy changes in hardware output targets after the Chinese New Year. In the PC sector, desktop PC and motherboard production was largely as we expected, but Jan–Mar notebook output is likely to show a sharper-than-expected QoQ decline of 15–20% (previously projected at 10–15%; our estimate 16%). In smartphones, production of Apple and HTC models has been sluggish. Samsung’s output, on the other hand, could reach a new record high in Jan–Mar, while LG Electronics has revised up its targets for 2013.
Figure 1: Production targets for PCs, mobile phones/smartphones, and tablets
mn units
400.0
350.0
300.0
250.0 211.0 210.0 200.8 200.0 184.0 161.2 179.0 181.5 149.0 156.7 144.6 138.9 131.6 151.1 150.0 125.2 127.2 109.5 102.4 64.0 100.0 29.5 40.9 45.0 14.1 20.4 4.4 6.2 10.6 21.4 36.7 32.6 34.0 2.2 9.9 18.3 15.7 29.2 32.8 32.7 26.5 27.8 30.0 27.1 30.7 26.6 27.1 27.0 50.0 31.7 24.5 23.5 24.9 24.6 25.8
40.1 43.5 45.5 49.0 44.3 47.4 48.5 41.2 40.9 43.7 45.7 46.3 40.4 38.9 40.0 45.0 48.0 0.0 13/1 13/3 13/3 13/3 13/3 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE CY2010 CY2011 CY2012 CY2013
NB (Taiwanese) MB (Taiwanese) Tablet PC (Global excluding China pad) Handset (SEC/APPL/LGE/HTC)
Source: Credit Suisse estimates Only Samsung’s smartphones and tablets have managed to sustain firm growth in 1H of this year. Taking into account the delayed roll-out of Haswell-powered PCs and the anticipated ramp-up in production for the next iPhone in Jul–Sep, we believe hardware output is likely to peak from about mid-year through summer. In the PC sector, Jan–Mar motherboard production was largely as we expected, but notebook output continues to track below targets, showing a sharper-than-seasonal QoQ decline of 15–20%. Our channel checks suggest 37/47W Haswell chips will be adopted by motherboard makers from June, while mainstream 17W low-power chips aimed at ultrabooks will be released over the summer. Consequently, we do not see notebook PC production recovering in earnest until around August. Production of low-end smartphones in China underwent a correction from December but local makers are expected to see orders finally picking up from March. Samsung is roughly one month behind schedule with its Samsung’s Galaxy S4, but should ramp up production
Technology Sector 3 15 March 2013 from Apr–May. LG is registering solid demand for its Optimus G and Nexus 4 mobile phones, and has revised up its sales forecasts to reflect plans to start selling its Optimus G Pro smartphone in Latin America. Meanwhile, HTC has suffered delays in the production of its new M7 smartphone owing to procurement difficulties, and production schedules for new smartphones at Tier 2 makers also appear to be lagging. Production momentum for the iPhone 5 is likely to remain weak through Apr–May reflecting a decline ahead of the ramp-up for the new model in Jun–Sep (we estimate Apple will start trialing mass production in June).
Figure 2: Outlook by application 2012 2013 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Applications PC
Inventory surplus, Production adjustments Inventory adjustments Production ramp-up Sluggish sales prompt Inventory surplus Seasonality Win8 expectations in the absence of Win8 Seasonality until early spring on Haswell effect inventory adjustments waning effects
Mobile phones
Feature phones in Feature phones in Feature phones in Feature phones in Feature phones in Feature phones in Feature phones in Feature phones in (Excl. smartphones) decline decline decline decline decline decline decline decline
Smartphones
Samsung sales firm, but Smartphone Galaxy S4 sales take off, Seasonal adjustments wind down; Production ramp-up Expansion of iPhone 5 declines in sales of Sales of iPhone5 production (iPhone, Seasonal adjustments production ramp-up for new sales of Chinese iPhone, Chinese models depends on chipsets for new models production smartphones pick up successors take off Galaxy) holding at smartphones high levels
Tablets
Amazon impact waning, Production start-up for iPad production cuts, iPad production Sharp QoQ increase, despite New entrant Sharp QoQ increase, despite delayed production start- Apple's new iPad non-iPad production weaker-than-expected production Little momentum declining, non-iPad weaker-than-expected production production declining up for Apple's HD iPad models increases ramp-up among new entrants production increasing among new entrants
LCD TVs
Support from China's Energy-saving Energy-saving Genuine seasonal Weakness in China government subsidies in Little momentum National Day holiday subsidies in China Seasonality Seasonality decline and Europe China trigger rush and Black Friday trigger rush demand demand Source: Credit Suisse Figure 3: Outlook by subsector 2012 2013 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Semiconductors Components (logic)
Upturn in production; Production ramp-up for Inventory adjustments Adjustments persist Manufacture of new Production ramp-up for new Inventory adjustments adjustments for PC/TV new products despite continue; 28nm products across different Seasonality amid sluggish demand model smartphones for corporate losers applications inventory surplus stockpiling hardware reaches peak
DRAM
Despite inventory Improved capacity Win8-related Effects of reduced Mild correction after Manufacture of PCs Drop in demand as surplus, price Increase in restocking utilization rates; production ramp-up Taiwanese production restocking demand with Haswell PC and smartphone stabilization on supply to demand offset by lower demand PC makers dumping of inventory weaker-than-expected winds down processors production peaks out
NAND
Weak retail demand; Correction in retail High-demand period; Smartphone product procurement timing for Impact of production Inventory surplus at inventories finished; effects of scaled-down Sluggish demand cycle supports higher Seasonality smartphones pushed cuts negligible market and makers increase in restocking investment since 1H demand back demand FY12 PC-related electronic ＆ components Parts inventory Reactionary increase in sales of Sales of Haswell- Manufacture of PCs Ongoing slump in laptop Chief River delays, Notebook recovery Notebook production adjustments despite FC-PKG, HDD parts after related FC-PKG take with Haswell sales, growth in HDD impact persists from late 2Q weaker-than-expected better-than-expected NB inventory adjustments. Correction production of tablet PCs production in PC output off processors Smartphone-related electronic components Sales of Galaxy S4 Smartphone Seasonal adjustments Seasonality and Correction in sales of wind down, production Mass production of take off, sales of iPhone5 successors production (iPhone、 Seasonal adjustments production ramp-up iPhones, Chinese ramp-up for new models new models starts Chinese smartphones sales take off Galaxy) holding at for new models smartphones depends on Qualcomm recover high levels
LCD panels
Sluggish TV demand Prices to trend Correction in Rebound following Manufacture targetting Chinese demand in China/Europe; sideways in the likely production of 32/39- Correction winding seasonal effects Chinese subsidies for peaking out, but Seasonality panel inventories also absence of factors inch models (for down (inventory restocking) energy saving supply also limited elevated other than seasonality China) Source: Credit Suisse
Technology Sector 4 15 March 2013
Figure 4: Key themes and investment time frames 2012 2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Smartphone iPhone 5 goes Galaxy SIV Galaxy Note II launches by production start-up? South-Korean, on sale production start-up Taiwanese makers Low-end iPhone, iPad and Kindle Fire iPad3 HD goes Kindle Fire iPad mini iPhone 5s start-up ? New models on sale HD goes on sale
Start-up of new smartphone Windows 8 goes production by global tier-2 Ivy Bridge- Nexus7 goes on makers? powered PCs go sale on sale
Windows RT Themes Various Windows 8 Pro companies "Surface" tablet announce new goes on sale tablet launch PC products at Taiwan's Microsoft, Apple Launch of low- COMPUTEX launching HD STB Next-gen iPad panels End-product Samsung spec, low- going into year-end, (optical alignment for intensity LED makers ramp up Electronics/LGD with possible small/medium-size cell launch panels) procurement announcement at E3? Utilization rates at semiconductor
Utilization rates at LCD panel plants increase (giving rise to inventory risk)
PC-related electronic components FC-PKG and Samsung related Apple related PC-related
LCD panel-related SPE DRAM
Preferred NAND sectors NAND
Smartphone-related electronic components Smartphone-related electronic components
Semiconductors
SPE SPE
Source: Company data, Credit Suisse Semiconductors/SPE: Outlook and investment implications Logic recovering gradually, memory headed for shortage; foundries cutting investment, back-end equipment rebounding for memory applications Conditions in the semiconductor market are generally better than when we last surveyed Conditions have improved in them at the start of the year, with foundry utilization rates edging higher and DRAM/NAND both logic and memory flash prices rising faster than we expected amid ongoing tightness in the supply–demand markets balance. Key points are: (1) Taiwanese foundries’ utilization rates (input basis) have risen In SPE, we anticipate to 95% since February after remaining at 85–90% from November; (2) DRAM/NAND flash downturn at front-end inventories are about right or slightly high, but stockpiling demand nonetheless looks set to equipment makers, modest rise amid concerns of an impending shortage; in particular, NAND flash’s supply–demand improvement at back-end balance is tight enough to be causing problems with supply allocation; (3) Taiwanese equipment makers foundries had been investing in 28/20nm processes ahead of schedule but have now revised their plans; (4) a number of Taiwanese subcontractors have been inquiring about investment in DRAM/NAND flash assembly equipment; (5) small-lot investment in DRAM testers is being seen among some Korean memory makers. Conditions in the semiconductor market look exceptionally positive for sentiment on the semiconductor and SPE sectors, with prices bottoming, foundries’ input utilization rates recovering, and DRAM and NAND flash rebounding in tandem for the first time in a long while. The fact that it is only still March also suggests little inventory risk over the next three months, in our view. With the semiconductor market turning upward, we think that Taiwanese subcontractors and Korean memory makers are likely inquiring about small-lot investment in back-end equipment. However, poor visibility on demand further out and risk of market share fluctuations has Improvement in memory Taiwanese foundries revising their investment plans for 28/20nm processes in an supply–demand balance will emerging near-term negative for front-end SPE makers. A tight supply–demand balance not necessarily translate into for memory has buoyed expectations for memory investment among investors and SPE investment in new capacity makers, but memory makers themselves are now prioritizing profit margins and product
Technology Sector 5 15 March 2013 mixes in their investment strategies, implying that tight supply will unfortunately not translate to investment in additional manufacturing capacity. Investment implications: Toshiba top pick and recommend Disco among SPE stocks; downgrade front-end SPE makers and as see significant negatives and little sign that the shares are overvalued As recovery in the semiconductor market is only in its infancy, overall we expect We downgrade front-end semiconductor and SPE-related stocks to perform solidly. With a turnaround in the NAND SPE makers, but expect market, Toshiba is our top pick. The market environment is currently even better than we solid share price assumed on 27 February when we upgraded Toshiba. performances overall from semiconductor and We downgrade the SPE sector from Overweight to MARKET WEIGHT. While SPE-related stocks semiconductor prices have rebounded, Taiwanese foundries are scaling back investment plans, and there is no sign of investment picking up at semiconductor makers other than Top picks are Toshiba, Taiwanese foundries. Also, share valuations are not especially attractive. We therefore Disco also downgrade Tokyo Electron, Dainippon Screen, and Hitachi Kokusai Electric from Outperform to NEUTRAL. Despite this downgrade, we do not expect any marked deterioration in share price performance, in view of the aforementioned semiconductor market recovery. Our expectations of share-price momentum accompanying rebounds in foundry utilization rates and memory prices have Disco leading, followed by Advantest, Tokyo Electron, Hitachi Kokusai Electric, and Dainippon Screen. Advantest is nonetheless our sole UNDERPERFORM-rated stock in the SPE sector. While we expect the share price to remain firm for now on expectations for DRAM tester demand accompanying the rise in DRAM prices, the short-term small-lot demand seen so far is unlikely to drive up order levels by much, in our view. We think Advantest continues to face risk of falling market share for logic testers as we have argued for some time and expect quarterly results to indicate the disconnect between company targets and actual performance. We expect a dearth of growth customers to be exposed as a structural weakness at Advantest. Accordingly, other than for short-term trades, we advise to confirm logic share trends before accumulating shares. Electronic components: observations and investment implications Expect fundamentals to worsen in first half of year, but anticipate support from weak yen; look for output to gain momentum from mid-year With the exception of smartphone output at Samsung Electronics, we expect IT hardware production to remain downbeat through the first half of the year. Recently, though, yen depreciation against the dollar has provided some support. Two companies are experiencing improved fundamentals: Murata Mfg, which should benefit from increased content (value) per handset in Samsung’s Galaxy S4 smartphone; and Wacom, which will likely see growth in orders from Samsung for its stylus pens. After some delay, production of the Galaxy S4 is set to ramp up from April, and we expect Murata Mfg to book related orders in Mar–Apr. At this point, we expect full-scale production of the Galaxy Note 3 to get under way from Jun–Jul. FC-PKG makers have been affected by the delayed launch of new PCs powered by Intel's Haswell processor. In Jan–Mar and Apr–Jun, however, such companies should benefit from inventory buildup ahead of the Haswell ramp-up, and with yen weakness also contributing we believe the fundamentals are gradually improving. While noting that Austria’s AT&S aims to start making Intel CPU packages from 2016, at this point we do not regard this as cause for much concern. At least from April through the first half of May, we forecast weak fundamentals for Apple- related stocks, as Apr–Jun will likely be a ramp-down period for both the iPhone 4s/4 and
Technology Sector 6 15 March 2013 iPhone 5, ahead of mass production of the next model. In the second half of May, we anticipate a rebound in orders for products with relatively long lead times (connectors, FPCs and so forth), followed in Jun–Jul by a recovery in orders for SMT-related components. We had expected yen weakness to weigh on ASP, but there has been no sign of such pressure; instead, we think yen devaluation will make an unadulterated contribution to FY13 earnings. Investment implications: Murata Mfg, Wacom our top picks; in the short term we prefer stocks with high forex sensitivity; focus on Apple-related stocks post-results Murata Mfg and Wacom remain our top picks, as we see benefits from increasing smartphone production at Samsung Electronics, and the new product cycle. In the first half of the year we expect IT hardware sales volume to lack momentum (outside of the Galaxy S4, anyway). However we think current share prices remain premised on a forex rate of around ¥90/$, so if the exchange rate were to settle around ¥95/$ we see room for further upside in share prices. Through to early spring at least, we advocate investment in stocks standing to gain from Galaxy S4 ramp-up, and also those with high forex sensitivity. We do not expect a full-fledged recovery in the fundamentals until Jun–Jul, when we anticipate increasing orders for components used in iPhone and notebook PCs. The demand outlook for these products, however, remains unclear. As such we cannot dismiss the possibility that component makers will ramp up production but then face the need to work down inventory. Still, we maintain a bullish stance until rebounding orders for iPhone and notebook PC components have been priced in. While a slump in notebook PC production remains a downside risk for HDD component makers Nidec and TDK, we think any share price declines will be limited. Over a six-to- twelve month horizon we see ample upside, and maintain OUTPERFORM ratings on these two laggards.
Technology Sector 7 15 March 2013 Demand/production trends in major hardware areas PC demand/production: tardy rollout of Haswell processor means rebound in notebook PC production is unlikely until summer at least PC production: notebook PC production remains downbeat; we forecast 15–20% QoQ decline in Jan–Mar As was the case in our last report in January, at the time of our latest survey notebook PC ODMs were still projecting decreased output. Whereas orders from notebook PC ODMs and motherboard makers normally pick up after the Chinese New Year, component makers are seeing little new business. At the time of our previous survey, Taiwanese notebook PC ODMs were envisioning a 10– 15% drop in output for Jan–Mar 2013, however the actual decline looks to have been around 15–20%, which is larger than normal for this period. On our visits to the region, we were told in many instances that production plans were being reined in on a monthly basis. Companies are not disclosing production targets beyond the next month or so out, and in fact notebook ODMs in particular may not be looking beyond that in terms of demand forecasting. On the other hand, motherboard output in Jan–Mar is likely to have been roughly in line with the plans reported when we last conducted our survey. Output remains low for own- brand motherboards destined for the European market and for those used in regular desktop PCs; motherboard production for all-in-one (AIO-type) desktop PCs, however, is on the rise, as is motherboard production for high-end notebook PCs. Delayed launch of Haswell processors means full-fledged production ramp up will likely be in Jun–Jul for motherboards, around summer for notebook PCs Our most recent survey revealed that the rollout of Intel’s new Haswell CPU will commence with high-end 37W and 47W processors. The release of ULT models (17W; designed for Ultrabook platforms) for use by notebook PC ODMs probably will be around Aug–Sep. Similarly, the versions initially rolled out will not allow for use with an external GPU; and as with the ULT models, will not be out until Aug–Sep. Usually, PC makers ramp up production of spring models around Mar–Apr, however momentum is lacking this year, and we do not expect a genuine rally in PC production until Jun–Jul for motherboards and around summer for notebook PCs. It now seems increasingly likely that production will remain sluggish through the first half of the year. There is some talk that the next Windows OS (codenamed Windows Blue) will be released in the latter half of the year. Details remain sketchy, however. We plan to investigate further when conducting our next survey.
Technology Sector 8 15 March 2013
Figure 5: Production at Taiwanese notebook PC ODMs Figure 6: QoQ growth in production at Taiwanese notebook PC ODMs
(mn units) 55 60%
50 CY2012 CY2013 50% 45 QoQ 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 40% 40 2012/3 Fcst -1% +4% +16% Flat - - - - 35 30%
30 2012/6 Fcst -1% +13% +9% -7% - - - - 20% 25
20 10% 2012/9 Fcst -1% +7% +4% Flat - - - -
15 0% 2012/11 Fcst -1% +7% +5% -3% -4% - - - 10 -10% 5 2013/1 Fcst -1% +7% +5% +1% -13% - - -
0 -20% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE 2013/3 Fcst -1% +7% +5% +1% -16% 3% 13% 7% CY2009 CY2010 CY2011 CY2012 CY2013 Production fcst (2013/1, LHS) Production fcst (2013/3, LHS) YOY % chg. (RHS) Source: Company data, Credit Suisse estimates Figure 7: Production outlook for Taiwanese motherboard Figure 8: QoQ growth in production at Taiwanese makers motherboard makers (mn units) 40 50% CY2012 CY2013 40% 35 QoQ 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 30% 30 20% 2012/3 Fcst -5% +15% Flat +5% - - - - 25 10% 2012/6 Fcst -4% +17% +5% -9% - - - - 20 0%
-10% 15 2012/9 Fcst -4% +15% +3% Flat - - - -
-20% 10 2012/11 Fcst -4% +15% +13% -11% -4% - - - -30%
5 -40% 2013/1 Fcst -4% +15% +13% -13% -5% - - -
0 -50% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2013/1 Fcst -4% +15% +13% -13% -8% 5% 5% 0% CY2009 CY2010 CY2011 CY2012 CY2013E
Production fcst (2013/1., LHS) Production fcst (2013/3., LHS) YOY % chg. (RHS)
Source: Company data, Credit Suisse estimates Tablet PCs production have continued strong, but fully fledged production will likely only start to pick up in earnest from Jul–Aug with the launch of the next- generation Kindle Fire and iPad Tablet PC production volume in Jan–Mar 2013 declined slightly compared with the previous survey conducted in January, owing to iPad production falling short of projections, but YoY production growth remained firm nonetheless. As we noted in the last survey, tablet PCs made by Korean companies (especially Samsung) have been a growing presence in Jan–Mar. We expect a new version of the Windows Surface, minor design changes to the iPad and other developments in Apr–Jun, but we think that production will only start to grow in earnest from Jul–Sep, when fully fledged production of new models of the Kindle Fire and iPad gets under way. Although it will depend on the timing of the introduction of Haswell chips, we think that tablet PC production will exceed notebook PC output possibly as soon as in Jul–Sep and by Oct–Dec at the latest.
Technology Sector 9 15 March 2013
Figure 9: Tablet PC actual and planned production (January vs. March survey)
mn
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0 13/1 13/1 13/3 13/3 13/3 13/3 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2Q 1QE 2Q 3Q 4Q CY2011 CY2012 CY2013
The others Korea Brand Apple
Source: Credit Suisse estimates Cell phone and smartphone production and demand trends Generally weak in Jan–Mar, but output at Samsung Electronics may reach new high We expect production volume at leading Asian smartphone/cell phone manufacturers Samsung, LG, and HTC, together with Apple (covering around 60% of the smartphone market), to reach some 179mn units in Jan–Mar (down 11% QoQ), versus 201mn units in Oct–Dec (up 24% QoQ). We look for sluggish output of the iPhone and HTC phones compared with the January survey, but modest growth at Samsung and LG.
Figure 10: Smartphone/cell phone production volume outlook for four major smartphone makers
mn units 250.0
200.0
150.0
100.0
50.0
0.0 13/1 13/3 13/3 13/3 13/3 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE CY2011 CY2012 CY2013
Apple Samsung Electronics LG/HTC
Source: Credit Suisse estimates
Technology Sector 10 15 March 2013
Total output of cell phones and smartphones at Samsung likely to exceed 120mn units; sharp increase in Galaxy S4 output likely in Apr–May Total production volume of cell phones and smartphones at Samsung is likely to exceed 120mn units in Jan–Mar 2013. The launch of the Galaxy S4 smartphone looks to be taking place 2–4 weeks later than we expected, but we expect production volume of the unit on a surface mount technology (SMT) basis to reach around 7–8mn units in April and around 10mn units in May. An overview of electronic components shows enquiries with regard to orders for parts for the UMTS version have begun building up already in March, and orders for the LTE version look to have begun increasing in mid-March. Companies that supply parts for the Galaxy S4 which we view as worth focusing on include Murata Manufacturing and Toko (not in our coverage). The BB/AP combination varies by region for the Galaxy S4, resulting in the number of parts and suppliers differing with each model. Previously many held the view that in-house AP (Exynos5410) would account for 70% and QCOM for 30%, but due in part to delays in Exynos development, it appears that the ratios have been switched to 70% QCOM and 30% Exynos5410As. We think the company will likely opt for Intel Mobile as the BB for UMTS, QCOM for LTE ex Korea, and its own CMC222 for Korea. Samsung also looks to be considering soon switching to MSM8974 for Korea and Japan. As we noted in the last two editions of this survey report, we expect the per-handset value of Murata Manufacturing's RF front end (RFFE) FEMiD modules to increase sharply owing to the company's design win.
Figure 11: Galaxy S4 BB/AP combinations and RFFE Wi-Fi module suppliers Galaxy S4 Spec rumors BB/AP BB CMC222/AP Exy5410 for Korea SK/KT, BB MDM9215/AP APQ8064 for LG U+ BB IMC XMM6360 /AP Exy5410 for Global and China UMTS. BB use IMC UE3 platform BB QCOM MDM9215/AP Exy5410 (US/Europe/Japan/China). Potential TD-LTE version In 1H14 QCOM Fusion4 model (MDM9625+APQ8074), or MSM8974 HDI 10 build-up any layers from 3-4-3 structure in GS4. Potential nine suppliers including SEMCO, Ibiden, AT&S, UMTC, KCC, Daeduck FEMID US/Europe/China LTE version Murata. Korea/Japan version probably TDK. UMTS: Murata, Taiyo Yuden. Murata will have 90%+ FEMID market share. Diversity module Murata 50-60%, WISOL (korea), Taiyo WIFI Module SEMCO 50%/Murata 50% Combining Crystal (murata will use TEW crystal like iPhone5). Source: Credit Suisse estimates
We have turned bullish on LG due to firm sales of Optimus G/G pro/Nexus 4 and growth in shipments to Latin America but… We expect LG smartphone/cell phone production volume to reach 15–16mn units in Jan–Mar 2013, maintaining output from 2H 2012. Firm sales of the Optimus G and Nexus 4 and expansion of the areas in which the Optimus G Pro is sold appear to lie behind the high output level. Moreover, in addition to firm recent sales of these models on growth in sales of smartphones to Latin America, where the company has prospered with traditional feature phones, the annual production forecast appears to have increased beyond 90mn units, with guidance calling for 100mn units (however, major parts vendors are apparently still expecting output to reach 60–70mn units).
Technology Sector 11 15 March 2013 iPhone production likely to remain sluggish at least until May, production from June depending on the next-generation model Apple's iPhone production plan for Jan–Mar appears to have fallen to 30–35mn units, and it appears to expect to reduce production further to a modest extent in Apr–Jun as it ramps down output ahead of the Jun–Jul start up production of next-generation models (the successor to the iPhone 5 and a low-end iPhone). Apple plans to start up production of new models from June, but at present the planned June volume on an SMT basis is less than 1mn units. Output on an SMT basis will likely pick up in earnest from Jul–Aug. Orders at makers of parts that have long lead times (makers of connectors, FPCs, etc, among Japanese companies) could rise sharply as early as May, while orders at other makers (which supply direct to assemblers) could see orders jump around Jun–Jul. The company currently appears to be planning to manufacture around 70mn units apiece in Jul–Sep and Oct–Dec, but many parts makers, based on their experience last year, look to be expecting production volume to be around 20% lower than this. HTC depends on resolving tight parts supply–demand conditions for the M7 (One) Parts enquiries from HTC appear to have remained weak. Problems with M7 camera module assembly and VCM yields have dragged on, and many hold the view that output at the company will depend on the take-off of the M7. Enquiries from local Chinese smartphone makers have picked up since the start of March Enquiries from Chinese agents for local Chinese smartphone makers, which had been sluggish since December, have started to show signs of recovery since the start of March. Although levels are still lower than in Oct–Nov 2012, enquiries from Huawei and the like have started to increase, and it looks as though signs of a recovery in production from 2H March through April have started to appear.
Technology Sector 12 15 March 2013 Semiconductor/SPE sector Semiconductor market outlook: Mild recovery but no rapid rebound
■ Since February, foundries' 300mm utilization has started to slowly recover on a wafer- start basis.
■ With major MPU makers and Korean logic makers' utilization still depressed, the overall semiconductor market shows little sign of recovery and remains in supply surplus. The semiconductor market appears to have bottomed, with foundry utilization recovering on a wafer-start basis. In particular, 28nm lines that produce application processors for smartphones and tablets continue to operate at full capacity. Production cutbacks on 65/90nm lines appear to have ended following a protracted inventory destocking phase, but wafer starts have yet to turn upward amid a slump in demand for PCs and digital consumer electronics. Taiwanese foundries' utilization rates rebounded in February Taiwanese foundries' capacity utilization, which we monitor on an ongoing basis, has Capacity utilization at embarked on a recovery trend after bottoming in October 2012. Utilization has been flat at Taiwanese foundries flat at around 85–90% since November, but should recover to 95% from February. The recovery 85–90% since November, should be driven mainly by growth in wafer starts on 28nm lines in the wake of 28nm should recover to 95% from capacity expansion. Previously, utilization had been flat despite growth in 28nm capacity, February implying that wafer starts on 65/90nm lines were still declining. We see the recent upturn in foundry utilization as a signal that 65/90nm inventory destocking has come to an end. With no forecasts for increases in foundry utilization over the next three months, we expect it to remain flat.
Figure 12: Taiwanese foundry utilization forecast (wafer-start basis)
120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
0%
Jul. Jul. Jul. Jul.
Apr. Apr. Oct. Apr. Oct. Apr. Oct. Oct. Apr.
Jan. Jun. Jan. Jun. Jan. Jun. Jan. Jun. Jan. Jun.
Mar. Feb. Feb. Mar. Feb. Mar. Feb. Mar. Feb. Mar.
Dec. Nov. Dec. Nov. Nov. Dec. Nov. Dec.
Aug. Sep. Aug. Sep. Aug. Sep. Aug. Sep.
May. May. May. May. May. 2009 2010 2011 2012 2013
300mm 200mm
Source: Credit Suisse estimates
Technology Sector 13 15 March 2013
Figure 13: Global semiconductor inventories (excluding Intel)
85.0 Average (01~): 80.0 68.6 days 77.076.6 74.9 75.0 73.9 74.4 74.3 72.8 70.0 71.6
65.0
60.0
55.0
50.0
45.0
40.0
2008/1C 1995/1C 1996/1C 1997/1C 1998/1C 1999/1C 2000/1C 2001/1C 2002/1C 2003/1C 2004/1C 2005/1C 2006/1C 2007/1C 2009/1C 2010/1C 2011/1C 2012/1C
Source: Company data, Credit Suisse DRAM: pickup in PC DRAM stockpiling on shortage concerns due to shift in production to mobile RAM
■ The mobile RAM supply–demand balance is currently tight. DRAM makers are considering reallocating additional production capacity to mobile RAM.
■ Module makers have started to stockpile PC DRAM in earnest in anticipation of future supply shortages.
■ Tightness in DRAM supply–demand balance is due mainly to supply-side factors, most notably reallocation of production capacity to mobile RAM. From the standpoint of actual production capacity, the DRAM market remains oversupplied, in our view.
■ DRAM production capacity could decrease as a result of Micron's consolidation of production lines following its Elpida acquisition.
■ We expect the PC DRAM spot price to rise above $2.00 and mobile RAM prices to continue to decline at a 20–30% annualized rate.
■ Flagship notebook PC models equipped with Intel's Haswell CPU (low-voltage 17W model) may use mobile RAM.
■ Mass production of DDR4 DRAM has been delayed. Output in 2013 will likely be extremely small scale. The industry experts we spoke to during our latest Asian research tour were uniformly bullish on DRAM prices, a change from the skepticism we encountered during our previous trip (in early January). Since March, supply strains have emerged in the market for mobile RAM for smartphones. In response, memory makers have shifted production to mobile RAM. This shift has prompted major memory module makers to start stockpiling PC DRAM out of concern about future supply shortages.
Technology Sector 14 15 March 2013
Overall DRAM market remains in supply surplus; we unveil mobile RAM supply– demand model While the DRAM market as a whole remains oversupplied (Figure 15), supply–demand Demand bit growth weak at imbalances by application are now arising in certain market segments due to reallocation less than 20%; still slight of production capacity to mobile RAM. As Figure 14 shows, 2013 demand bit growth is oversupply looking at the full expected to be below 20%, and on a full-year basis, we expect DRAMs to remain in slight year oversupply in 2013. More specifically, we project a supply surplus of 9% in 1Q 2013 and 4% in 2Q followed by a 0–5% supply deficit in 2H. Our mobile RAM supply–demand model (Figure 16), which we unveil for the first time in this report, forecast a 2% supply deficit in 2Q 2013. In 3Q, we expect reallocation of production capacity to bring mobile RAM supply and demand back into balance, but we forecast a renewed supply deficit in 4Q. For DRAM for PCs, servers and digital consumer electronics (all except mobile RAM), we forecast a supply surplus through 2Q but expect supply strains to develop in 2H (Figure 17).
Figure 14: DRAM bit demand growth forecasts 50,000 100% 87% 45,000 90%
40,000 80%
35,000 62% 70%
30,000 54% 60%
25,000 44% 50%
million Gb million 20,000 35% 40%
15,000 25% 24% 30% 17% 10,000 20%
5,000 10%
0 0% 2006 2007 2008 2009 2010 2011 2012E 2013E
Demand Bit growth
Source: Credit Suisse estimates
Figure 15: DRAM supply–demand forecasts
10% 8.5% 8.5% Oversupply 8%
6% 4.3% 4.1% 4.3% 3.6% 4% 3.1% 3.2% 2.6% 2.4% 2.1% 2.9% 2.7% 1.7% 2.1% 1.6% 2% 1.3% 0.5% 0.2% 0.7% 1.1% 0.7% 0.3% 0.2% 0.0% 0% -0.8% -0.5% -0.5% -0.9% -2% -0.5% -1.4% -1.7% -1.9% -4% -2.8% -3.9% -6% -4.9% -5.7% -8% -7.2% Supply shortage -7.6% -8.4%
-10%
1Q07 4Q10 4Q11 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 1Q11 2Q11 3Q11 1Q12 2Q12 3Q12
1Q13E 2Q13E 3Q13E 4Q13E 4Q12E Source: Company data, Credit Suisse estimates
Technology Sector 15 15 March 2013
Figure 16: Mobile RAM supply–demand model
4,500 30% 26% 4,000 25% 3,500 20% 3,000 14% 2,500 15%
2,000 8% 10%
6% Gb equiv. mn units mn equiv. Gb
1 1,500 5% 1,000 1% 1% -2% 0% 500 -3%
0 -5% 1Q12 2Q12 3Q12 4Q12 1Q13E 2Q13E 3Q13E 4Q13E
Demand Supply Demand/supply sufficiency rate
Source: Company data, Credit Suisse estimates
Figure 17: Supply–demand model for DRAM for PCs/servers/digital consumer electronics 7,000 9% 10% 7% 8% 6,000 6% 6% 5,000 4% 4%
4,000 2% 0%
3,000 -1% -1% 0% Gb equiv. mn units mn equiv. Gb
1 -2% 2,000 -4% -6% 1,000 -6%
0 -8% 1Q12 2Q12 3Q12 4Q12 1Q13E 2Q13E 3Q13E 4Q13E
Demand Supply Demand/supply sufficiency rate
Source: Company data, Credit Suisse estimates
Inventories are a bit high but we anticipate further stockpiling of PC DRAM in response to reallocation of production capacity to mobile RAM Against such a backdrop, DRAM makers are considering reallocating additional production capacity to mobile RAM. Such a move could exacerbate PC DRAM supply strains. It would also pose a risk of mobile RAM oversupply. With PC demand sluggish, aggregate PC DRAM inventories are somewhat overstocked at the equivalent of 5–6 weeks of supply. Nonetheless, we are currently seeing inventory restocking demand. Even the major memory module makers are stepping up DRAM purchases out of concern about future shortages. Mid-tier module makers strategically stockpile DRAM inventories as a matter of policy, but some of them are apparently unable to stockpile as much as they had planned. Additionally, PC makers are apparently looking into using mobile RAM in their flagship notebook models if equipped with Intel's low-voltage (17W) Haswell CPU. However, as there is also a need to maintain a good balance with DRAM's relationship to total bill-of- materials costs, we question whether PC makers can tolerate an increase in DRAM costs given the increased parts and materials costs that Windows 8 imposed on them. We accordingly expect demand to be limited.
Technology Sector 16 15 March 2013
DRAM price outlook: we expect spot 2Gb price to rebound above $2, but contract prices' upside is likely limited to $1.50–1.60 We expect DRAM prices to continue rising into 2H 2013. We see a high probability of the 2Gb DDR spot price crossing above $2.00 around midyear, when PC production shifts into high gear. However, 2Gb DRAM contract prices' upside is likely limited to $1.50–1.60 (from $1.08 currently) due to their relationship with mobile RAM prices. DRAM price rises will be driven by restocking demand arising from expectations of shortages of PC DRAM, but a recovery in real demand will be needed to maintain the rise. However, we think that restocking demand from module makers will peter out in Apr–May and that the rise in prices will come to a temporary halt. Under existing contract terms, mobile RAM contract prices are reduced every quarter irrespective of PC DRAM spot price movements. We therefore expect mobile RAM prices to decline at an annualized rate of 20–30%. As a result, we look for mobile RAM and PC DRAM prices to converge in 2H 2013.
Figure 18: DRAM prices (2Gb DDR) Spot price will likely exceed 2.4 $2.0, but we see $1.5–1.6 2.2 as the contract price ceiling 2.0
1.8
1.6
US$ 1.4
1.2
1.0
0.8
0.6
Jul-11 Jul-12
Apr-11 Oct-11 Apr-12 Oct-12
Jan-11 Jun-11 Jan-12 Jun-12 Jan-13
Feb-11 Mar-11 Feb-12 Mar-12 Feb-13 Mar-13
Dec-12 Nov-11 Dec-11 Nov-12
Aug-11 Sep-11 Aug-12 Sep-12
May-11 May-12
Spot 2Gb DDR3 Contract 2Gb DDR3
Source: DRAMeXchange DRAM makers have no capacity expansion plans While supply–demand conditions looking tight, we do not see any DRAM makers as DRAM capex strategy having any intention to invest in capacity expansion. Micron even plans to retool DRAM changing, with earnings, fabs in Singapore and the US (equivalent to nearly 5% of global DRAM production shift in product mix major capacity) for NAND production after completion of the Elpida acquisition. As such, supply management focus points could shrink over the longer term. The DRAM makers that we recently spoke to seem to be placing more priority on their own profitability and improving their sales mixes than in alleviating supply strains in 2H 2013 or 2014. Also, it looks as though increases in capacity and cost reduction benefits due to process migration on the kind of scale we have seen in the past are now unlikely. One DRAM maker told us that now that smartphones and tablets, neither of which is highly sensitivity to DRAM prices, have assumed the role of chief demand driver and PC DRAM demand has slowed to a sluggish pace, there is no need to take the risk of investing in DRAM capacity expansion. DRAM makers' capex is consequently likely to be limited to investments in migration to sub-30nm process technologies and conversion of DRAM lines to mobile RAM production. Hynix and Rexchip have sufficient unused fab space to expand their respective M12 and R2 lines' capacity by 70,000–80,000 wafers/year apiece if they wanted to, but neither company has any plans to invest in new capacity. Samsung Electronics, the world's largest DRAM maker, has no unused fab space to expand existing DRAM lines' capacity. If it were to invest in new DRAM capacity, it would have to either build a new fab or utilize NAND Line 16's unused space (50,000 wafers).
Technology Sector 17 15 March 2013
Risks to DRAM prices Risks to DRAM prices include: (1) low-end Chinese memory makers and second-tier global memory makers downwardly revising their aggressive mobile RAM production plans from 3Q, (2) demand from memory module makers' inventory stockpiling peaking and PC production failing to ramp up at the same time, and (3) Micron unveiling a DRAM strategy that implies production capacity expansion. NAND supply–demand unusually tight in Apr–Jun, but too soon to say if this is due to actual demand
■ NAND flash prices higher, supply–demand conditions tighter than expected in 1–2Q
■ Supply–demand conditions are so tight that some NAND flash makers need to allocate supply capacity to Apr–Jun
■ NAND makers are focusing not on the traditional cycles, including supply–demand, but on changes in the product mix and improving margins
■ Module maker inventories are optimal or in slight oversupply. Retail inventories (cards, USB) have become broadly optimal in the Chinese market
■ Japanese and Korean makers are not planning or even considering investment to expand new NAND flash production capacity
■ Decline in SSD prices, which fell by 50% YoY in 2012, has broadly halted, and prices are now stable. NAND flash supply–demand conditions are so tight that makers are facing supply allocation problems NAND market have been firmer, and supply–demand conditions tighter than expected within the industry, due mainly to supply-side control issues. As Figure 19 shows, oversupply remains overall and for 2Q, but supply of high-capacity NAND flash (32/64Gb) has started to look tight, due in part to demand for new smartphones and tablet PCs in 2Q. Demand is usually weak in 2Q, but major NAND flash makers in particular are facing supply allocation problems, i.e., they are finding it difficult to meet demand due to supply shortages. We think it is too soon to conclude that the tight supply–demand conditions are due to real demand, because we think that Toshiba, which again cut production from November, has already reverted to operating at full capacity, and it looks as though the tight supply–demand conditions are not due to supply-side control. Also, some makers think that the tight supply–demand conditions are due in part to back-up demand arising from production problems and we also look for restocking demand driven by expectations of shortages. Some makers, including Taiwanese module makers, have been building up inventories to prepare for shortages further ahead, but due partly to the abovementioned allocation problems, the inventory build-up has not gone as they expected. Market inventory levels at module makers are running at 4–6 weeks, ranging from optimum to slight oversupply. Meanwhile, memory card and USB inventories are said to have become broadly optimal in the Chinese market, and we think that demand from the retail market will pick up in line with seasonality.
Technology Sector 18 15 March 2013
Figure 19: Outlook for NAND flash supply–demand conditions
30% Oversupply 25% 24.0%
20% 15.1% 15.5% 15%
9.6% 10% 5.5% 5.6% 5.0% 5.3% 4.4% 4.8% 4.3% 4.5% 4.0% 5% 3.4% 3.1% 2.2% 2.3% 1.9% 0.9% 0.6% 0% -0.8% -0.4% -0.8% -0.2% -2.3% -2.5% -5% -2.8% -2.7% -3.5%-3.6% Supply shortage -4.9% -4.3% -5.0% -5.3% -5.8% -6.0% -5.8%
-10% -7.2% -6.4% -7.6%
2Q09 2Q10 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 3Q09 4Q09 1Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
1Q13E 2Q13E 3Q13E 4Q13E
Source: Credit Suisse estimates
Figure 20: NAND flash bit growth forecasts 45,000 113% 120%
40,000 100% 35,000
30,000 80% 66% 25,000 60% 60% 60%
mn GB mn 20,000 48% 44%
15,000 40%
10,000 20% 5,000
0 0% 2008 2009 2010 2011 2012E 2013E
Demand (mn GB) bit growth (%)
Source: Credit Suisse estimates With NAND flash prices stable, Toshiba is benefiting from growth in opportunities to develop new customers thanks to the weak yen Many in the industry think that prices will stabilize at current levels. We expect the price of Strong KRW, weak yen 32Gb MLC to move within a range of $3.5–4.5 (spot price over the next three months), providing Toshiba with and $3–3.5 (contract price, spot and contract prices as of 13 March were $3.7 and $2.63, opportunity to win new respectively). Due to changes in the JPY/KRW rate, Korean makers appear to be customers concerned about Toshiba's price strategy. In fact, owing to its focus on profitability, Toshiba has not embarked on an aggressive price offensive, but the weak yen has provided it with an ideal opportunity to start supplying smartphone and tablet PC makers, who are new customers for the company. Toshiba has already won a share (we estimate around 20%) of the market for Samsung's Galaxy smartphone, thereby starting to reduce its reliance on Apple. The price of SSDs, which has been falling by 50% a year since last year, has now stabilized at around $90. Demand for SSDs for notebook PCs has not expanded, but we think that the price has stabilized because there are no makers looking to actively take on the market, owing to the thin margins on SSDs and the fact that little progress has been made in terms of cutting costs.
Technology Sector 19 15 March 2013
Figure 21: NAND flash prices (32Gb MLC) 7.0
6.0
5.0
4.0
USD 3.0
2.0
1.0
0.0
Jul-11 Jul-12
Apr-11 Oct-11 Apr-12 Oct-12
Jan-11 Jun-11 Jan-12 Jun-12 Jan-13
Feb-11 Mar-11 Feb-12 Mar-12 Feb-13 Mar-13
Nov-11 Dec-11 Nov-12 Dec-12
Aug-11 Sep-11 Aug-12 Sep-12
May-11 May-12
Contract 32Gb MLC Spot 32Gb MLC
Source: DRAMeXchange
Figure 22: SSD price
$200
$180 $175
$160
$140 $120 $120 $105 $95 $100 $90
$80
$60 $55
$40
$20
$0 End of 2011 2Q12 3Q12 4Q12 1Q13 Target for 2013 Source: Credit Suisse estimates NAND capex limited to process migration; no plans for fresh investment We expect NAND flash makers to limit capex to process migration. As with DRAM, makers Given tight supply–demand are also focusing on profitability with NAND flash, and none are considering investment to conditions, there are no expand new production capacity. We do not expect makers to adopt a bullish stance plans for capex to expand toward investment, as there are uncertainties with regard to supply–demand, including the new production capacity impact of the swing to low-end smartphones and Micron's rejigging of its production lines in Singapore and North America from DRAM to NAND flash production, and because the current supply–demand environment is due to supply factors, not to firm real demand. Makers are considering investment in 3D NAND flash, but two hurdles need to be overcome before mass production can get under way: new production lines have to be built because the equipment layout is different, and fresh sources of demand need to be developed as there are currently no applications for 3D NAND flash. As such, we think that even if companies do invest, they will likely start with small-scale production capacity (e.g., around 10–20k wafers). We think that Samsung will make 3D NAND flash at its Xi'an plant and that the Phase 2 development of the No.5 building at Toshiba's Yokkaichi plant is intended to house a 3D NAND flash production line.
Technology Sector 20 15 March 2013
NAND market risks We think NAND market risks include: (1) a decline in prices due to the release of defective products on the spot market if production problems occur, (2) a collapse of supply–demand conditions due to the end of restocking demand, (3) a slowdown in growth in average density/box if low-end smartphones drive volume growth, and (4) Micron bringing forward the conversion of its DRAM line to NAND flash production (we think it is currently planning to do this at the year-end). Front-end SPE: changes in the outlook for foundry investment plans
■ Shift away from trend at foundries to bring forward plans for investment in 28/20nm lines, revisions to plans
■ DRAM/NAND investment limited to process migration, no planned investment in new capacity despite tight supply-demand
■ Chinese NAND flash investment likely to consist only of stepped investment as take-up increases with 3D NAND part of the picture The January survey indicated that Taiwanese foundries are bringing 28nm/20nm Foundries have started to investment forward, but this month has seen some negative news, including the revision of revise their investment plans 28nm expansion investment plans and news that 20nm lines will start up on a smaller in March scale than previously expected. This was highly unexpected, especially as prior to the Asia survey, there were positive developments for TSMC's 28nm production capacity, including that Korean makers were planning to increase the proportion of Qualcomm products in their smartphones due to delays in developing their own application processors. We see the following factors behind these revisions: (1) Qualcomm diversifying manufacture of 28nm HKMG processors from just TSMC to a number of foundries, including Global Foundries (this was also mentioned in Asian Daily Moderating near-term outgrowth, longer term intact, by TSMC analyst Randy Abrams on 8 March), and (2) a change in the timing of Apple's anticipated shift to Taiwanese foundries. Taiwan filings through 1H March firm Taiwan filings (Figure 23) shows that orders to date have been firm. Behind this lie near- term delivery orders to Japanese SPE makers and initial investment in 20nm mass production lines. However, looking ahead, we think that orders will likely peak out, owing to the end of previously solid 28nm investment and despite on-going investment in 20nm.
Technology Sector 21 15 March 2013
Figure 23: Taiwanese filing data As of 3/13 2012 2013 2011 2012 2013 MoM QoQ US$ millions Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep Oct Nov Dec Jan. Feb. Mar. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Total Taiwan filings 564.9 429.5 1,225.8 1,003.5 892.8 1,044.2 602.0 940.5 394.2 1,196.6 1,027.3 1,367.0 1,027.1 569.7 537.1 -6% 2,321.7 1,493.9 817.6 2,845.4 2,220.2 2,940.4 1,936.8 3,590.9 2,133.8 -41% Front-end 564.9 389.8 1,089.2 888.7 830.2 945.0 515.5 922.8 394.2 1,196.6 1,027.3 1,310.1 924.8 516.0 513.1 -1% 2,175.9 1,224.4 782.0 2,746.4 2,043.9 2,663.8 1,832.6 3,534.0 1,954.0 -45% Back-end 0.0 39.7 136.6 114.8 62.6 99.2 86.5 17.7 0.0 0.0 0.0 56.9 102.2 53.7 23.9 -55% 145.8 269.5 35.6 99.0 176.3 276.6 104.2 56.9 179.9 216% TSMC 430.4 371.2 958.8 868.5 794.4 788.4 448.7 688.7 294.2 1,169.1 970.9 1,129.0 872.7 478.1 493.4 3% 1,822.5 957.5 601.3 1,776.0 1,760.3 2,451.3 1,431.6 3,269.0 1,844.2 -44% UMC 134.5 18.7 110.1 20.2 35.8 156.6 66.8 217.3 100.1 27.5 38.8 92.5 52.1 37.9 19.7 -48% 98.8 266.9 106.8 923.5 263.2 212.5 384.2 158.7 109.8 -31% Inotera 0.0 0.0 20.4 0.0 0.0 0.0 0.0 16.8 0.0 0.0 17.7 67.0 0.0 0.0 0.0 - 210.7 0.0 0.0 0.0 20.4 0.0 16.8 84.6 0.0 - Nanya 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - 0.0 0.0 51.2 0.0 0.0 0.0 0.0 0.0 0.0 - Powerchip 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Winbond 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21.7 0.0 0.0 0.0 - 43.9 0.0 22.6 47.0 0.0 0.0 0.0 21.7 0.0 - ASE 0.0 18.7 71.3 67.5 40.8 57.1 18.8 17.7 0.0 0.0 0.0 19.9 0.0 0.0 23.9 - 120.2 54.3 18.9 81.8 90.1 165.4 36.5 19.9 23.9 20% SPIL 0.0 20.9 65.3 47.2 0.0 24.0 67.7 0.0 0.0 0.0 0.0 37.0 102.2 53.7 0.0 - 0.0 50.9 16.7 0.0 86.2 71.2 67.7 37.0 155.9 322% Powertech 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - 0.0 164.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - King Yuan 0.0 0.0 0.0 0.0 21.8 18.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - 25.7 0.0 0.0 17.2 0.0 40.0 0.0 0.0 0.0 -
ASML 163.2 0.0 171.4 114.7 0.0 223.5 0.0 480.5 0.0 305.1 167.0 323.5 17.9 0.0 52.6 - 216.2 351.5 129.3 559.5 334.6 338.2 480.5 795.6 70.5 -91% Applied Materials 107.5 112.9 167.8 148.2 197.6 64.2 153.8 41.6 64.1 244.6 207.6 214.8 257.7 73.6 148.3 101% 343.0 242.9 73.8 339.4 388.2 410.0 259.5 666.9 479.7 -28% Tokyo Electron 52.1 24.6 180.5 78.5 52.9 63.3 111.5 64.8 65.0 21.0 106.6 139.8 110.7 105.1 26.0 -75% 311.2 123.2 39.4 343.5 257.2 194.7 241.3 267.4 241.8 -10% Lam Research 50.2 0.0 104.4 31.1 37.3 63.8 31.3 16.8 37.1 0.0 61.7 84.8 35.6 0.0 90.9 - 121.2 57.6 17.3 117.6 154.6 132.1 85.2 146.5 126.5 -14% Novellus Systems 0.0 17.3 38.6 34.2 46.2 0.0 0.0 40.2 19.3 0.0 59.8 69.6 31.0 0.0 0.0 - 65.7 18.8 18.5 41.4 55.9 80.4 59.5 129.4 31.0 -76% KLA Tencor 128.3 37.1 17.0 82.6 40.7 119.6 64.2 22.1 20.6 37.9 134.1 40.1 108.8 66.1 20.3 -69% 175.4 63.6 60.1 286.5 182.5 242.8 106.9 212.1 195.3 -8% Hitachi Hightech 0.0 20.3 0.0 22.7 36.0 41.2 0.0 0.0 0.0 17.3 43.7 72.0 0.0 0.0 0.0 - 25.6 68.5 24.9 99.1 20.3 99.9 0.0 133.0 0.0 - Dainippon Screen 20.0 18.5 41.4 61.1 53.6 76.0 17.1 0.0 22.7 19.6 0.0 107.1 71.4 32.4 74.2 129% 170.6 27.2 23.6 90.6 79.9 190.7 39.8 126.7 178.0 41% Hitachi Kokusai 0.0 0.0 20.9 17.6 18.3 20.9 0.0 0.0 0.0 22.1 19.5 17.4 27.3 25.0 0.0 - 97.8 0.0 22.7 21.5 20.9 56.7 0.0 58.9 52.4 -11% Advantest 0.0 0.0 0.0 0.0 0.0 0.0 27.1 17.7 0.0 0.0 0.0 19.8 21.6 0.0 23.9 - 0.0 106.5 35.6 0.0 0.0 0.0 44.8 19.8 45.5 130% Disco 0.0 0.0 0.0 18.1 0.0 17.0 0.0 0.0 0.0 0.0 0.0 19.9 17.0 0.0 0.0 - 17.7 0.0 0.0 17.8 0.0 35.1 0.0 19.9 17.0 -15% Others 43.5 198.7 483.8 394.8 410.3 354.7 196.9 256.8 165.4 528.9 227.4 258.3 328.0 267.4 100.8 -62% 777.2 434.0 372.3 928.6 726.0 1,159.8 619.2 1,014.6 696.3 -31% Others includes ALL Nanya's number. Pure Equipment 521.4 351.4 1,213.4 842.1 623.7 918.0 565.1 710.2 305.6 717.4 960.2 1,268.4 911.2 521.4 517.3 -1% 2,113.9 1,335.7 614.2 2,404.8 2,086.2 2,383.8 1,580.8 2,945.9 1,972.1 -33% Others (Facility etc) 43.5 78.1 12.5 161.4 269.1 126.2 36.9 230.3 88.7 479.2 67.2 98.6 115.8 48.4 19.7 -59% 207.8 158.2 203.4 440.6 134.0 556.6 355.9 645.0 161.8 -75% Source: Company data, Credit Suisse Firms’ stance on memory: Investment only in process migration; no new capacity expansion While SPE makers’ expectations for memory-related investment remain high, we note a shift in the investment strategy of the memory makers toward prioritizing earnings and transforming their product mix. Also, none of the makers are considering investment in expanded production capacity. Indeed, we think the recent tightening of the supply– demand balance for both DRAM and NAND is driven more by factors on the supply-side than by demand. Given this risk, we believe the makers are unlikely to take the trouble of investing in new capacity that will lead to an increase in supply. Below is our view on the potential investment stance of memory makers. Memory makers’ investment stance ■ Samsung Electronics: The firm is likely restricting investment to those contributing to margin improvement. As the rate of cost reduction achieved through capex is not as high as it was in the past, the company appears to have decided to limit investment to that matching final demand leading to an immediate improvement in margins. We also hear of the firm’s plans to install 50% fewer immersion lithography equipment than it did a year earlier. Samsung Electronics’ capex in both logic and memory is likely to be rather muted, in our view.
■ Hynix: Even as expectations mount for Hynix to turn into a stable memory maker spurred by SK Telecom’s forceful involvement in the management, its investment stance, like that of Samsung Electronics’, is likely to be negative considering its priorities (apparently profitability and transformation of product portfolio).
■ Toshiba: Positioning NAND as a stable business, Toshiba appears to have restricted investment in the business to process migration. As with Samsung Electronics, capital investment is yielding limited cost reduction for Toshiba unlike in the past, prompting a major shift in its investment strategy.
■ Micron: We look for Micron to invest in streamlining DRAM and NAND production facilities following Elpida acquisition as well as in process migration, but see the company lacking necessary funds to invest in new production capacity.
Technology Sector 22 15 March 2013
Capex forecasts: 14% YoY decline in 2013 (WFE) After a slight revision to Credit Suisse global capex estimates (−2.4% in 2013; +0.3% for WFE), our Japan team forecasts capex to decline 15.2% in 2013 (−14% for WFE). Not only do we regard an investment rebound in DRAM and NAND as unlikely in 2H 2013, we anticipate capital investment at Intel and Samsung to remain muted. While Taiwanese foundry capex has been revised, this effectively eliminates the upside seen so far versus initial plans disclosed by the firms, suggesting investments are likely to remain within the levels indicated by companies.
Figure 24: Global capex forecasts and capex forecasts by device (partially revised by Japan team) ($B) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E Bottom-Up Capex Estimates $63.2 $39.1 $27.6 $29.4 $48.0 $47.0 $55.2 $59.0 $41.2 $22.3 $49.7 $59.5 $54.6 $46.3 $50.0 % Chg 98.7% -38.1% -29.4% 6.3% 63.5% -2.0% 17.3% 7.0% -30.2% -45.9% 123.0% 19.7% -8.1% -15.2% 8.0% WFE Spending (SEMI Reported) $32.2 $21.0 $14.2 $14.7 $25.4 $22.9 $28.7 $31.9 $22.0 $11.8 $29.5 $33.5 $28.6 $24.6 $29.6 % Chg, WFE y/y 91.6% -34.8% -32.6% 4.2% 72.5% -10.1% 25.7% 11.2% -31.0% -46.3% 149.4% 13.4% -14.6% -14.0% 20.3% WFE / Capex 51.0% 53.3% 50.8% 49.8% 52.6% 48.1% 51.6% 53.5% 52.1% 50.6% 55.4% 52.8% 51.4% 51.8% 56.8%
Capex by Device ($B) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E DRAM $10.0 $7.1 $5.3 $6.9 $10.7 $10.4 $12.4 $22.7 $11.7 $4.4 $13.4 $7.4 $5.3 $5.1 $6.3 % Chg 85% -29% -25% 31% 55% -3% 20% 83% -48% -62% 201% -45% -29% -3% 22% Flash $3.6 $2.3 $1.2 $2.1 $4.6 $9.0 $13.4 $12.2 $9.7 $4.6 $8.6 $11.4 $8.2 $7.2 $8.7 % Chg 65% -38% -46% 66% 127% 95% 49% -9% -20% -53% 88% 33% -28% -13% 22% MPU $5.7 $6.4 $4.4 $3.4 $3.9 $5.6 $6.5 $5.5 $5.0 $3.7 $4.2 $8.4 $11.0 $8.0 $9.0 % Chg 73% 12% -32% -23% 17% 41% 16% -15% -8% -27% 12% 101% 32% -27% 13% Logic (ex- mpu, incl DSP) $23.4 $12.5 $8.5 $10.2 $13.6 $13.2 $13.3 $9.8 $7.8 $3.4 $5.6 $8.3 $4.7 $3.8 $3.7 % Chg 91% -47% -32% 21% 41% -13% 6% -26% -21% -56% 65% 47% -43% -20% -2% Foundry $10.9 $6.4 $5.8 $4.2 $10.9 $6.0 $6.8 $6.1 $4.5 $4.7 $14.4 $20.8 $22.0 $19.5 $19.1 % Chg 150% -41% -9% -27% 139% -44% 12% -10% -26% 6% 205% 44% 6% -12% -2% Other $6.6 $3.2 $1.2 $1.0 $1.9 $1.2 $2.8 $2.8 $2.4 $1.4 $3.4 $3.2 $3.4 $2.8 $3.3 % Chg 61% -51% -63% -13% 81% -33% 127% -2% -12% -42% 147% -8% 7% -17% 17% Total $60.3 $37.8 $26.3 $27.8 $45.6 $45.5 $55.2 $59.0 $41.2 $22.3 $49.7 $59.5 $54.6 $46.3 $50.0 % Chg 91% -37% -30% 5% 64% 0% 21% 7% -30% -46% 123% 20% -8% -15% 8% Source: Company data, Credit Suisse estimates Order forecasts for TEL and Screen Figures 25–26 show our quarterly orders forecasts for Tokyo Electron and Dainippon Screen Manufacturing based on the above factors. Although Taiwanese foundries have revised down 28nm process expansion plans, we do not anticipate a significant decline in orders in view of the investment in new mass production lines for the 20nm process. However, we still expect the figures to fall short of levels anticipated by the market and by company targets.
Figure 25: Tokyo Electron – Quarterly order forecasts
Apr-95 Sep-95 Mar-96 Sep-96 Mar-97 Aug-97 Feb-98 Aug-98 Feb-99 Jul-99 Jan-00 Jul-00 Jan-01 Jun-01 Dec-01 Jun-02 Dec-02 May-03 Nov-03 May-04 Nov-04 Apr-05 Oct-05 Apr-06 Oct-06 Mar-07 Sep-07 Mar-08 Sep-08 Feb-09 Aug-09 Feb-10 Aug-10 Jan-11 Jul-11 Jan-12 Jul-12 Dec-12 Jun-13 Dec-13 250 3.0 226.9 216.1 214.4 187.2 222.2 205.7 197.6 200 205.9 2.5 1,631 173.5 202.0 182.1 172.6 144.4 145.1 149.3 159.3 156.3 155.6 144.6 127.5 150.0 150 123.0 127.8123.8 143.8 2.0 138.7 126.9 132.2 134.2 123.0 121.0 125.0 1,07.8 121.6 103.0 107.1 104.6 111.0 95.0 110.6 109.2 89.1 89.3 105.5 95.0 95.0 90.0 100 72.0 84.5 58.4 75.6 79.0 1.5 77.1 82.8 64.7 66.4 75.7 93.8 85.0 55.0 65.8 75.2 75.0 61.0 44.4 273 51.0 50.1 40.0 25.6 50 31.0 37.9 1.0 26.8
(9.4) (x) P/B rel TOPIX SPE+FPD/PV Order (¥ bn) bn) (¥ Order SPE+FPD/PV
0 0.5
-50 0.0
95Q2 95Q4 96Q2 96Q4 97Q2 97Q4 98Q2 98Q4 99Q2 99Q4 00Q2 00Q4 01Q2 01Q4 02Q2 02Q4 03Q2 03Q4 04Q2 04Q4 05Q2 05Q4 06Q2 06Q4 07Q2 07Q4 08Q2 08Q4 09Q2 09Q4 10Q2 10Q4 11Q2 11Q4 12Q2 12Q4
13Q2E 13Q4E
SPE FPD/PV Cancel TOPIX rel PBR
Source: Company data, Credit Suisse estimates
Technology Sector 23 15 March 2013
Figure 26: Dainippon Screen Manufacturing – Quarterly order forecasts
Apr-09 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 80.0 3.0
70.0 15.7 40.7 5.0 2.5 28.9 60.0 14.1 9.5 25.9 20.9 16.8 7.2 27.4 5.2 14.8 8.8 6.3 8.7 2.0 50.0 19.9 5.5 6.4 12.7 11.5 2.0 6.8 6.2 40.0 4.2 4.9 1.5 19.0 12.8 10.6 1.1 10.2 6.6 2.7 5.0 13.2 8.4 5.0
Order (¥bn) Order 5.0 30.0 57.6 0.6 6.0 5.0 52.1 52.6 53.7 1.0 10.5 8.9 41.7 31.4 49.0 3.6 42.9 44.6 43.9 45.4 43.1 20.0 6.8 35.0 34.3 39.1 38.3 42.2 31.4 34.0 31.0 34.2 26.8 27.6 32.8 29.0 2.4 2.8 30.0 29.9 29.9 1.7 0.9 29.3 29.0 27.0 4.0 23.8 24.8 25.6 32.0 25.5 30.0 0.5 10.0 16.2 23.2 25.0 0.9 10.2 14.4 15.5 9.0 (x) P/B relative TOPIX 9.6 10.5 13.4 11.2 6.0 8.3 7.5
0.0 0.0
2Q 2Q 3Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
3Q 4Q
1Q E 1Q E 2Q E 3Q E 4Q CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013
SPE FPD TOPIX rel P/B
Source: Company data, Credit Suisse estimates
Back-end SPE: Recovery in memory-related investment
■ Gradual rebound in orders.
■ The orders cycle depends on the new product cycle, a shorter order cycle implying a recovery in 2-3Q followed by concerns of a correction in 4Q.
■ Recovery in small lot memory-related assembly and tester investment (memory testers for Korea; memory assembly devices for Taiwanese subcontractors)
■ Lower expectations for orders following delays in Apple’s shift to Taiwanese foundries. Albeit small, Taiwanese subcontractors have initiated inquiries for memory-related Makers have started to assembly devices recently. We believe this stems from Micron’s move to streamline its receive some small lot suppliers among Taiwanese subcontractors following Elpida acquisition and an increase in enquiries for assembly NAND demand (thinner NAND demand for smartphones). devices and testers Meanwhile, logic-related investment appears to have recently come to a standstill. With subcontractor utilization trending just short of 90%, we await a surge past 90%, which will lead to investment. With Taiwanese foundry utilization rates having turned upwards since February, we look for assembly equipment demand to build up gradually in 2Q. However, Apple-related investment, which we had anticipated, is unlikely before end-2013, given the likelihood of the schedule (order placement in March and start-up in June) slipping back. In light of the small scale of investment, particularly memory-related, and a modest recovery in logic-related investment, our research has not yielded data that could prompt us to substantially alter our order forecasts.
Technology Sector 24 15 March 2013
Subcontractor investments hinge on new product cycles in smartphones and tablets; subcontractor investment cycle shrinks to one year A point worth noting here is that the seasonal pattern of strong assembly device demand Changes in the orders cycle. through 2H may already be obsolete as the production trend of Taiwanese subcontractors Hinges on new product hinges on new product cycle in smartphones and tablets. Due to this, we believe that cycle and is shortening orders too, have shrunk from a multi-year cycle (with a seasonal correction in 2H 4Q–1H 1Q) to a one-year cycle (strong in 2–3Q and weak in 4–1Q).
Figure 27: Forecasts for assembly and test utilization rates at major Taiwanese subcontractors Taiwan Assembly/Test process utilization 100%
90%
80%
70%
60%
50%
40%
2Q 1Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2Q 3Q 4Q 1Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E Assembly utilization Test utilization
Source: Company data, Credit Suisse estimates
Figure 28: Disco – Quarterly order forecasts
Oct-06 Apr-12 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Oct-12 Apr-13 Oct-13 35 3.0
29.4 30 2.5 26.1 26.626.1 23.5 25.0 24.3 24.5 24.4 24.0 25 21.9 23.7 23.3 22.1 20.9 21.6 21.8 22.0 2.0 20.6 21.1 21.0 21.2 21.0 19.4 20.2 19.4 19.3 20 19.1 17.3 16.6 17.7 16.0 15.8 1.5 14.6 14.4
15 12.8 Order (¥ bn) (¥ Order 11.4 10.7 11.0 10.0 10.3 9.4 9.8 10.5 1.0 10 8.6 8.6 6.7 6.7 5.4 5 0.5 (x) P/B rel TOPIX
0 0.0
4Q 4Q 1Q 3Q 1Q 2Q 4Q 1Q 4Q 1Q 3Q 1Q 1Q
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2Q 4Q 3Q 2Q 3Q 2Q 4Q 2Q 3Q 4Q 2Q 3Q 4Q
1QE
2Q E 2Q E 3Q E 4Q 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Orders TOPIX rel P/B
Source: Company data, Credit Suisse estimates
Technology Sector 25 15 March 2013
Tester demand: Modest growth in DRAM tester demand from Korean makers Albeit low-volume, there are apparently signs of DRAM tester demand for front-end and back-end mobile RAM from Korean makers, which probably reflects the increased adoption of LP DDR3 in smartphones this year. However, given the new smartphone cycle in Korea, the demand may be short-lived. Moreover, with DRAM makers revising the DDR4 start-up schedule, DRAM tester demand for DDR4 is unlikely to take off in 2013.
Figure 29: Advantest – Quarterly order forecasts
Apr-94 Oct-94 Apr-95 Oct-95 Apr-96 Oct-96 Apr-97 Oct-97 Apr-98 Oct-98 Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 100 3.5
90 85.0 3.0 77.7 80 75.7 69.8 68.2 2.5 70 68.0 64.9 60.8 61.0 62.0 60.4 62.1 60.8 57.9 60 60.5 55.0 56.5 53.2 2.0 54.0 50.3 50.0 48.3 50 50.0 47.5 46.2 43.0 45.5 45.0 45.8 42.0 35.8 38.0 41.0 41.5 41.0 38.4 1.5 40 35.0 Orders (¥ bn) Orders(¥ 31.8 31.2 34.5 34.5 30.8 33.6 31.0 34.3 31.031.5 30.5 P/B (x) rel TOPIX 26.0 27.5 29.6 18.2 25.5 26.4 23.3 27.6 30 22.0 25.0 23.0 25.3 26.0 25.0 25.6 25.9 1.0 21.0 25.0 21.0 21.3 24.4 19.8 18.7 20 18.0 18.1 11.6 15.0 14.4 0.5 10 10.0 8.94.9
0 0.0
2Q94 3Q94 4Q94 1Q95 2Q95 3Q95 4Q95 1Q96 2Q96 3Q96 4Q96 1Q97 2Q97 3Q97 4Q97 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
1Q13E 2Q13E 3Q13E 4Q13E Orders (left axis) TOPIX rel P/B (right axis)
Source: Company data, Credit Suisse estimates
Technology Sector 26 15 March 2013 Electronic components Trends in hardware production and electronic component orders IT hardware production sluggish in 1H 2013, but still strong YoY through Jul–Sep Data for YoY growth rate in IT hardware production volume, compiled as a part of our Asia Tech sector research, is shown in Figure 30. A look at the quarterly data shows that hardware production volume, excluding that of Samsung Electronics, is likely to remain sluggish through the first half of the year due to the slump in notebook PC and iPhone production. Some firms like Murata Manufacturing and Toko are likely to benefit from Samsung’s Galaxy S4 model, but other than Intel CPU package for which inventory was pared back, our overall impression is that most suppliers are offsetting harsh fundamentals through gains from a lower yen. Meanwhile, we anticipate hardware production to trend firm in terms of year-earlier comparisons, a factor that could underpin share prices in the entire electronic components sector.
Figure 30: Major IT hardware production trends
(mn units）
400.0 35%
350.0 30%
300.0 25%
250.0 20%
200.0
15% 150.0
10% 100.0
5% 50.0
0.0 0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE CY2010 CY2011 CY2012 CY2013
Handset NB MB Tablet PC yoy % chg. Source: Company data, Credit Suisse estimates Electronic component orders finally turn positive YoY; yen devaluation to offset sluggish fundamentals in 1H; anticipate a turnaround in fundamentals heading into 2H (around Jun-Jul) Monthly order trend for electronic components shows orders finally turning positive in January (Figure 31). The shares of electronic component manufacturers have rallied reflecting a weaker yen since December. Moreover, monthly orders/sales at the three major MLCC makers boasting a high share of the IT hardware market show a stronger rebound than overall orders (Figure 32). Excluding the Galaxy S4, we expect sluggish momentum in IT hardware volume to continue in the first half of the year. However, sector share prices still appear to reflect forex rate of ¥90/$, but with yen stabilizing at around ¥95/$, we look for a further upside. Given this, we regard the selection of stocks that are primed to benefit from Samsung’s Galaxy S4 and those with high forex sensitivity as a valid strategy for 1H 2013. We forecast a genuine recovery in fundamentals around Jun–Jul, when we expect orders for iPhones and notebooks to rebound and start growing. However, given the uncertainty of eventual demand for sets, it is difficult to rule out the risk of a post-production inventory adjustment, but we intend to maintain a bullish stance at least until the order recovery for iPhones and notebook PCs is priced into the shares.
Technology Sector 27 15 March 2013
Figure 31: Electronic component stocks index and Figure 32: Monthly orders/sales trend for three major monthly orders MLCC makers 60.0% 350.0 mn yen 45,000 60%
300.0 40.0% 40,000 50%
250.0 35,000 40% 20.0% 30,000 30% 200.0
0.0% 25,000 20% 150.0 20,000 10% -20.0% 100.0 15,000 0%
-40.0% 50.0 10,000 -10%
5,000 -20%
-60.0% 0.0
12/7 97/7 98/1 98/7 99/1 99/7 00/1 00/7 01/1 01/7 02/1 02/7 03/1 03/7 04/1 04/7 05/1 05/7 06/1 06/7 07/1 07/7 08/1 08/7 09/1 09/7 10/1 10/7 11/1 11/7 12/1 13/1 97/1 0 -30%
Electronic component monthly order/sales yoy growth (LHS) Electronic Component stock index (RHS, Jan 1997=100）
11/04 11/12 11/02 11/03 11/05 11/06 11/07 11/08 11/09 11/10 11/11 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 13/01 13/02 11/01 Monthly orders/sales total YoY % chg. Source: Company data, Credit Suisse estimates
Figure 33: Forex sensitivity of coverage stocks Change in op. profits OP sensitivity OP sensitivity Consensus OP to ¥1/USD &EUR change vs FY3/13 CoE OP vs FY3/13 CoE OP Ticker Company (¥mn) USD EUR US$ EUR US$ EUR (¥mn) (¥mn) FY12 FY13 6762 TDK 1,700 - 21,950 47,770 7.7% - 3.6% - 6981 Murata Mfg 3,000 - 56,170 93,710 5.3% - 3.2% - 6976 Taiyo Yuden 800 - 5,070 12,630 15.8% - 6.3% - 6971 Kyocera 960 960 78,940 134,140 1.2% 1.2% 0.7% 0.7% 6767 Mitsumi Electric 420 - (4,710) (1,010) NM - NM - 6770 Alps Electric 600 240 8,280 20,080 7.2% 2.9% 3.0% 1.2% Electronic component seg. 480 120 ------4062 Ibiden 1,500 100 6,370 18,550 23.5% 1.6% 8.1% 0.5% 5334 NGK Spark Plug 700 400 20,520 29,080 3.4% 1.9% 2.4% 1.4% 6967 Shinko Electric 1,300 - 2,170 7,960 59.9% - 16.3% - 6594 Nidec 1,200 - 24,330 74,340 4.9% - 1.6% - 6806 Hirose Electric 400 - 21,030 24,630 1.9% - 1.6% - 6727 Wacom 20 70 7,910 11,400 0.3% 0.9% 0.2% 0.6% 7915 Nissha Printing 700 - (7,970) 5,990 NM - 11.7% - 6807 Japan Aviation Electronics 400 - 8,330 10,070 4.8% - 4.0% - 6640 Daiichi Seiko 150 - - 2,750 - - 5.5% - Source: Company data, I/B/E/S, Credit Suisse estimates Expectations up for improved earnings as current price negotiations essentially unchanged Figures 34–35 depict the performance of Korean won and Japanese yen versus the dollar. The yen has weakened considerably versus the dollar since our last survey in January, but the Korean won has remained stable versus the dollar in the corresponding period. Price negotiations for key hardware-use MLCCs in Apr–Jun were more or less settled in the first half of March. While prices declined by around 1-2ppt, the drop was not as steep as feared in dollar terms. While the prices of ordinary components and small capacity items remain more or less stable in the RFQ for notebook PC-related in Apr-Jun (or Mar–May), the ASP of large capacity items appears to have fallen slightly versus the Jan–Mar level. We believe the overall price decline was capped at around 3% (1–2% in the previous quarter), but prices seem to have dropped by more than 5% for large volume components such as 2012-size 22μF and 1608-size 10μF MLCCs. That said, we do not anticipate price drops to have a major impact on the earnings of MLCC makers. With regard to price negotiations for supplies to Apple and Samsung, we believe prices continue to decline at a rate of 10–20% per quarter. The rate of decline, however, is comparable to that seen a year earlier and none of the makers particularly mentioned mounting pricing pressure on Japanese suppliers.
Technology Sector 28 15 March 2013
Figure 34: Performance of Korean won and Japanese yen Figure 35: Performance of Korean won and Japanese yen vs. the dollar (daily) vs. the dollar (monthly) KRW/$ JPY/$ KRW/$ JPY/$ 1300 100 1800 150.0
1200 140.0 95 1600
130.0 1100 90 1400 120.0 1000
85 1200 110.0
900 100.0 80 1000 800 90.0
75 800 700 80.0
600 70 600 70.0 11/3 11/4 11/6 11/7 11/8 11/10 11/11 11/12 12/2 12/3 12/5 12/6 12/8 12/9 12/10 12/12 13/1 13/3 94/1 95/1 96/1 97/1 98/1 99/1 00/1 01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1 09/1 10/1 11/1 12/1 13/1 KRW/$ JPY/$ KRW/$ JPY/$ Source: Datastream MLCC Decline in numbers for PCs warrants caution, but smartphones, tablets and autos drive overall volume We expect MLCC volumes, particularly for smartphones, tablet PCs, and autos to remain strong in 2013 and look for an improvement in product mix. On the other hand, negative factors include a potential decline in the number of MLCCs equipped per ultrabook PC following Intel Haswell ULT’s shift from low voltage/large current to low voltage/low current models. This shift merits a close watch. Capacity expansion likely to be limited to a 10% hike in 2013 Figure 36 depicts the production capacity trends for major MLCC makers. Taking into account curbs on capacity expansion by MLCC makers due to lower utilization rates in 2H 2011 and the decline in TDK’s production capacity as a part of its restructuring, we estimate the growth in industry-wide capacity expansion was probably limited to around 5- 10% in 2012. We expect capacity expansion at Murata and SEMCO to be capped at around 10% in 2013, and look for capacity expansion of just under 10% for the industry overall. We see limited risk of a price decline due to supply–demand.
Figure 36: Capacity expansion by major MLCC makers (bn umits/month) 300.0 30%
250.0 25% Yageo
200.0 20% SEMCO
TDK 150.0 15% Taiyo Yuden
Murata Mfg 100.0 10%
yoy % chg. 50.0 5%
0.0 0% 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3E 2013/3/E 2013/3/E
Source: Company data, Credit Suisse estimates
Technology Sector 29 15 March 2013
Emergence of new Intel CPU package suppliers not a major concern considering the lower yen and technological hurdles AT&S establishing a new plant in China; aiming to join the fray in 2016 We understand from our channel check that AT&S is constructing a new plant in Chongqing (China) at the cost of €350mn with the aim of entering the Intel CPU package market in earnest. The plant is likely to be completed in March 2014, with Intel providing technological support for the start-up. According to a press release, AT&S expects sales contributions starting in 2016. Based on the development roadmap, we believe AT&S aims to join the fray from X72 (Skylake) or X74. Although AT&S is a major manufacturer of HDI substrates for mobile phones, the firm is entering the IC package substrate space for the first time and may need considerable time to catch up with the existing makers. Moreover, Japanese and other Asian suppliers are aiming to work on the future technology roadmap by modifying their existing facilities, but AT&S will need to make new investments, which will mean a heavier fixed cost burden for the company compared with the existing players. Entry of new players not a concern given forex rates and technological hurdles As highlighted in our June 2012 Asia Tech Feedback report, the entry of Taiwan’s Unimicron in 2013, followed by the start-up of Intel’s in-house production at Chandler, Texas in 2014, and the entry of AT&S takes the total number of substrate suppliers to seven. We are not clear on why Intel needs to increase the number of suppliers from the outset, but taking into account that the prices of the two Japanese suppliers of FC-PKGs are already lower than that of their Asian rivals and considering the current exchange rates and on-going technological advancements (particularly from X74 onward), we see little risk of a major market share decline for the two Japanese firms. FC-CSP: Pressing need for Ibiden to start supplies to Qualcomm Ibiden may have to deal with a change in client AP market share As discussed earlier, we expect an increase in the ratio of QCOM processors and a decline in that of Exynos for Galaxy S4 application processors. Ibiden, like SEMCO, boasts a high market share for application processors to Apple and Samsung, but the company is yet to start mass production for QCOM, thus Ibiden entering the fray for FC-CSP supplies to QCOM will be a key point for its FY3/14 earnings. For Ibiden to enter the high-end application processor space for QCOM, it may also have to deal with FC-CSP for the low-end BB/RFIC/PMIC applications, but the firm appears to be preparing for handling low-end FC-CSP at its plant in Philippines. We look for Ibiden to start up FC-CSP for QCOM. High-end FC-CSP ASP set for a sustained uptrend The shift to semi-additive processes prompted by process migration is likely in 2H 2014 alongside the shift to the 20nm process, but we expect the ASP of high-end FC-CSP to continue its uptrend in 2013 due to the increase in average layer following the adoption of embedded substrates in Exynos (Samsung) and MSM/APQ (QCOM), micro wiring, and the requirement for larger substrates following prolonging of the 28nm process.
Technology Sector 30 15 March 2013
Figure 37: Sales trend for major FC-CSP ($mn) Figure 38: Market share of major FC-CSP makers (by value)
450 100% 400 90% 350 80% NYPCB NYPCB 300 70% UMTC UMTC 250 60% Kinsus Kinsus 50% 200 Shinko Shinko 40% 150 Ibiden Ibiden 30% 100 SEMCO SEMCO 20% 50 10% 0 0% 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4
Source: Credit Suisse estimates
Figure 39: FC-CSP supply chain
FC-CSP
AP company Kinsus SEMCO Ibiden UMTC Nanya PCB LG Innotek Shinko
QCOM ● ● ○ ● ●
TI ● ● ●
Nvidia ○ ● ●
Samsung/Apple ● ● ● ○
TSMC/Apple ○ ● ● ○
Broadcom ● ●
Intel ● ●
IFX ● ●
MTK ● ○ ○ ○ ●＝ Current supplier ○＝Future supplier Source: Credit Suisse estimates
Technology Sector 31 15 March 2013
Companies Mentioned (Price as of 14-Mar-2013) AT&S Austria (ATSV.F, €7.182) Advantest (6857.T, ¥1,496) Apple Inc (AAPL.OQ, $432.43) DISCO (6146.T, ¥5,510, OUTPERFORM, TP ¥6,100) Dainippon Screen Mfg. (7735.T, ¥493, NEUTRAL[V], TP ¥510) Global Foundries (Unlisted) Hitachi Kokusai Electric (6756.T, ¥906, NEUTRAL, TP ¥890) Huawei Tech (002502.SZ, Rmb9.18) IBIDEN (4062.T, ¥1,542) Intel Corp. (INTC.OQ, $21.66) LG Electronics Inc (066570.KS, W80,500) Micron Technology Inc. (MU.OQ, $9.69) Murata Manufacturing (6981.OS, ¥6,980) Nidec (6594.OS, ¥5,580) Nissha Printing (7915.T, ¥1,714) QUALCOMM Inc. (QCOM.OQ, $66.57) Rexchip Elctr (4932.TWO, NT$5.02) SK Hynix Inc. (000660.KS, W28,900) SK Telecom (017670.KS, W185,000) Samsung Electro-Mechanics (009150.KS, W95,700) Samsung Electronics (005930.KS, W1,520,000) TDK (6762.T, ¥3,390) Taiwan Semiconductor Manufacturing (2330.TW, NT$104.0) Taiyo Yuden (6976.T, ¥1,178) Toko (6801.T, ¥276) Tokyo Electron (8035.T, ¥4,420, NEUTRAL, TP ¥4,700) Toshiba (6502.T, ¥475) Wacom (6727.T, ¥393,000)
Disclosure Appendix
Important Global Disclosures Hideyuki Maekawa and Akinori Kanemoto, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
Price and Rating History for DISCO (6146.T)
6146.T Closing Price Target Price Date (¥) (¥) Rating 06-Apr-10 6,030 7,880 O 24-Jun-10 6,200 8,040 19-Aug-10 4,755 6,150 20-Jan-11 5,400 6,500 07-Jul-11 5,120 4,630 N 09-Aug-11 3,865 4,270 24-Jan-12 4,170 3,620 23-Feb-12 4,410 5,100 O 25-Jun-12 4,430 4,000 N 23-Oct-12 3,850 3,900 OUTPERFORM NEUTRAL 30-Nov-12 4,385 4,850 O * Asterisk signifies initiation or assumption of coverage.
Technology Sector 32 15 March 2013
Price and Rating History for Dainippon Screen Mfg. (7735.T)
7735.T Closing Price Target Price Date (¥) (¥) Rating 19-Aug-10 429 400 N 13-Jan-11 639 600 10-Aug-11 547 550 24-Jan-12 628 560 23-Feb-12 656 715 O 13-Sep-12 435 550 23-Oct-12 465 520 03-Dec-12 455 500 * Asterisk signifies initiation or assumption of coverage. NEUTRAL OUTPERFORM
Price and Rating History for Hitachi Kokusai Electric (6756.T)
6756.T Closing Price Target Price Date (¥) (¥) Rating 11-May-10 870 1,150 O 19-Aug-10 696 790 20-Jan-11 852 1,170 07-Jul-11 661 610 N 23-Feb-12 694 780 O 23-Oct-12 482 630 04-Feb-13 783 860 * Asterisk signifies initiation or assumption of coverage.
OUTPERFORM NEUTRAL
Price and Rating History for Tokyo Electron (8035.T)
8035.T Closing Price Target Price Date (¥) (¥) Rating 24-Jun-10 5,530 6,350 N 19-Aug-10 4,370 4,800 07-Jul-11 4,510 4,300 01-Aug-11 4,200 4,150 23-Feb-12 4,415 5,400 O 30-Jul-12 3,555 4,000 * Asterisk signifies initiation or assumption of coverage.
NEUTRAL OUTPERFORM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s to tal return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd
Technology Sector 33 15 March 2013
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% (54% banking clients) Neutral/Hold* 38% (47% banking clients) Underperform/Sell* 16% (40% 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.
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Price Target: (12 months) for DISCO (6146.T)
Method: Our ¥6,100 target price is based on a P/B of 1.80x applied to our FY3/14 BPS estimate. Our fair-value P/B assumption is derived by applying a premium of one standard deviation to a historical average TOPIX-relative P/B (1.75x; 2004-present) multiplied by 12-month forward TOPIX P/B of 1.45x.
Risk: Risks to our ¥6,100 target price for Disco include a decline in semi utilization rates and below consensus FY3/14 guidance on back of a shorter semiconductor cycle.
Price Target: (12 months) for Hitachi Kokusai Electric (6756.T) Method: Our ¥890 target price for Hitachi Kokusai Electric (HKE) is 1.04x FY3/14E BPS. We drive our P/B of 1.04x using one standard deviation above the company's average TOPIX relative P/B since 2009 (1.0x) and the TOPIX P/B of 1.04x.
Risk: Risks that may impede achievement of our ¥890 TP for Hitachi Kokusai Electric are; upside- investment in new memory capacity expansion, downside- slip in to the red on the re-emergence of loss making projects at the video and wireless network segment.
Price Target: (12 months) for Tokyo Electron (8035.T) Method: Our ¥4,700 target price for Tokyo Electron (TEL) is 1.45x FY3/14E BPS. The multiple is derived by applying the TOPIX P/B (1.04x) to the company's TOPIX-relative P/B average since 2010(1.4x). Risk: Risks to our ¥4,700 target price for Tokyo Electron (TEL) include; upside- new memory expansion investment and acceleration of foundry investment, downside- semi utilization downturn and memory price decline.
Technology Sector 34 15 March 2013
Price Target: (12 months) for Dainippon Screen Mfg. (7735.T) Method: We base our ¥510 target price for Dainippon Screen on a FY3/14E P/B of 1.45x, derived from the shares' average P/B relative to TOPIX since 2010 (1.4x; TOPIX P/B 1.04x).
Risk: Risks to our ¥510 target price for Dainippon Screen include; upside- resumption of 28nm expansion investment by foundries and single wafer cleaner demand increase from new memory investment, downside- slowdown of foundry investment and semi production adjustment.
Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures 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 (066570.KS, 009150.KS, 6762.T) 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 (066570.KS) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (066570.KS, 6762.T) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (066570.KS) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (066570.KS) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (6756.T, 8035.T, 7735.T, 066570.KS, 009150.KS, 4062.T, 6976.T, 6594.OS, 6981.OS, 6762.T) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (066570.KS, 6762.T) within the past 12 months As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (009150.KS). 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 (6146.T, 6756.T, 8035.T, 7735.T, 066570.KS, 009150.KS, 4062.T, 6727.T, 6976.T, 7915.T, 6981.OS, 6762.T) within the past 12 months An analyst involved in the preparation of this report has visited certain material operations of the subject company (6594.OS) 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 http://www.csfb.com/legal_terms/canada_research_policy.shtml. 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. 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 Securities (Japan) Limited ...... Hideyuki Maekawa ; Akinori Kanemoto
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Technology Sector 35 15 March 2013
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Tech_Asia_feedback_031513_E Technology Sector .doc36