Equity Research

February 2, 2015 Equity Research

Computer Supply Chain: Q4 2014 Round 2

• In this note we discuss recent computer supply chain news. In our view, two key takeaways from this latest data are: (1) Server processor sales growth remains strong with Intel’s data center segment growth up 25% year over year in the December quarter. (2) PC component demand trends look stable. A diverse Semiconductors range of different PC data points, including Gartner’s PC market estimates and

Intel’s Client PC segment sales, were flat to up year over year through most of 2014, compared to clear declines in 2013. We are hopeful that PC growth might turn positive in 2015. Intel, Seagate and Western Digital offered similar guidance for sequential sales declines in the 5-7% range for the March quarter. We consider this to be at the better end of a normal seasonal trend for sales to decline by mid-single-digit to low-double-digit percent in the first quarter of each year. • Strong growth for server processors. Intel’s December 2014 quarter data center segment sales increased 25.4% yr/yr (units up 15% ASP up 10%), compared to September 2014 quarter data center segment sales being up 16% yr/yr (units up 6% ASP up 9%), June 2014 quarter data center segment sales being up 19% year over year (units up 9% with ASP up 11%) and March 2014 quarter data center segment sales being up 11% yr/yr. • PCs were flat to up year over year in the December 2014 quarter. Gartner estimates that PC shipments were flat year over year in the December 2014 quarter following a flat September quarter, a flat June quarter, a 2% decline in the March 2014 quarter, and 10-15% year-over-year declines in the various quarters of 2013. Intel Client processor units (notebook and desktop) increased 6% year over year in the December quarter, following growth of 15% in the September quarter. • March quarter guidance implies a normal seasonal decline in PC processor and disk drive shipments. Intel, Seagate and Western Digital offered similar guidance for sequential sales declines in the 5-7% range for the March quarter. We consider this to be at the better end of a normal seasonal trend for sales to decline by mid-single-digit to low-double-digit percent in the first quarter of each year. • Microprocessor pricing remains firm. Intel’s Data Center platform ASP increased 7% sequentially and increased 10% year over year. Intel’s PC Client Group platform ASP increased 3% sequentially and decreased 2% yr/yr. AMD stated that Client ASP increased sequentially and increased yr/yr driven by a richer mix of notebook processor sales. • Amidst shifting tablet demand, Intel is consolidating its tablet processor position. Intel said that it shipped 46 million tablets in 2015, suggesting that its tablet processor shipments were about 16 million units in the December quarter, comparable to 15 million units in the September quarter and David Wong, CFA, PhD, Senior Analyst above 10 million units in the June quarter and 5 million in the March quarter. In (212) 214-5007 the December quarter Apple’s iPad shipments declined 18% yr/yr to 21.4 million [email protected] units. Microsoft surpassed $1.1 billion in revenue for its Surface products in the Amit Chanda, Associate Analyst December quarter, up 24% year over year. We believe that Microsoft’s Surface (314) 875-2045 shipments now are essentially all Surface Pro units using Intel processors. [email protected] Parker Paulin, Associate Analyst (212) 214-5066 [email protected] Charles E. Long, Associate Analyst (212) 214-8017 Please see page 15 for rating definitions, important disclosures [email protected] and required analyst certifications All estimates/forecasts are as of 02/02/15 unless otherwise stated.

Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.

WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

In this note we discuss recent computer supply chain news. Over the last three weeks many computer-related data points have become available, including disk drive numbers from Western Digital and Seagate, microprocessor data from Intel and AMD, Apple’s desktop, notebook and tablet shipments. For completeness we are also including material from our first round PC supply chain note issued earlier this month.

In our view, two key takeaways from this latest data are: • Server processor sales growth remains strong with Intel’s data center segment growth up 25% year over year in the December quarter. We think that this points to a smooth transition to Intel’s next generation Grantley platform and supports our view that Intel’s data center segment could achieve mid-teens percent growth over the next few years.

• PC component demand trends look stable. o A diverse range of different PC data points, including Gartner’s PC market estimates and Intel’s Client PC segment sales, were flat to up year over year through most of 2014, compared to clear declines in 2013. We are hopeful that PC growth might turn positive in 2015. o Intel, Seagate and Western Digital offered similar guidance for sequential sales declines in the 5-7% range for the March quarter. We consider this to be at the better end of a normal seasonal trend for sales to decline by mid-single-digit to low-double-digit percent in the first quarter of each year. We believe that many investors incorrectly interpreted some of the recent computer-related news such as Microsoft’s March quarter outlook as implying risk that there could be weakness in demand for computer components. We think that the guidance given by Intel and the disk drive companies is consistent is suggesting PC component demand remains firm and that inventory is at appropriate levels in the PC supply chain.

We are reiterating our Outperform rating on Intel, Intel remains our Top Pick.

Overall PC Market Data

Figure 1a-d contain our summary of data for worldwide PC shipments, Taiwanese supply chain activity and PC component sales, as well as Intel’s data center sales trends. Figure 2 contains data for a variety of computer OEMs.

Figure 1a: PC and x86 Server Summary Data (December Quarter 2014) Qtr/Qtr Yr/Yr End Market Desktop Units 3% (4%) Notebook Units (incl. netbooks) 4% 3% Worldwide PC client (desktop+notebook) units 4% 0% x86 Server Units 9% 7% Source: Gartner Market Share: Preliminary PC Shipment Estimates by Region, 4Q14 Update, Wells Fargo Securities, LLC

Figure 1b: Taiwanese Notebook ODM and Motherboard Data (December Quarter 2014) Supply Chain Qtr/Qtr Yr/Yr Taiwanese notebook ODM sales (NT$)1 8% 6% Taiwanese notebook ODM units (3%) (3%) Taiwanese motherboard company sales (NT$)2 8%2 3%2 (1) Compal, Quanta, Wistron, Inventec. (2) Asustek, Elitegroup, ASROCK, Microstar (MSI) and Gigabyte. Sales for these companies include many other products in addition to motherboards. We usually include Pegatron in our composite but overall growth at Pegatron was boosted in part by Apple iPhone builds at Pegatron we think. Including Pegatron, our computer/motherboard composite rose 31% sequentially and 20% yr/yr in the December quarter. Source: Company reports, Semiconductor Industry Association (SIA), Wells Fargo Securities, LLC Estimates

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Figure 1c: PC Component Data (December Quarter 2014) Qtr/Qtr Yr/Yr Chips Intel client (notebook+desktop) segment units (5%) 6% Intel data center (server) segment units 5% 15% Intel data center (server) segment sales 11% 25% AMD total computing & graphics segment sales (15%) (25%) Total client microprocessor unit shipments (Mercury) (5%) 14% Total server microprocessor unit shipments (Mercury) 3% 17% Micron DRAM bit shipment growth* 8% Not available Worldwide DRAM sales growth Full quarter data expected end of January, October+November up 36% year/year Disk Drives Seagate total sales (2%) 5% Seagate client computer disk drive units (notebook+desktop) (8%) (1%) Seagate desktop disk drive units (14%) (17%) Seagate notebook disk drive units (2%) 17% Seagate enterprise disk drive units 3% 17% Western Digital total sales (1%) (2%) Western Digital desktop disk drive units (6%) (9%) Western Digital notebook disk drive units (9%) (7%) *Data as reported for Micron’s November 2014 fiscal quarter Source: Company reports, Semiconductor Industry Association (SIA), Mercury Research and Wells Fargo Securities, LLC

Figure 1d: Intel Data Center Trends

Source: Intel, Wells Fargo Securities, LLC

• PCs were flat to up year over year in the December 2014 quarter. PC year/year comparisons were flat to up year over year through most of 2014, compared to clear declines in 2013. We are hopeful that PC growth might turn positive in 2015. o Gartner estimates that PC shipments were flat year over year in the December 2014 quarter following a flat September quarter, a flat June quarter, a 2% decline in the March 2014 quarter, and 10-15% year-over-year declines in the various quarters of 2013. IDC estimates that PC shipments fell 2.4% year over year in the December 2014 quarter. o Sales for our Taiwanese notebook ODM composite increased 6% year-over-year in the December 2014 quarter, after increasing 9% year over year in the September 2014 quarter, increasing 5% yr/yr in the June 2014 quarter, increasing 1% yr/yr in the March 2014 quarter, and 0-8% year-over-year declines in the various quarters of 2013. o Intel Client processor units (notebook and desktop) increased 6% year over year in the December quarter, following growth of 15% in the September quarter.

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Intel’s PC Client Group revenues increased 3.0% year/year in the December quarter. o Our Taiwanese computer/motherboard revenue composite increased 8% yr/yr in the December quarter after decreasing 3% yr/yr in the September quarter. o Apple’s Mac computer unit shipments (which all use Intel processors) increased 14% year over year in the December quarter. o Seagate’s notebook disk drive unit shipments increased 17% year/year while desktop drive unit shipments decreased 17%, Western Digital’s desktop disk drive shipments decreased 9% and Western Digital’s notebook disk drive shipments decreased 7%.

• PC components decreased sequentially in the December quarter though system shipments may have grown. It would appear that microprocessor shipments and disk drive units declined sequentially in the December quarter. Intel said it thought that some low end microprocessor inventory might have been burned off in the December quarter, and that inventory appears to be at appropriate levels in the PC supply chain entering the March 2015 quarter. o Gartner estimates that worldwide PC market unit shipments increased 4% sequentially (flat year over year) in the December quarter. o Sales for our Taiwanese notebook ODM aggregate increased 8% sequentially in the December quarter after increasing 11% sequentially in the prior quarter. However unit shipments of notebooks apparently decreased about 3% in the December quarter. o Our aggregate sales of Taiwanese motherboard/computer companies increased 8% sequentially in the December quarter. o Mercury Research estimates that overall desktop+notebook microprocessor unit shipments decreased 5% sequentially in the December quarter (up 14% yr/yr). Intel reported that its PC Client Group revenues decreased 3.5% sequentially and increased 3.0% year over year and that PC Client unit shipments decreased 5% sequentially and increased 6% yr/yr. AMD’s Computing & Graphics segment revenue decreased 15% sequentially (due to lower desktop processor and GPU sales) and decreased 25% yr/yr. AMD did not give unit data directly, but did say that: • Desktop processor and chipset sales decreased sequentially, while notebook processor sales increased. • Client ASP increased sequentially and increased yr/yr driven by a richer mix of notebook processor sales. o Seagate’s desktop disk drive units decreased 14% sequentially while notebook drive unit shipments decreased 2% sequentially. Western Digital’s desktop drive unit shipments decreased 6% sequentially, while notebook disk drive shipments decreased 9% sequentially. o AMD stated that weakness in its PC business was due to higher than optimal desktop and AIB inventory levels in the channel and overconcentration in consumer PCs. AMD noted that it took some key actions in the December quarter to reposition its product stock and reduce downstream desktop and AIB channel inventory.

• Strong growth for server processors. o Intel’s December 2014 quarter data center segment sales increased 25.4% yr/yr (units up 15% ASP [average selling price] up 10%), compared to September 2014 quarter data center segment sales being up 16% yr/yr (units up 6% ASP up 9%), June 2014 quarter data center segment sales being up 19% year over year (units up 9% with ASP up 11%) and March 2014 quarter data center segment sales being up 11% yr/yr. o Gartner estimates that global x86 server unit shipments increased 7% year over year in the December quarter. However, Gartner’s numbers are estimates for the market, whereas Intel clearly has direct information on what it shipped. Intel now has more than 95% share in the x86 server processor market and so we consider Intel’s processor trends to be a reasonably accurate representation of the overall data center market. Admittedly Intel’s data center segment includes processors used in systems other than servers, such as, for example, enterprise storage. Intel’s data center sales were up 25%, driven by 10% year over year growth in ASP. These numbers suggest that there is a continuing shift to higher end servers, implying that server unit growth trends understate the true growth in terms of dollar sales and computing capability of the server market.

• Microprocessor pricing remains firm o Intel’s Data Center platform ASP increased 7% sequentially and increased 10% year over year. o Intel’s PC Client Group platform ASP increased 3% sequentially and decreased 2% yr/yr,

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Intel reported that desktop ASP was flat yr/yr and increased 1% sequentially and notebook ASP decreased about 3% yr/yr and increased 5% sequentially. o AMD stated that Client ASP increased sequentially and increased yr/yr driven by a richer mix of notebook processor sales.

• March quarter guidance implies a normal seasonal decline in PC processor and disk drive shipments. Intel, Seagate and Western Digital offered similar guidance for sequential sales declines in the 5-7% range for the March quarter. We consider this to be at the better end of a normal seasonal trend for sales to decline by mid-single-digit to low-double-digit percent in the first quarter of each year. We believe that many investors incorrectly interpreted some of the recent computer- related news such as Microsoft’s March quarter outlook as implying risk that there could be weakness in demand for computer components. We think that the guidance given by Intel and the disk drive companies is consistent is suggesting PC component demand remains firm and that inventory is at appropriate levels in the PC supply chain. o Intel guided for sales of $13.7 billion (plus or minus $500 million) in the upcoming quarter. The midpoint of Intel’s guidance implies a 7% sequential decrease in the upcoming quarter. o AMD guided for revenues to decrease 15% (±3 percentage points) sequentially in the upcoming quarter. We think that the large revenue drop implied in AMD’s guidance is possibly driven in part by sharp seasonality of game console component demand and perhaps also by uncertainty on AMD’s part as to market share shifts in processors and graphics. o Seagate and Western Digital are guiding for sequential sales decreases in the March quarter. Seagate guided for March quarter sales to decrease 7% sequentially (up 1% yr/yr). Western Digital guided for sales to decrease 5-7% sequentially (flat to down 3% yr/yr) in the March quarter.

• Amidst shifting tablet demand, Intel is consolidating its tablet processor position o Intel said that it shipped 46 million tablets in 2015, suggesting that its tablet processor shipments were about 16 million units in the December quarter, comparable to 15 million units in the September quarter and above 10 million units in the June quarter and 5 million in the March quarter. We think that the December 2014 quarter was likely the third quarter in a row that Intel was the largest merchant supplier of tablet processor chips in the world, with Intel’s making strides towards being the largest tablet processor supplier overall (on track to overtake even Apple which makes processors for its own use in iPad.) o In the December quarter Apple’s iPad shipments declined 18% yr/yr to 21.4 million units. o Samsung shipped 11 million tablets in the December 2014 quarter after shipping 10 million tablets in the September 2014 quarter, 8 million tablets in the June 2014 quarter, and 13 million units in the March 2014 quarter. In the March 2015 quarter Samsung expects tablet shipments to decline. o Microsoft surpassed $1.1 billion in revenue for its Surface products in the December quarter, up 24% year over year, following $908 million in Surface sales in the September 2014 quarter, $409 million in June and $494 million in March 2014. Microsoft’s December 2014 quarter Surface sales number indicates about 1 million unit shipments we estimate. We believe that Microsoft’s Surface shipments now are essentially all Surface Pro units using Intel processors.

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Figure 2 below shows unit growth and ASPs of key vendors for desktops, notebooks and x86 servers.

Figure 2. Unit Growth And ASP Change For Desktops, Notebooks, And x86 Servers Yr/Yr Growth Dec13/Jan14 Qtr Mar14/Apr14 Qtr Jun14/Jul14 Qtr Sep14/Oct14 Qtr Dec14/Jan15 Qtr

Desktops HP (rev) (1%) 8% 8% (3%) HP (units) (3%) 6% 9% (2%) Lenovo (rev) 11% 14% 20% 11% Lenovo (units) 9% 7% 12% 6% Intel CPU (rev)* 4% 4% 10% 8% (1%) Intel CPU (units) (2%) 0% 8% 6% (1%)

Notebooks HP (rev) 5% 7% 17% 9% HP (units) 5% 6% 18% 8% Lenovo (rev) 12% 16% 12% 9% Lenovo (units) 9% 13% 17% 14% Intel CPU (rev)* (8%) (6%) 1% 9% 8% Intel CPU (units) (4%) 2% 9% 21% 11%

x86 Servers HP (rev) 6% 1% 9% (2%) IBM (rev) (16%) (18%) (3%) (10%) Divested*** Intel CPU (rev)* 8% 11% 21% 16% 27% Intel CPU (units)1%3%9%6%15%

Apple Mac (rev) 16% 1% 13% 18% 9% Mac (units) 19% 5% 18% 21% 14% iPad (rev) 7% (13%) (8%) (14%) (22%) iPad (units) 14% (16%) (9%) (13%) (18%) iPad (units 000s) 26,035 16,350 13,276 12,316 21,419

ASP HP Desktop 2% 2% (1%) (1%) Lenovo Desktop2%7%7%5% Intel Desktop CPU6%4%2%2%0% HP Notebook 0% 1% (1%) 1% Lenovo Notebook 3% 3% (4%) (4%) Intel Notebook CPU (4%) (8%) (7%) (10%) (3%) Intel Server CPU 7% 8% 11% 9% 10% Total Mac (3%) (3%) (4%) (2%) (5%) Source: Company reports and Wells Fargo Securities, LLC *HPQ is expected to report on February 24th. **Lenovo is expected to possibly release on February 2nd. ***IBM divested its x86 server business in the December 2014 quarter.

Microprocessor vs PC shipments

In Figure 3 we show Gartner PC growth data and Mercury microprocessor market unit data. The microprocessor unit shipment numbers estimated by Mercury Research typically run a little above the Gartner PC market numbers, in part because, we believe, Mercury includes some of Intel’s embedded processors (not used in PCs) in its numbers.

We think that many investors have focused on the large discrepancy between Intel’s reported year/year growth in PC processor shipments and the PC market growth estimates provided by Gartner and IDC, incorrectly concluding that this might be a sign of overshipping by Intel and a microprocessor inventory build. In figure 3 we show that Intel’s year/year client PC processors have paced several percentage points above Gartner estimates for PC market growth in every one of the last 10 quarters. We do not believe it is possible that an inventory build could drive outsized growth for this length of time. We think that Intel’s solid growth momentum in its client PC segment reflects true demand growth for Intel’s products, and we expect Intel will be able to continue to post steady year/year growth in its PC Client related revenues through 2015.

The Mercury processor market estimates (Intel+AMD) also suggest year/year growth for PC processors that is higher than the Gartner growth estimates for many quarters, though to a lesser extent. We think that the difference between Intel’s reported year/year PC client growth and Gartner’s PC market growth estimates stems from: • Intel gaining some amount of market share from AMD. • Gartner (and IDC) underestimating year/year growth of the PC market.

WELLS FARGO SECURITIES, LLC Computer Supply Chain: Q4 2014 Round 2 EQUITY RESEARCH DEPARTMENT

Figure 3. Microprocessor versus PC shipment trends (Units in Millions) 120,000.0

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0.0 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14

Client PC Shipments (Gartner) Client MPU Shipments (excl. Tablets) (Mercury)

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Client PC growth (Gartner) Client PC MPU Growth (excl. Tablets) (Mercury) Intel PC Client Group Units yr/yr

Source: Mercury Research, Gartner – “Market Share: Preliminary PC Shipment Estimates by Region, 4Q14 Update”, Wells Fargo Securities, LLC

In Figure 4 we show spot and contract DRAM prices.

Figure 4 shows how DRAM spot prices have moved down substantially over the last 6 months, from a recent peak of above $4.40 for a 4Gb chip in July 2014 to below $3.52 today (end of January 2015). DRAM contract prices also began to move down in recent months, from nearly $3.78 for a 4Gb chip in October 2014 to $3.59 in the first half of January 2015.

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Figure 4. DRAM Pricing $7.00

$6.00

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$3.00

Spot Price $2.00

$1.00

$- Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

256Mb SDRAM 256Mb DDR 512Mb DDR 512Mb DDR2 1Gb DDR2 1Gb DDR3 2Gb DDR3 4Gb DDR3

$7.00

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$2.00 Contract Price Contract $1.00

$- Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

256Mb DDR 512Mb DDR 512Mb DDR2 1Gb DDR2 1Gb DDR3 2Gb DDR3 4Gb DDR3

Source: DRAMeXchange, Wells Fargo Securities, LLC

Microprocessor detail

We discuss the most recent microprocessor data in some detail in our microprocessor note dated January 21st.

Microprocessor comments from by Intel:

PC Client Group revenues decreased 3.5% sequentially and increased 3.0% year over year. • PC Client Group platform ASP increased 3% sequentially and decreased 2% yr/yr, Intel reported that desktop ASP was flat yr/yr and increased 1% sequentially. Intel reported that notebook ASP decreased about 3% yr/yr and increased 5% sequentially. • PC Client unit shipments decreased 5% sequentially and increased 6% yr/yr. Intel reported that desktop units decreased 2% sequentially and decreased 1% yr/yr

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Intel reported that notebook units decreased 6% sequentially and increased 11% yr/yr. Sales for Intel’s Data Center (server) group increased 10.6% sequentially and increased 25.4% yr/yr. • Data Center platform ASP increased 7% sequentially and increased 10% year over year. • Data Center units increased 5% sequentially and increased 15% year over year. • Intel stated that it saw strength in enterprise and continued to see robust growth rates in cloud, networking, and data analytics. Sales into Intel’s Internet of Things Group (mostly Intel’s embedded products), amounted to $591 million, up 11.5% sequentially and up 9.9% yr/yr. Sales into Intel’s Mobile and Communications Group, remained at essentially zero (reported sales of negative $6 million), impacted, we believe, by “contra-revenues”. • We think that contra-revenues could drop to essentially nothing by the end of 2015, as the low cost SoFIA products ramp. Our guess is that in 2016 the revenue contribution of the tablet and smartphone products could be of the order of hundreds of millions of dollars per quarter. Software & Services revenue was essentially flat sequentially and decreased 5.8% yr/yr.

Microprocessor comments from AMD:

• AMD’s Computing & Graphics segment revenue decreased 15% sequentially (due to lower desktop processor and GPU sales) and decreased 25% yr/yr. o AMD stated that weakness in its PC business was due to higher than optimal desktop and AIB inventory levels in the channel and overconcentration in consumer PCs. AMD noted that it took some key actions in the December quarter to reposition its product stock and reduce downstream desktop and AIB channel inventory. o AMD stated that desktop processor and chipset sales decreased sequentially, while notebook processor sales increased. o AMD stated that Client ASP increased sequentially and increased yr/yr driven by a richer mix of notebook processor sales. o AMD stated that Graphics Processing Unit (GPU) revenue decreased sequentially due to weakness in desktops partially offset by strength in notebooks. AMD stated that it saw double digit percentage revenue growth for notebook GPUs in the quarter Nvidia guided for revenues to be $1.2 billion +/-2% (midpoint down 2% sequentially in its current quarter ending this month), suggesting that AMD may have lost GPU share in the quarter. o AMD stated that GPU ASP increased sequentially due to higher desktop and notebook GPU ASPs and decreased year-over-year due to lower channel ASP. o Given that Intel’s PC client revenues decreased 3.5% sequentially with units down 5% sequentially, Intel gained overall microprocessor share in the quarter. • AMD’s operating income for its Computing & Graphics segment amounted to a loss of $56 million in the quarter (driven by lower channel sales partially offset by lower operating expenses), versus a loss of $17 million in the previous quarter. • AMD’s Enterprise, Embedded & Semi-Custom revenue decreased 11% sequentially (driven by lower sales of semi-custom SoCs, while embedded processor revenues increased) and decreased 17% year over year. • AMD’s Enterprise, Embedded & Semi-Custom operating income increased 1% sequentially and decreased 16% year over year, with the yr/yr decrease due to lower sales of semi-custom SoCs.

Microprocessor Product Ramps/New Products

January 16, 2015. HP expected to release Bay Trail tablets. Fudzilla reported that HP is expected to release the HP Pro Slate 10 EE G1 and HP Pro Tablet 10 EE G1. Both models are expected to feature quad core Bay Trail Atom Z3735F processors, 2GB RAM, and 32GB of storage. Fudzilla said that the Pro Slate model is expected to run Android while the Pro Tablet will run Windows 8.1.

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

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• Xeon E5-2428L v3, 8C, 1.80GHz, 20MB cache, DDR3-1600, 55W, $811 • Xeon E5-2438L v3, 10C, 1.80GHz, 25MB, DDR3-1600, 70W, $1555

January 9, 2015. Details on new AMD chips. WCCF Tech reported that AMD has updated its APU lineup with a 95W TDP 10 core (4CPU+6GPU) 3.3GHz $150 Kaveri A8-7650K with 4MB of last level cache and Radeon R7 graphics, which features an x86 Steamroller core architecture and GCN enabled GPU.

January 7, 2015. Intel introduces wearable Curie module. Intel disclosed plans for the Intel Curie module1, a small button-sized hardware product based a purpose-built SoC for wearable devices. The module is scheduled to ship in the second half of this year and includes the Intel Quark SE SoC, Bluetooth low-energy radio, sensors and battery charging. Intel noted that it has been actively pursuing the wearable technology segment and has announced multiple products and initiatives with companies including Basis Peak, Fossil, Luxottica, MICA and Opening Ceremony, and SMS Audio. Intel and Oakley also announced a strategic wearables collaboration on an intelligent product, available later this year.

January 7, 2015. Toshiba introduces Intel-powered tablets. Toshiba introduced the Satellite Click Mini and Encore 2 Write tablet, which feature Intel processors. The Satellite Click Mini is a detachable device with laptop and tablet capabilities and Encore 2 Write Tablets (8 and 10.1-inch models). The devices feature Intel Atom Z3735F processors. The Encore 2 Write tablets will be available starting on January 11 and the Satellite Click Mini will be available in Europe during the first quarter of 2015.

January 6, 2014. AMD at CES. In conjunction with the Consumer Electronics Show (CES), AMD announced that its quad-core 2.4GHz Steppe Eagle Embedded G-Series SoCs will power new TVS-863+ and TVS-x63 platforms from QNAP.

January 6, 2015. Sony has sold 18.5 million PS4s so far. Fudzilla reported that as of January 4th 2015 Sony had sold 18.5 million PS4 consoles (including 4.1 million over the holidays) and managed to get 10.9 million PlayStation Plus subscribers.

January 6, 2015. Lenovo announces Intel-powered devices. At CES Lenovo introduced a number of Intel-powered devices. The Lenovo Yoga 3 (11” and 14”), ThinkPad Yoga (12”, 14” and 15”), ThinkPad Carbon X1, ThinkPad X 250 and Flex 3 Convertible (11”, 14” and 15”) Broadwell Core processors. The Lenovo Yoga 2 Windows tablet features a Bay Trail Atom processor. The P90 smartphone features a Moorefield Atom processor and XMM 726x LTE-Advanced modem. Lenovo also announced four all-in-one (AIO) systems with Intel processors.

January 6, 2015. Intel powers new ASUS smartphone and Windows 2 in 1 device. Intel announced new devices from Asus that will feature Intel processors including: • The ASUS Transformer Book Chi features Intel processors in three fanless models, the Transformer Book T300 Chi is powered by an Intel Core M (Broadwell-Y), and that the Transformer Book T100 Chi and Transformer Book T90 Chi both have Bay Trail Atom processors. • Intel will also be featured in the ASUS ZenFone 2, which features a 5.5 inch HD display and a 64-bit Intel Moorefield Atom processor as well as Intel's XMM 7260 LTE Advanced modem.

January 6, 2015. Intel Core processors (Broadwell) and RealSense 3D technology featured in new Acer devices. Intel and Acer announced a number of new devices that will be powered by Intel, including the: • Acer Chromebook 15 notebook with a 15.6” display and 5th generation Intel Core or Intel Celeron processors. • Acer Aspire R 13 and Acer Aspire S7 Ultrabooks will feature 5th generation Intel Core processors. • Acer Revo One desktop system will feature 5th generation Intel Core processors. • Acer V Nitro Black Edition high-performance notebooks with a 17.3” full HD screen is powered by a 4th generation Intel Core i7 Quad Core processor and features an Intel RealSense 3D camera.

January 5, 2015. Intel Announces 14nm Broadwell and Cherry Trail Processors. Intel issued a new price list dated January 5, 2015 that included the addition of 21 14nm Broadwell mobile processors, including Core i7/i5/i3, Core M, Celeron, and Pentium offerings. Intel noted that the new Broadwell, Pentium and Celeron chips are available now and that it expects systems using these chips to be available this month. Intel also announced that it started shipping its 14nm Cherry Trail processors for tablets, and expects products based on Cherry Trail will be introduced starting in the first half of 2015. With these new products we expect Intel will ramp its 14nm volumes significantly in the March 2014 quarter, suggesting to us that the company is now smoothly transitioning to 14nm technology. We believe that Intel's manufacturing technology lead gives Intel a compelling competitive advantage in its core PC and server processor markets and will help the

WELLS FARGO SECURITIES, LLC Computer Supply Chain: Q4 2014 Round 2 EQUITY RESEARCH DEPARTMENT company win chip foundry business over the next few years. We think that Intel has a strong lineup of new tablet products for 2015 with Cherry Trail for higher end tablets and SoFIA with integrated 3G or 4G for lower end tablets. In 2014 Intel became the world’s largest merchant supplier of tablet processors. We think that in 2015 Intel is likely to consolidate this position, and possibly even overtake Apple (captive supplier) in tablet processor volume. Slightly higher frequency. Intel’s 14nm Broadwell-U Core offerings have a TDP range of 15-28W and clock speeds of 1.60-3.10 GHz. This compares with a TDP range of 15-28W and clock speeds of 1.40-3.00 GHz for Haswell-U offerings. Upgraded graphics. The new Broadwell-U processors also feature Intel HD 6000 and Iris 6100 integrated graphics. This appears to be an upgrade from the Intel HD 5000 and Iris 5100 integrated GPUs for Haswell-U processors. List Pricing ranges unchanged/up slightly. Intel’s Broadwell-U Core i7 and Core i5 offerings are priced $426-$393 and $315-$281, respectively. This range is unchanged from the price range for Haswell-U offerings. Intel’s Broadwell-U Core i3 offerings are priced $315-$275, which expands its price range from $281-$275 for Haswell-U offerings. The price for Broadwell-U Pentium and Celeron-U offerings remained unchanged at $161 and $107, respectively. Intel did not reduce the prices of any of the older products on its price list. For additional details please see our note date January 5.

December 30, 2014. Samsung ATIV-9 2015 uses Intel Broadwell-Y processor. Several websites, including CNET and Gizmodo have issued reviews of the Samsung ATIV-9 laptop which uses an Intel Broadwell-Y processor. Apparently this system has a 12-inch screen, a weight of close to 2 pounds and will be available in the first quarter of 2015 starting at about $1,200 in the US. We expect that Intel will highlight Broadwell-Y laptops and convertibles at the CES trade show in the coming week.

December 23, 2014. AMD reportedly wins Nintendo contract. Fudzilla reported that AMD has landed a deal to power Nintendo’s next generation game console. It remains unknown when the console will be introduced although speculation of a late 2016 introduction suggests AMD might be able to use Samsung’s or GlobalFoundries’ FinFET process for the chips.

December 6, 2014. Details on AMD processors. AMD added its A4 PRO-3340B processor to its website. The 2.2GHz Kabini chip features four cores, HD 8240 graphics, 2MB of L2 cache, and a 25W TDP.

November 20, 2014. AMD announces new APUs. AMD announced the addition of Carrizo and Carrizo- L APUs to its 2015 AMD Mobile APU family roadmap. The APUs feature support for Microsoft DirectX 12, OpenCL 2.0, AMD’s Mantle API, AMD FreeSync and support for Microsoft’s Windows 10 operating system. Carrizo processors will integrate x86 Excavator CPU cores along with AMD Radeon graphics in the first Heterogeneous Systems Architecture (HSA) 1.0 compliant SoC. Carrizo-L SoCs will integrate Puma+ CPU cores with AMD Radeon R-Series GCN GPUs. In addition, AMD Secure Processors will be integrated into the Carrizo and Carrizo-L APUs in order to enable ARM TrustZone security. Carrizo and Carrizo-L chips are scheduled to ship in 1H 2015, with laptop and All-in-One systems based on the family expected to appear in the market by mid-year 2015.

November 13, 2014. Amazon to continue using Intel servers. Intel announced that it has created a customized Xeon E5 v3 processor for Amazon’s Amazon Web Service. Separately, Bloomberg reported that Amazon believes that ARM server technology development is not progressing at a fast enough pace yet for Amazon to begin using alternatives to Intel’s server processors. Amazon’s AWS cloud-computing arm remains open to working with providers of ARM based chips, but has found that, so far, cost projections do not yet favor ARM-based products and Intel remains easier to work with on some of Amazon’s custom work requirements.

November 13, 2014. AMD releases Gizmo 2.0 development board. Fudzilla reported that AMD has released its $199 Gizmo 2.0 open source development board for embedded developers, which features a 1GHz dual-core 9W TDP AMD embedded G-series GX210HA SoC, Radeon HD 8210E GPU, Windows Embedded 7 & 8 support, & 1GB DDR3 memory.

November 10, 2014. Acer releases Aspire Switch 12. Business News Daily reported that Acer has released its Aspire Switch 12 5-in-1 12.5in tablet, which can be used as a notebook, tablet, display, tent, or desktop. The device features a Broadwell Y Core M processor, comes in 60GB and 120 GB variants, and is expected to become available in early 2015.

October 28, 2014. Intel adds Atom Z3570. CPU World reported that Intel has added a 22nm quad-core (Silvermont cores) Z3570 Moorefield Atom processor with 2MB of L2 cache to its lineup. The processor runs up to 2GHz and joins Intel’s Z3530, Z3560, and Z3580 processors in the Moorefield lineup.

October 20, 2014. AMD reduces pricing of A-Series APUs. AMD reduced the pricing of some of its A-Series desktop APUs as follows:

WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

• Kaveri 28nm o A10-7850K – old price $173, new price $142 o A10-7800 – old price $153, new price $132 o A10-7700K – old price $152, new price $122 o A8-7600 – old price $101, new price $91 • Richland 32nm o A10-6800K – old price $142, new price $122 o A8-6500T – old price $112, new price $91

October 16, 2014. Apple refreshes iPad and Mac Mini line up and introduces new iMac. Apple updated its iPad, Mac Mini, and iMac lineups. The iPad Air 2 features an Apple A8X processor with 2nd-gen 64-bit architecture, and 3 billion transistors. The Mac Mini features 4th-gen Intel Core processor, Intel Iris and HD Graphics, PCIe-based flash storage, 802.11ac Wi-Fi, and 2 Thunderbolt 2 ports starting at $499. Apple’s new iMac with Retina display features an 5120x2880 5K display, Intel 3.5GHz quad-core i5 Haswell processor, upgradable to 4.0GHz quad-core i7, AMD Radeon R9 M290x GPU, upgradable to R9 M295X starting at $2500.

October 15, 2014. Intel inside Google Nexus Player. Intel announced that its 22nm quad-core 64-bit enabled Moorefield Atom processors are used inside Google’s new Nexus Player (for Android TV). Intel also announced full support for Google’s Android Lollipop.

October 14, 2014. Intel, Asus, and AT&T to introduce PadFone X mini in the US. Intel announced that its 1.6GHz dual-core Atom Z2560 processor and XMM 7160 LTE modem are featured in Asus’s new PadFone X mini4.5in 4G LTE smartphone, which transforms into a 7in tablet when inserted into its companion docking station. The product is expected to become available in AT&T retail stores in the US on October 24th and in national retailers by November. The PadFone X mini will retail for $199 on GoPhone (AT&T’s prepaid service) with plans starting at $40/month for 500MB of data and 500 minutes of talk time.

October 9, 2014. Lenovo launches first 14nm Core M 2-in-1 device. Lenovo released its Yoga 3 Pro 2- in-1 which features an Intel Core M processor, with expected availability at the end of this month (October). Lenovo also launched its ThinkPad YOGA 14 convertible device for small and medium businesses in North America. Lenovo launched its Yoga Tablet 2 processors, which feature Intel Bay Trail processors, optional Intel XMMTM 7160 modems, integrated LED projectors, JBL speakers, Android 4.4, and 15 hours of battery life. The 13.3in Pro model is priced at $499, while the 10in model is listed at $299 ($399 for Windows edition) and the 8in model is listed at $249 (no price given on Windows edition).

October 8, 2014. Details on embedded Bay Trail. CPU World reported that Intel quietly launched a variety of embedded E3800 series Bay Trail SoCs this month including the E3815, E3825, E3826, E3827 and E3845 SKUs. The 22nm chips feature 1-4 cores, 7th gen HD graphics, DDR3 memory, and 5-10W TDPs.

October 2, 2014. AMD released FX 8310 CPU. CPU World reported that AMD has confirmed that its FX 8310 CPU launched in September alongside the announcement of the company’s FX-8370, FX8320E, and FX- 8370E processors. The 95W TDP 32nm FX-8310 features 4 Piledriver modules for a total of 8 cores, is clocked at 3.4GHz, and has 8MB of L2 cache & 8MB of L3 cache. The processor is currently available at TigerDirect.com for around $125 with a discount.

Taiwanese notebook and motherboard data

Figure 5 contains monthly sales data for the top 4 Taiwanese notebook contract manufacturers (ODMs) and Figure 6 unit shipment data for Compal and Quanta.

• Sales for our Taiwanese notebook ODM aggregate (Quanta, Compal, Wistron and Inventec) increased 4% month over month in December after being flat month over month in November and decreasing 4% month over month in October. • On a year-over-year basis, our aggregate increased 6% in December after being flat in November and increasing 11% in October. • On a full-quarter basis sales increased 8% sequentially in the December quarter, after increasing 11% sequentially in the September quarter, increasing 4% sequentially in the June quarter and decreasing 15% sequentially in the March quarter. • On a full quarter basis sales increased 6% yr/yr in the December quarter, after increasing 9% yr/yr in the September quarter, increasing 5% yr/yr in the June quarter and increasing 1% yr/yr in the March quarter.

WELLS FARGO SECURITIES, LLC Computer Supply Chain: Q4 2014 Round 2 EQUITY RESEARCH DEPARTMENT

• Sales increased 5% yr/yr as a whole in 2014. • On January 9th DigiTimes reported that Inventec shipped 1.4 million notebooks in December while Wistron shipped 2 million notebooks in December; this represents a flattish unit trend for the two companies together on a month over month basis.

Figure 5: Sales for Taiwanese Notebook ODMs ($NT In Thousands) Jul-14 Aug-14 Sept-14 Oct-14 Nov-14 Dec-14 Vendor Compal 69,602,576 72,390,987 84,850,181 81,141,683 82,444,776 82,922,079 Quanta 77,927,545 81,250,639 85,154,583 81,983,317 80,830,388 88,842,940 Wistron 46,345,216 48,010,861 61,449,399 57,771,090 56,358,026 60,404,040 Inventec 33,262,740 31,305,429 36,771,622 36,821,737 39,192,505 36,730,395 Total 227,138,077 232,957,916 268,225,785 257,717,827 258,825,695 268,899,454 M/M (2%) 3% 15% (4%) 0% 4% Yr/Yr 9% 8% 10% 11% 0% 6% Source: Company reports and Wells Fargo Securities, LLC

Figure 6: Monthly Notebook Shipment Details – Compal+Quanta (Units in millions)

12,000

10,000

8,000

6,000

4,000

2,000 Monthly Compal+QuantaUnits(000s)

0 Jul-03 Mar-01 Jun-01 Mar-02 Jun-02 Mar-03 Mar-04 Jun-04 Mar-05 Jun-05 Mar-06 Jun-06 Mar-07 Jun-07 Mar-08 Jun-08 Mar-09 Jun-09 Mar-10 Jun-10 Mar-11 Jun-11 Mar-12 Jun-12 Mar-13 Jun-13 Mar-14 Jun-14 Mar-15 Jun-15 Dec-00 Sep-01 Dec-01 Sep-02 Dec-02 Sep-03 Dec-03 Sep-04 Dec-04 Sep-05 Dec-05 Sep-06 Dec-06 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09 Dec-09 Sep-10 Dec-10 Sep-11 Dec-11 Sep-12 Dec-12 Sep-13 Dec-13 Sep-14 Dec-14 Sep-15

140%

120%

100%

80%

60%

40%

20% `

(20%)

(40%) Compal+Quanta Shipments- Yr/Yr % Change Jul-03 Mar-01 Jun-01 Mar-02 Jun-02 Mar-03 Mar-04 Jun-04 Mar-05 Jun-05 Mar-06 Jun-06 Mar-07 Jun-07 Mar-08 Jun-08 Mar-09 Jun-09 Mar-10 Jun-10 Mar-11 Jun-11 Mar-12 Jun-12 Mar-13 Jun-13 Mar-14 Jun-14 Mar-15 Jun-15 Dec-00 Sep-01 Dec-01 Sep-02 Dec-02 Sep-03 Dec-03 Sep-04 Dec-04 Sep-05 Dec-05 Sep-06 Dec-06 Sep-07 Dec-07 Sep-08 Dec-08 Sep-09 Dec-09 Sep-10 Dec-10 Sep-11 Dec-11 Sep-12 Dec-12 Sep-13 Dec-13 Sep-14 Dec-14 Sep-15

Sources: Company reports and Wells Fargo Securities, LLC estimates

WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

Figure 7 shows monthly sales for motherboard-related companies. Many of these companies also are involved in other computer-related activities, including notebook manufacturing and sales. However, we think that the sales trends do provide a rough indicator of desktop-motherboard demand.

• Sales for our motherboard aggregate (Asustek, Pegatron, Elitegroup, ASROCK, Microstar and Gigabyte) decreased 6% m/m in December after increasing 1% m/m in November and increasing 10% m/m in October. o We believe that Pegatron’s sales have been boosted by builds of Apple’s iPhone products. If we exclude Pegatron, aggregate sales for the other companies in our composite decreased 11% month over month in the month of December. • On a year-over-year basis, sales increased 20% in December, after increasing 17% yr/yr in November and increasing 24% yr/yr in October. o If we exclude Pegatron, aggregate sales for the other companies in our composite increased 3% year over year in the month of December. • For the December quarter as a whole, our aggregate shows large sequential and year over year growth, boosted by strong growth at Pegatron which we think is associated in part with Apple iPhone builds. However, even if we exclude Pegatron, the growth numbers are solid. o On a full-quarter basis sales increased 31% sequentially in the December quarter, after increasing 13% sequentially in the September quarter. • If we exclude Pegatron to back out the distorting effect of Pegatron’s iPhone business, full-quarter sales for the other companies in our aggregate increased 8% sequentially in the December quarter after increasing 12% sequentially in the September quarter. o On a full-quarter basis sales increased 20% yr/yr in the December quarter, after decreasing 3% yr/yr in the September quarter. • If we exclude Pegatron, full-quarter sales increased 3% yr/yr in the December quarter, after increasing 3% yr/yr in the September quarter. • Sales increased 6% yr/yr as a whole in 2014 including Pegatron and increased 3% yr/yr excluding Pegatron. • A December 9th DigiTimes article reported that Asustek is expecting to ship a total of 20.1 million notebooks, 22 million motherboards, 9.4 million tablets, and 8 million smartphones in 2014.

Figure 7: Sales of Taiwanese Motherboard Makers ($NT In Thousands) Vendor Jul-14 Aug-14 Sept-14 Oct-14 Nov-14 Dec-14 Asustek 40,189,968 42,163,830 41,573,592 46,568,854 48,945,227 42,256,888 Pegatron 67,299,673 65,102,788 105,988,001 120,028,413 118,143,650 114,303,797 Elitegroup 5,613,481 4,083,455 3,818,972 3,128,886 4,928,466 6,097,925 ASROCK 720,197 741,116 861,132 744,687 656,711 574,463 Micro-Star 6,741,287 6,754,493 8,198,209 7,413,845 7,498,186 6,796,943 Gigabyte 4,709,987 3,893,633 5,116,019 4,548,629 4,822,901 3,685,589 Total 125,274,593 122,739,315 165,555,925 182,433,314 184,995,141 173,715,605 Mth/Mth (%) 1% (2%) 35% 10% 1% (6%) Yr/Yr (%) 3% (1%) (7%) 24% 17% 20% Source: Company reports and Wells Fargo Securities, LLC

Some computer-related chip stocks we cover Closing Price Company Name Ticker 1/30/15 Rating Advanced Micro Devices AMD $2.67 Outperform Intel INTC $33.04 Outperform Nvidia NVDA $19.20 Market Perform Micron Technology MU $29.27 Underperform Sources: FactSet, Wells Fargo Securities, LLC

Gartner disclaimer: All statements in this report attributable to Gartner represent Wells Fargo Securities’ interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original

WELLS FARGO SECURITIES, LLC Computer Supply Chain: Q4 2014 Round 2 EQUITY RESEARCH DEPARTMENT publication date (and not as of the date of this report. The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice.

Required Disclosures

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

$9.00

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

$2.00 Secu rity Price

$1.00 9/9/14 1/1 /13 9/1 1/12 10/9/1 2 6/18/13 9/1 0/13 10/8 /13 3/25/1 4 6/1 7/14 1/31/12 3/27/12 4/24 /1 2 5/22/1 2 6/19/12 7/ 17/12 8/1 4/12 11/6/12 12 /4/12 1/29 /13 2/26/13 4/2 3/13 5/21 /13 7/16/13 8/13 /13 11 /5/ 13 1/2 8/1 4 2/25 /1 4 4/22/14 5/2 0/14 7/15/14 8/12/14 10/7/14 11 /4 /14 12/2/14 1/2 7/15 2 /28/12 3 /26/13 12/3/13 Date 1 2/31/1 3 1 2/30/1 4

D ate Publ ica tion Pr ic e ($) Rating Code Val. Rng. Low Val. Rng. Hi gh Clos e Pri ce ($ ) 1/31/2012 Wong 1/31/2012 NA 1 8.00 10.00 6.71 z 4/20/2012 7.97 1 9.00 11.00 7.76 z 7/10/2012 5.62 1 7.00 9.00 4.99 z 10/12/2012 3.20 1 6.00 8.00 2.74 z 10/19/2012 2.62 1 5.00 7.00 2.18 z 10/17/2014 2.64 1 3.50 4.00 2.72

Source: Wells Fargo Securities, LLC estimates and Reuters data

Symbol Key Rating Code Key d Rating Downgrade Initiation, Resumption, Drop or Suspend 1 Outperform/Buy SR Suspended c Rating Upgrade Analyst Change 2 M arket Pe rform/ Hold NR Not Rated z Valuation Range Change Split Adjustment 3 Underperform/Sell NE No Estimate

WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

Intel Corp.Corp. (INTC(INTC) ) 3-yr. PPrice rice PerformancePerformance

$43.00

$41.00

$39.00

$37.00

$35.00

$33.00

$31.00

$29.00

$27.00

$25.00

$23.00

$21.00

$19.00 Secu rity Price

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

D ate Publ ica tion Pr ic e ($) Rating Code Val. Rng. Low Val. Rng. High Clos e Price ($ ) 2/1/2012 Wong 2/1/2012 NA 1 30.00 36.00 26.55 z 4/17/2012 28.47 1 33.00 39.00 28.47 z 10/17/2012 22.35 1 28.00 33.00 21.79 z 10/16/2013 23.39 1 26.00 30.00 23.70 z 1/16/2014 26.54 1 29.00 34.00 26.54 z 7/15/2014 31.71 1 35.00 42.00 31.71 z 10/14/2014 32.14 1 36.00 43.00 32.14 z 1/2/2015 36.95 1 40.00 50.00 36.36

Source: Wells Fargo Securities, LLC estimates and Reuters data

WELLS FARGO SECURITIES, LLC Computer Supply Chain: Q4 2014 Round 2 EQUITY RESEARCH DEPARTMENT

Nvidia Corporation (NVDA) 3-yr. Price Performance $24.00

$23.00

$22.00

$21.00

$20.00

$19.00

$18.00

$17.00

$16.00

$15.00

$14.00

$13.00

$12.00

$11.00

$10.00 Security Price Price Security

$9.00 1/1/14 2/1/12 1/2 /13 4/2 5/12 5/2 3/12 6/20 /1 2 8/1 5/12 1/30 /13 2/27/13 5/2 2/13 1/2 9/14 2/26 /14 3/26 /14 12/3 /14 2/29/12 3/2 8/12 7 /18/12 9/12 /12 3/27/13 4/24 /13 6/19/13 7/17/13 10 /9 /13 11/6 /13 4/23/14 5/21/14 6/18/14 7/16/14 8/13/1 4 10 /8/1 4 11/5 /1 4 1/2 8/15 11/7/12 12 /5/12 8/14/13 9/1 1/13 12/4/13 9 /10/14 10 /10 /12 12/31/14 Date

D ate Publ ica tion Pr ic e ($) Rating Code Val. Rng. Low Val. Rng. High Clos e Pri ce ($ ) 2/1/2012 Wong 2/1/2012 NA 1 15.00 18.00 14.93 z 2/16/2012 16.17 1 15.50 18.50 16.45 dz 7/31/2013 14.41 2 14.00 17.00 14.44 z 11/8/2013 14.54 2 13.00 16.00 15.56 z 2/13/2014 16.83 2 15.00 18.00 17.36

Source: Wells Fargo Securities, LLC estimates and Reuters data

WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

Micron Technology, Inc. (MU) 3-yr. Price Performance

$40.00 $38.00 $36.00

$34.00 $32.00 $30.00

$28.00 $26.00 $24.00 $22.00 $20.00 $18.00

$16.00 $14.00 $12.00

$10.00 $8.00

Security Price Price Security $6.00

$4.00 1/1/14 2/1/1 2 1/2 /13 4/2 5/12 5/2 3/12 6/20 /1 2 8/1 5/12 1/30 /13 2/27/13 5/2 2/13 1/2 9/14 2/26 /14 3/26 /14 12/3 /14 2/29/12 3/2 8/12 7 /18/12 9/12 /12 3/27/13 4/24 /13 6/19/13 7 /17/1 3 10 /9 /13 11/6 /13 4/23/14 5/21/14 6/18/14 7/16/14 8/13/1 4 10 /8/1 4 11/5 /1 4 1/2 8/15 11/7/12 12 /5/1 2 8/14/13 9/1 1/13 12/4/13 9 /10/14 10 /10 /12 12/31/14 Dat e

D ate Publ ica tion Pr ic e ($) Rating Code Val. Rng. Low Val. Rng. High Clos e Price ($ ) 2/1/2012 Wong 2/1/2012 NA 1 8.00 10.00 7.70 z 3/22/2012 8.71 1 10.00 12.00 8.71 z 9/28/2012 6.01 1 8.00 9.50 5.98 z 3/15/2013 9.69 1 10.00 12.00 9.37 dz 6/10/2013 12.65 2 11.00 13.00 12.95 z 6/20/2013 13.97 2 11.00 14.00 13.54 dz 10/11/2013 18.43 3 14.00 17.00 16.84 z 6/24/2014 31.26 3 19.00 24.00 32.50 z 9/26/2014 31.70 3 22.00 28.00 33.83

Source: Wells Fargo Securities, LLC estimates and Re uters data

Additional Information Available Upon Request

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

Wells Fargo Securities, LLC maintains a market in the common stock of Advanced Micro Devices Inc., Intel Corp., Micron Technology, Inc., Nvidia Corporation. Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for Advanced Micro Devices Inc. within the past 12 months. Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from Advanced Micro Devices Inc., Intel Corp., Nvidia Corporation, Micron Technology, Inc. Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from Advanced Micro Devices Inc. in the past 12 months. Wells Fargo Securities, LLC and/or its affiliates, have beneficial ownership of 1% or more of any class of the common stock of Micron Technology, Inc. Advanced Micro Devices Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to Advanced Micro Devices Inc. Intel Corp. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related services to Intel

WELLS FARGO SECURITIES, LLC Computer Supply Chain: Q4 2014 Round 2 EQUITY RESEARCH DEPARTMENT

Corp. Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from Intel Corp. in the past 12 months. Wells Fargo Securities, LLC or its affiliates has a significant financial interest in Intel Corp., Micron Technology, Inc., Nvidia Corporation.

AMD: Company-specific risks include the possibility of market-share losses, a potential inability to keep pace with Intel on microprocessor innovation, potential delays in manufacturing transitions or new product introductions, and a weak balance sheet. Sector risks include the possibility of decelerating PC growth in the current economic environment. INTC: Company-specific risks include competition from AMD and rising capital spending. Sector risks include the possibility of decelerating growth in PC shipments. MU: Risks include highly volatile pricing for DRAM and NAND flash, the need for relatively high levels of capital investment, and large swings in Micron's profitability that have occurred in the past and which we think are likely to continue in the future. NVDA: Risks include a highly competitive business environment in both graphics and mobile processor chips, and the question of whether efforts by microprocessor makers to integrate graphics into microprocessor chips might impact the discrete GPU market.

Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not limited to investment banking revenue.

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

As of: February 1, 2015 44% of companies covered by Wells Fargo Securities, LLC Wells Fargo Securities, LLC has provided investment banking Equity Research are rated Outperform. services for 44% of its Equity Research Outperform-rated companies. 54% of companies covered by Wells Fargo Securities, LLC Wells Fargo Securities, LLC has provided investment banking Equity Research are rated Market Perform. services for 30% of its Equity Research Market Perform-rated companies. 2% of companies covered by Wells Fargo Securities, LLC Wells Fargo Securities, LLC has provided investment banking Equity Research are rated Underperform. services for 32% of its Equity Research Underperform-rated companies.

Important Disclosure for International Clients

EEA – The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. For the purposes of Section 21 of the UK Financial Services and Markets Act 2000 (“the Act”), the content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients.

WELLS FARGO SECURITIES, LLC Semiconductors EQUITY RESEARCH DEPARTMENT

Australia – Wells Fargo Securities, LLC is exempt from the requirements to hold an Australian financial services license in respect of the financial services it provides to wholesale clients in Australia. Wells Fargo Securities, LLC is regulated under U.S. laws which differ from Australian laws. Any offer or documentation provided to Australian recipients by Wells Fargo Securities, LLC in the course of providing the financial services will be prepared in accordance with the laws of the United States and not Australian laws.

Canada – This report is distributed in Canada by Wells Fargo Securities Canada, Ltd., a registered investment dealer in Canada and member of the Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Investor Protection Fund (CIPF). This report has not been prepared subject to Canadian disclosure requirements.

Hong Kong – This report is issued and distributed in Hong Kong by Wells Fargo Securities Asia Limited (“WFSAL”), a Hong Kong incorporated investment firm licensed and regulated by the Securities and Futures Commission of Hong Kong (“the SFC”) to carry on types 1, 4, 6 and 9 regulated activities (as defined in the Securities and Futures Ordinance (Cap. 571 of The Laws of Hong Kong), “the SFO”). This report is not intended for, and should not be relied on by, any person other than professional investors (as defined in the SFO). Any securities and related financial instruments described herein are not intended for sale, nor will be sold, to any person other than professional investors (as defined in the SFO). The author or authors of this report is or are not licensed by the SFC. Professional investors who receive this report should direct any queries regarding its contents to Mark Jones at WFSAL (email: [email protected] ).

Japan – This report is distributed in Japan by Wells Fargo Securities (Japan) Co., Ltd, registered with the Kanto Local Finance Bureau to conduct broking and dealing of type 1 and type 2 financial instruments and agency or intermediary service for entry into investment advisory or discretionary investment contracts. This report is intended for distribution only to professional investors (Tokutei Toushika) and is not intended for, and should not be relied upon by, ordinary customers (Ippan Toushika).

The ratings stated on the document are not provided by rating agencies registered with the Financial Services Agency of Japan (JFSA) but by group companies of JFSA-registered rating agencies. These group companies may include Moody’s Investors Services Inc., Standard & Poor’s Rating Services and/or Fitch Ratings. Any decisions to invest in securities or transactions should be made after reviewing policies and methodologies used for assigning credit ratings and assumptions, significance and limitations of the credit ratings stated on the respective rating agencies’ websites.

About Wells Fargo Securities Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Institutional Securities, LLC, a member of FINRA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, Wells Fargo Securities Canada, Ltd., a member of IIROC and CIPF, Wells Fargo Bank, N.A. and Wells Fargo Securities International Limited, authorized and regulated by the Financial Conduct Authority.

This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments named or described in this report. Interested parties are advised to contact the entity with which they deal, or the entity that provided this report to them, if they desire further information. The information in this report has been obtained or derived from sources believed by Wells Fargo Securities, LLC, to be reliable, but Wells Fargo Securities, LLC does not represent that this information is accurate or complete. Any opinions or estimates contained in this report represent the judgment of Wells Fargo Securities, LLC, at this time, and are subject to change without notice. For the purposes of the U.K. Financial Conduct Authority's rules, this report constitutes impartial investment research. Each of Wells Fargo Securities, LLC and Wells Fargo Securities International Limited is a separate legal entity and distinct from affiliated banks. Copyright © 2015 Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE