November 12, 2017 | Equity Research

Chip Weekly: Broadcom Bidding For

Qualcomm, Working With AMD Semiconductors

 Last week Broadcom announced an unsolicited offer to acquire . Intel announced that it will be using a custom discrete AMD graphics chip in one of its high end notebook processor families. , Skyworks and Microsemi reported earnings.

 On November 6th, Broadcom announced an unsolicited offer to acquire Qualcomm, for $60 in cash and $10 value of Broadcom shares for each Qualcomm share. We cut our rating on Qualcomm (QCOM, to Market Perform from Outperform as the stock is now trading close to our price target, and we expect that going forward the stock will not trade on fundamentals but rather on developments regarding this acquisition offer.

 Intel announced a new mobile processor product which will be a part of Intel’s 8th Gen Core family, featuring H-Series mobile processor, second generation High Bandwidth Memory (HBM2) and a custom discrete AMD graphics chip.  Nvidia reported revenues for the quarter of $2.636 billion (up 18% sequentially, up 32% year over year), above the company’s original guidance range of $2.35 billion +/- 2%. Guidance is for revenue to be $2.65 billion +/- 2% (midpoint = up 1% sequentially, up 22% yr/yr). Skyworks reported quarterly revenues of $984.5 million (+9% sequentially and up 18% year-over-year), above the company's guidance of $980 million. Skyworks guided for December quarter sales of $1,050 million (up 7% sequentially and up 15% year-over-year). Microsemi reported sales of $475.3 million (up 4% sequentially and +6% yr/yr) for the September quarter. Microsemi guided December quarter revenue to the $448-$472 million range (midpoint=down 3% sequentially and up 6% yr/yr).  Month of October Taiwanese electronics sales trends suggest to us stability in end market demand, with most of our composites showing year/year growth. Admittedly though the growth is not uniformly strong. Our Taiwanese memory chip composite jumped 37% year/year and 5% month over month in October. Our chip packaging composite increased 1% year/year and 1% month/month in October. Our chip foundry composite increased 4% year/year and expanded 8% month/month in October.

 We published our Mobile Chip quarterly report where we provide an overview of wireless chip data and developments from recent earnings reports and other news. While it appears that the seasonal ramp in David Wong, CFA, PhD wireless handset component demand continues in the December Senior Analyst|212-214-5007 quarter, overall year/year comparisons are relatively low for many [email protected] wireless chip companies. Production of the first 10nm products for Amit Chanda mobile applications continues to ramp. Associate Analyst|314-875-2045 [email protected]  In the coming week we expect that in month of October US Industrial Keith Kan, CPA Product data the technology-related numbers will show a continuation Associate Analyst|212-214-5066 of the recent trend of modest year/year growth. [email protected]

Joy Zhang Associate Analyst|212-214-8017 [email protected]

Please see page 10 for rating definitions, important disclosures and required analyst certifications. All estimates/forecasts are as of 11/12/17 unless otherwise stated. 11/12/17 19:53:55 ET

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

Our View – Risks in Broadcom bid for Qualcomm, Intel/AMD alliance creates opportunities

On November 6th, Broadcom announced an unsolicited offer to acquire Qualcomm, for $60 in cash and $10 value of Broadcom shares for each Qualcomm share. In our view, Broadcom’s offer price assigns essentially no incremental stock value to Qualcomm’s stock associated with the possible closing of the NXP deal or resolution of outstanding disputes. Given Qualcomm’s ongoing legal and other disputes, its pending acquisition of NXP and the fact that Qualcomm’s management and Board have not as yet indicated as to whether they are in support of this offer, we see this acquisition bid as more uncertain than most chip-company acquisitions and mergers that have been announced in the last few years. Following Broadcom’s announcement we cut our rating on Qualcomm (QCOM, $64.51) to Market Perform from Outperform as the stock is now trading close to our price target, and we expect that going forward the stock will not trade on fundamentals but rather on developments regarding this acquisition offer.

Last week Intel announced a new notebook processor product that includes a co-packed custom graphics chips from AMD. We think that this collaboration between Intel and AMD is beneficial for both companies. Intel can offer a differentiated CPU-GPU product with reduced silicon footprint and AMD is able to expand its installed base for its graphics chips. We think this implies incremental competitive risk for Nvidia in graphics. We are reiterating our Outperform ratings on both Intel (INTC, $45.56, Outperform) and AMD (AMD, $11.25, Outperform), and maintaining our Underperform rating on Nvidia (NVDA, $215.85, Underperform). Nvidia had a strong earnings report last week prompting us to raise our estimates and our price target. We think the company clearly has strong product offerings positioned in high growth markets, but we believe this is already reflected in its stock valuation.

I on Intel

November 9, 2017. Intel announces Optane SSD DC P4800X series. Intel announced its new data center solid state drive, Optane SSD DC P4800X Series. The new SSD (solid state drive) is available in new 750GB capacity in both half-height, half-length add-in card and hot-swappable 2.5inch U.2 form factor; both form factors and capacities will be generally available in November 2017. The new capacity follows the 375GB half-height, half-length add-in card launched earlier in 2017. The new SSD is ideal for storage workloads (SAN (storage area network) and software defined storage), cloud, database, big-data and high-performance computing workloads.

November 8, 2017. Intel appoints Raja Koduri as Chief Architect of Core and Visual Computing Group. Intel announced that Raja Koduri will be its new chief architect, senior vice president, of the newly formed Core and Visual Computing Group; Koduri joins Intel from AMD where he was previously senior vice president and chief architect of the Technologies Group. In his new role, Koduri will focus on expanding Intel’s position in integrated graphics for the PC market. Koduri, 49, has more than 25 years of experience in visual and accelerated computing advanced across many platforms. Koduri will begin in his new role in early December.

November 6, 2017. Intel announces new mobile product integrated with AMD graphics. Intel announced a new mobile processor product which will be a part of Intel’s 8th Gen Core family, featuring Intel Core H-Series mobile processor, second generation High Bandwidth Memory (HBM2) and a custom discrete AMD graphics chip. We think that this collaboration between Intel and AMD is beneficial for both companies. Intel can offer a differentiated CPU-GPU product with reduced silicon footprint and AMD is able to expand its installed base for its graphics chips. We think this implies incremental competitive risk for Nvidia in graphics. Intel noted that systems from major OEMs based on this new technology are expected to be available in the first quarter of 2018.

November 6, 2017. Intel Scalable processors power Amazon Web Services’ latest cloud instance. Intel announced that Amazon Web Services (AWS) public cloud customers can now access the performance of Xeon Scalable processors through Amazon’s latest generation of compute-optimized instances (EC2 C5 Instances). Intel said its Xeon Scalable processors allow public cloud users to transition among general purpose compute, high performance computing and AI (Artificial Intelligence)/deep learning compute. According to Intel, its Xeon Scalable processors feature energy efficiency and system- level performance that average 1.65x higher performance, 2.4x higher deep learning inference performance, and 2.2x higher deep learning training performance compared to prior generation Xeon processors. Amazon EC2 C5 instances feature up to 72 vCPUs (virtual central processor units - 2x compared to previous generation compute-optimized instances), 144 GB (gigabyte) of memory, and base clock 3.0 GHz (gigahertz).

Data Roundup

Semiconductor Capital Spending and Capacity: The ratio of worldwide semiconductor equipment sales to semiconductor IC sales was 15.6% in September, compared to 16.2% in August and 17.1% in July. Though semiconductor equipment spending remains is supports, we believe, by strong memory prices, the

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Chip Weekly: Broadcom Bidding For Qualcomm, Intel Working With AMD Equity Research

continuing transition to 3D NAND and a firm chip end market demand, it appears that equipment purchase are falling from peak levels earlier this year. Figure 1. Semiconductor Industry Investment (Worldwide Semiconductor Equipment Purchases/Worldwide Semiconductor Sales)

35%

30%

25%

20%

15%

10%

5%

0%

(Global Semi Equip.)/(IC Sales) [3 mth Roll. Av.] [3 Roll. mth Equip.)/(IC Sales) (Global Semi

Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Source: Semiconductor Industry Association, SEMI, and Wells Fargo Securities, LLC

Taiwanese Tech October Generally Stable, Memory Still Strong. Month of October Taiwanese electronics sales trends suggest to us stability in end market demand, with most of our composites showing year/year growth. Admittedly though the growth is not uniformly strong. Our Taiwanese memory chip composite jumped 37% year/year and 5% month over month in October. A strong memory pricing environment is continuing to drive growth for memory chip companies. Our chip packaging composite increased 1% year/year and 1% month/month in October, following 2% year/year growth in September and 3% year/year growth in August. Our chip foundry composite increased 4% year/year and expanded 8% month/month in October, following a 2% year/year decline in September. We calculate that guidance numbers imply combined TSMC+UMC sales could increase 9.5% sequentially and 8% year/year in the December 2017 quarter, in US dollar terms. We find it interesting that the chip packaging growth remains low even as overall global sales growth appears to be solid, albeit past its peak. We think that this does point to some risk that chip growth might decelerate further. However, on balance we do not expect this given other data points such as chip company guidance implying an expectation of continuing growth, at least in the near term. Our handset component/ODM composite increased 6% month over month and 33% year-over-year in October, following a 20% month over month increase and 31% year/year growth in September. These numbers suggest to us that a seasonal pickup in handset builds is underway. Sales for our notebook ODM aggregate were up 29% yr/yr in October, after increasing 19% yr/yr in September and increasing 19% yr/yr in August. Sales for our aggregate were up 5% month over month in October, after increasing 10% month over month in September and increasing 6% month over month in August. However, Compal’s notebook unit shipments fell to 3.3 million units in the month of October (down 8% year/year), down from 3.8 million units in September and 3.5 million in August. Inventec’s notebook unit shipments fell to 1.4 million units in the month of October (down 3% year/year), down from 1.7 million units in September and 1.5 million in August. While the overall revenue trends suggest a solid seasonal build pattern, this does not appear to be matched by the partial unit shipment data available at the moment. For additional details, please see our report dated November 10th.

Wells Fargo Securities, LLC | 3 Semiconductors Equity Research

Figure 2. Taiwanese Monthly Sales Growth In October ($NT In Thousands) Segment Month/Month October/September Year/Year Chip-related companies Chip Foundries 8% 4% Chip Packaging Companies 1% 1% Memory Chip Companies 5% 37% Taiwanese Fabless Chip Companies (5%) (7%) Taiwanese Chip Distributors (7%) 9% Electronics sub-systems and system companies Handset Component/ODM Companies 6% 33% Notebook ODMs 5% 29% Computer/Motherboard Companies Flat 6% Computer/motherboard excl. Pegatron (20%) (5%) Acer Flat 12% Hon Hai Precision 8% 3% Source: Company reports and Wells Fargo Securities, LLC

Mobile Chips 3Q: Muted year/year growth. We issued our Mobile Chip report in which we provide an overview of wireless chip data and developments from recent earnings reports and other news. While it appears that the seasonal ramp in wireless handset component demand continues in the December quarter, overall year/year comparisons are relatively low for many wireless chip companies. Production of the first 10nm products for mobile applications continues to ramp. We think the proposed acquisition bid for Qualcomm from Broadcom could potentially change the competitive landscape for wireless components. Seasonal ramp in wireless handset component demand. Although in early June, when reporting its April quarter Broadcom suggested that the ramp in iPhone component demand might be slower/later this year than in prior years, Broadcom did say it expected a sharp ramp in its October quarter. Most chip companies with high exposure to iPhone had reported large sequential growth in the September quarter. Qorvo’s mobile products segment grew 38% sequentially in September, Dialog reported 42% sequential growth, and Cirrus reported 32% sequential growth. For the December quarter Cirrus is guiding for 24% sequential sales growth and Dialog for 20% sequential sales growth. However, Qorvo expects just 2% sequential growth overall in the December quarter. Year/year comparisons are unimpressive for many wireless chip companies. MediaTek, Cirrus Logic and Qorvo reported year/year declines in the September quarter. Qualcomm’s chipset unit shipments were up just 4% year/year in September and Dialog’s sales were up 5%. MediaTek guided for a continuing year/year decline (down 10%) in December. Qorvo’s guidance midpoint is for 2% year/year growth; Cirrus’s guidance implies 1% year/year growth. Broadcom reports October quarter earnings early in the month of December; we expect that Broadcom’s report and outlook will also imply strong year/year growth for its wireless segment. 10nm product ramps continues. 10nm sales accounted for 10% of TSMC’s total revenues in the September quarter. Currently all of its 10-nanometer products are for mobile applications. The Samsung Galaxy Note8 uses the 835 Mobile Platform, manufactured on Samsung’s 10nm FinFET technology. For additional details, please see our report dated November 10th.

Figure 3: September Quarter Apple supply chain semiconductor trends and December Quarter Guidance

December September Guidance Company Growth Midpoint Comments Qualcomm +18% qtr-qtr +5% qtr-qtr MSM (mobile station modem) volume shipped during (QCT MSM +4% yr/yr +6% yr/yr the quarter was 220 million chipsets (up 18% unit sequentially and up 4% yr/yr), above the midpoint of shipments) Qualcomm’s guidance range of 205-225 million MSM chipsets.

Qualcomm expects to ship 220-240 million MSM units in the December quarter (midpoint=up 5% sequentially and up 6% yr/yr) driven by seasonal trends. Qualcomm believes there is potential upside to this guidance due to a possible build ahead of a customer’s flagship smartphone launch.

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Chip Weekly: Broadcom Bidding For Qualcomm, Intel Working With AMD Equity Research

December September Guidance Company Growth Midpoint Comments MediaTek sales +10% qtr-qtr (3%) qtr-qtr The September quarter sequential increase was ($NT) (19%) yr/yr (10%) yr/yr driven by higher seasonal demand for various consumer electronics. The September quarter year- over-year decline was driven by reduced levels of smartphone shipments.

MediaTek guided December quarter sales to the NT$59.2-64.3 billion range (midpoint= down 3% sequentially and down 10% yr/yr). December quarter smartphone and tablet shipments are expected to be in the 110-120 million unit range, in line with the prior quarter. Skyworks sales Total Sales Total Sales Skyworks supported Oppo, Vivo and Xiaomi product +9% qtr-qtr +7% qtr-qtr launches in China during the quarter. Skyworks +18% yr/yr +15% yr/yr supported Samsung’s flagship LTE platforms with DRx modules, GPS devices and DC/DC converters. Handset chips +11% qtr-qtr Skyworks believes channel inventory remains healthy. +16% yr/yr Qorvo sales Total sales Total sales Qorvo noted that gross margin in the quarter was +28% qtr-qtr +2% qtr-qtr negatively impacted by the after effects of hurricane (5%) yr/yr +2% yr/yr Irma, which caused an air contamination issue in its Florida manufacturing facility. However, the facility is Mobile now running without any customer impact. products +38% qtr-qtr Qorvo anticipates double digit yr/yr growth in sales (11%) yr/yr during the second half of FY18, driven by the timing of flagship phone ramps and broad based growth in Infrastructure and Defense. For the remainder of FY18, Qorvo expects revenue to decline less than seasonal and Qorvo expects its March quarter revenue to decline in the low-to-mid single digit range. Cirrus Logic +32% qtr-qtr +24% qtr-qtr Cirrus stated September quarter results reflect sales (1%) yr/yr +1% yr/yr accelerating demand for certain portable audio products ahead of new product launches. Dialog +42% qtr-qtr +20% qtr-qtr Mobile Systems revenue grew 54% sequentially and Semiconductor +5% yr/yr +19% yr/yr showed record revenue in Connectivity. The year- sales over-year revenue growth was driven by the high volume ramp of new power management chips.

Dialog has a healthy order backlog and expects demand for new products to remain strong. Source: Company reports and Wells Fargo Securities, LLC

Memory Pricing

Spot Market Last week, DRAM and 128Gb MLC NAND spot prices decreased while 256Gb MLC NAND spot price remained flat, according to DRAMeXchange (see Figure 4).  The spot price for an 8Gb DDR4 chip decreased to $9.54, versus $9.66 at the end of the prior week.  The 128Gb MLC (multi-level cell) NAND spot price decreased to $6.91, versus $6.92 at the end of the prior week.  The 256Gb MLC (multi-level cell) NAND spot price remained flat at $14.39 compared to the end of the prior week.

Contract Market

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The contract price for an 8Gb DDR4 chip remained flat at $6.81 in the second half of September 2017 compared to the second half of August 2017 and the second half of July 2017, though this was up from $6.50 in the second half of June 2017, the second half of May 2017, and the second half of April 2017.

The contract price for a 128Gb NAND chip decreased to $5.60 in the second half of September 2017 compared to $5.78 in the second half of August 2017.

Current quarter bit growth expectations:  For the December quarter, SK Hynix expects DRAM bit shipments to grow in the mid single-digit percent range sequentially and NAND bit shipments grow in the high-teen percent range sequentially.  For the December quarter, Samsung expects DRAM market bit growth to increase in the low single- digit range and Samsung’s bit growth is expected to be in line with the market. For the December quarter, Samsung expects NAND market bit growth to be in the mid-teens range and Samsung expects to grow in line with the market. Samsung expects to increase supply of NAND based server SSD products.

Figure 4. Memory Chip Prices 256Gb NAND 8Gb DDR4 128Gb NAND MLC MLC

Date Spot Contract Spot Contract Spot 11/10/2017 $9.54 $6.91 $14.39 11/03/2017 $9.66 $6.92 $14.39 10/27/2017 $9.53 $7.01 $14.31 10/20/2017 $9.70 $7.01 $14.31 10/13/2017 $9.10 $7.01 $14.31 10/06/2017 $8.84 $6.99 $14.31 09/29/2017 $8.40 $6.81 $6.98 $5.60 $14.31 09/22/2017 $7.95 $6.96 $14.31 09/15/2017 $7.68 $6.96 $14.31 09/08/2017 $7.44 $6.96 $14.17 09/01/2017 $7.34 $6.81 $6.94 $5.78 $14.03 08/25/2017 $7.25 $6.93 $13.61 08/18/2017 $7.25 $6.99 $13.10 08/11/2017 $7.28 $7.29 $13.10 08/04/2017 $7.28 $7.31 $13.10 07/28/2017 $7.34 $6.81 $7.24 $5.68 $13.10 07/21/2017 $7.22 $7.21 $13.00 07/14/2017 $7.01 $7.20 $12.80 07/07/2017 $6.79 $7.16 $12.80 Source: DRAMeXchange, Wells Fargo Securities, LLC

News Items:

November 9, 2017. Nvidia Earnings: Strong Growth, though Decelerating. Nvidia is continuing to show impressive sales momentum though year/year growth did decelerate in October compared to the prior quarter. Datacenter sequential and year/year growth was strong in the quarter; automotive segment growth was modest. We think the company clearly has strong product offerings positioned in high growth markets, but we believe this is already reflected in its stock valuation. Nvidia reported revenues for the quarter of $2.636 billion (up 18% sequentially, up 32% year over year), above the company’s original guidance range of $2.35 billion +/- 2%. Reported GAAP gross margin in the quarter increased to 59.5% from 58.4% in the prior quarter, above the midpoint of Nvidia’s guidance for GAAP gross margin to be 58.6% +/- 50bps. GAAP EPS for the quarter of $1.33 was above the consensus estimate of $0.94 and our $0.92 GAAP EPS estimate. Guidance for next quarter is for revenue to be $2.65 billion +/- 2% (midpoint = up 1% sequentially, up 22% yr/yr). The midpoint of this range is above the consensus expectation of $2.443 billion and our own estimate of $2.300 billion prior to the call. Nvidia’s GAAP gross margin is

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expected to be 59.7% (+/- 50bps), up 0.2 percentage point sequentially. Nvidia's gaming sales were $1.561 billion, up 32% sequentially (up 25% year/year). Professional visualization sales were $239 million, up 2% sequentially (up 15% year/year). Datacenter sales were $501 million, up 20% sequentially (up 109% year/year). Automotive sales were $144 million, up 1% sequentially (up 13% year/year). OEM & IP revenues were $191 million, down 24% sequentially (up 3% year/year). For additional details, please refer to our note dated November 9th. November 9, 2017. China AI startup Cambricon reportedly plans to launch machine learning chips using TSMC 16nm process. According to Digitimes, China AI startup Cambricon expects to launch machine learning series processor chips for cloud-based applications within the next 18 months, using TSMC 16nm process technology. Specifically, the firm’s co-founder and CEO Chen Tianshi noted that the company will launch MLU100 AI chips to support inference for datacenters and small-to medium size server application and MLU200 AI chips to support training for enterprises’ AI R&D centers. The company previously ntoed that it aims to capture 30% share of the China market for AI chips within three years.

November 8, 2017. Qualcomm announces commercial shipment of 2400 server processors. Qualcomm announced commercial shipments of its 10nm server processor, the Qualcomm Centriq 2400 processor family. This product family is the first ARM based processor series aimed at running cloud workloads for the datacenter. The Centriq 2400 processor family is a single chip platform level solution manufactured on Samsung’s 10nm FinFET process. The 64-bit processor has up to 48 cores, running up to 2.6GHz. The processor has 6 channels of DDR4 memory and can support up to 768GB of total DRAM capacity. The list price is $1,995.

November 7, 2017. Broadcom extends server storage leadership with SFF-TA-1001 Reference Platform. Broadcom announced the availability of a server reference platform in support of the SFF-TA- 1001 specification commonly known as U.3. The U.3 standard defines a common bay type and connector for SAS, SATA and NVMe devices. Together with Broadcom’s NVMe/SAS/SATA Tri-Mode SerDes MegaRAID and HBA controllers, this enables more simplified storage infrastructure and reduced the cost of bringing NVMe into entry level server storage. The new Tri-Mode family of 12Gb/s NVMe/SAS/SATA MegaRAID solutions are available today.

November 7, 2017. Nvidia reveals Titan Xp Collection’s Edition for Star Wars Fans. Nvidia announced two new collector’s edition Nvidia Titan Xp graphics processors created for Star Wars fans, featuring the new Jedi Order and Galactic Empire edition. Nvidia noted that GeForce Experience users can pre-order the Jei Order and Galactic Empire Titan Xp editions before their release on November 17. The specifications and the prices of the new CollectionEdition Titan Xps are the same as the original, featuring 3,840 CUDA cores running at 1.6GHz and 12GB of GDDR5x (Graphics Double Data Rate) running at 11.4Gbps (gigabit per second) and pricing at USD1,200.

November 7, 2017. Tablet shipments declined in 3Q2017. According to IDC, the tablet shipments in the third quarter of 2017 decreased by 5.4%. Tablet shipments were down to 40 million units in the third quarter from a peak of 78.6 million shipments in the fourth quarter of 2013. IDC noted that much of the tablet sales are replacements, as first time buyers are becoming harder to find and the installed base for the devices are declining further in the coming years.

November 6, 2017. Qualcomm: Unsolicited acquisition bid from Broadcom. Downgrade to Market Perform. Broadcom announced an unsolicited offer to acquire Qualcomm, for $60 in cash and $10 value of Broadcom shares for each Qualcomm share. In our view, Broadcom’s offer price assigns essentially no incremental stock value to Qualcomm’s stock associated with the possible closing of the NXP deal or resolution of outstanding disputes. We lowered our rating on Qualcomm to Market Perform from Outperform as the stock is now trading close to our price target, and we expect that going forward the stock will not trade on fundamentals but rather on developments regarding this acquisition offer. The proposed transaction value is approximately $130 billion on a pro-forma basis, including $25 billion of net debt. Broadcom’s proposal remains intact whether Qualcomm’s pending acquisition of NXP Semiconductors closes based on disclosed terms of $110 per NXP share or the transaction is terminated. Broadcom expects the proposed transaction will be completed within about 12 months following the signing of a definitive agreement. Silver Lake Partners agreed to provide Broadcom with a commitment letter for a $5 billion convertible debt financing in connection with the transaction. Broadcom noted that Qualcomm’s cellular business is highly complementary to Broadcom’s portolio, suggesting that this is Broadcom’s main interest. This implies to us that Qualcomm’s connectivity chip business and its RF joint venture with TDK, where there is overlap with Broadcom’s current capabilities, might be of lesser interest, giving Broadcom flexibility to address any concerns that might arise when seeking approval from regulators in various countries for the deal to proceed. The combined company would be the provider of several crucial chip categories (modems, RF and connectivity) to two large handset makers, Apple and Samsung, and we are unsure what the reaction of these two customers might be to a Broadcom/Qualcomm merger. Broadcom said it is confident that its common worldwide customers would endorse the proposed transaction. For additional details, please see our note dated November 6th.

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November 6, 2017. Skyworks: Earnings – Solid growth and margins. Skyworks Solutions is continuing to report and guide for mid-to-high teens percent revenue growth, with solid GAAP profitability. Our FY18 GAAP EPS estimate remains unchanged at $6.17 and we are introducing our FY19 EPS estimate of $6.80. We are raising our price target to $125 from a prior $120, based on a multiple of 18x our FY19 GAAP EPS estimate of $6.80 and reiterating our Outperform rating on Skyworks. Skyworks Solutions reported quarterly revenues of $984.5 million (+9% sequentially and up 18% year-over-year), above the company's guidance of $980 million. GAAP gross margin was 50.7% (up 0.3 percentage point sequentially). GAAP EPS of $1.51 was lower than the consensus estimate of $1.53 per share but beat our own $1.48 estimate by $0.03 per share. Skyworks guided for December quarter sales of $1,050 million (up 7% sequentially and up 15% year-over-year). This exceeds our estimate of $1,020 million and is essentially in line with the consensus estimate of $1,051 million prior to the release. Non-GAAP EPS for the December quarter is expected to be $1.91, which is in line with the consensus $1.91 estimate prior to the release. Internal inventory levels increased 2.5% sequentially to $494 million. Skyworks believes channel inventory remains healthy. For additional details, please see our note dated November 6th.

November 9, 2017. Microsemi: Earnings - Debt leverage down, resuming acquisition strategy. Microsemi continues to grow steadily and generate cash and reduce its debt leverage ratio. Late last month (October) the Company announced its first acquisition in more than a year and a half. This signals, we think, that debt leverage has dropped to a level at which Microsemi is comfortable with resuming its acquisition strategy that in our view created significant stock value in the past. With more than quarter of revenues from aerospace and defense, we think that Microsemi is well positioned to benefit from any increases in US defense spending that might occur. Our FY 2018 EPS estimate remains $1.75 and we are establishing our FY 2019 EPS estimate of $2.15. We are maintaining our Outperform rating on Microsemi. Microsemi reported sales of $475.3 million (up 4% sequentially and +6% yr/yr) for the September quarter, essentially in line with the midpoint of the company’s original revenue guidance range. GAAP EPS was $0.87, which exceeded our GAAP earnings per share estimate of $0.50 and the consensus GAAP estimate of $0.49. Microsemi incurred an income tax benefit of $48.7 million during the September quarter. Non GAAP EPS was $1.09, above the midpoint of the guidance range of $1.02-$1.14 per share. GAAP gross margin increased 0.1 percentage points sequentially to 64%. Microsemi guided December quarter revenue to the $448-$472 million range (midpoint=down 3% sequentially and up 6% yr/yr). Non-GAAP gross margin is forecasted to be in the 63.6%-64.8% range in the December quarter. Non- GAAP EPS is expected to be in the $0.95-$1.07 range. Microsemi reduced the principle of its debt outstanding by $165.2 million and the ending debt balance was $1.83 billion. The company achieved its target leverage ratio of below 3 by the September quarter, 2.9 on a gross debt and 2.7 on a net debt basis. Free cash flow for FY17 of $420 million and exceeded Microsemi’s stated goal of $400 million. The aerospace and defense business increased 19% sequentially in the quarter and increased 17% yr/yr, showing broad strength, with satellite showing particular strength. The communications business was flat on a sequential basis and fell 7% yr/yr. The OTN processor business demonstrated record result for the year. The timing and synchronization business also showed nice year-over-year growth during the year. Data center decreased 4% sequentially as expected and grew 14% yr/yr. Microsemi noted there was a tiny amount of Purley related revenue realized in the September quarter. Performance storage solutions grew 230% year-over-year in FY17, mostly driven by flash products.The industrial segment increased 1% sequentially and was up 6% yr/yr. The strongest year-over-year results stemmed from atomic clock solutions. For additional details, please see our note dated November 9th.

Upcoming Events November 16, 2017. Month of October U.S. Industrial Production Data. Over the last several months shipment numbers for the Computer and Electronics aggregate have consistently shown year/year growth at a low to mid-single digit percentage rate, stable, but not apparently accelerating. We expect the month of October technology-related numbers will be consistent with this.

Mergers and Acquisitions

The following is a list of what we consider to be some of the more significant mergers and acquisitions in the chip space that have been announced over the last 1-4 years.

Table A: Recent M&A transactions Transaction Date first Date Value Announced Closed Acquirer Target (US$MM) 11/06/2017 Pending Broadcom Qualcomm ~130,000 3/13/2017 8/22/17 Intel ~15,300 12/21/2016 05/18/17 TDK Invensense ~1,300 11/21/2016 01/26/17 MACOM Technology Applied Micro Circuits 770

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Chip Weekly: Broadcom Bidding For Qualcomm, Intel Working With AMD Equity Research

11/02/2016 Pending Broadcom Limited Brocade ~5,900 10/27/2016 Pending Qualcomm NXP Semiconductor ~47,000 9/12/2016 02/24/17 Intersil ~3,200 8/17/2016 12/02/16 GlobalWafers SunEdison Semiconductor ~$683 6/27/2016 03/10/2017 Analog Devices Linear Technology ~14,800 07/17/2016 09/05/2016 SoftBank ARM Holdings ~32,000 12/14/2015 12/06/2016 Micron Inotera ~3,200 11/18/2015 9/19/16 ON Semiconductor Fairchild ~2,400 10/21/2015 5/12/16 Western Digital SanDisk ~19,000 10/21/2015 Terminated 10/5/16 LAM Research KLA-Tencor ~11,000 10/05/2015 01/15/16 Microsemi PMC-Sierra ~2,500 09/20/2015 04/04/16 Microchip Atmel ~4,600 09/07/2015 3/16 MediaTek RichTek ~900 06/01/2015 12/28/15 Intel 15,359 05/28/2015 2/1/2016 Avago Broadcom ~34,000 05/07/2015 08/03/15 Microchip Micrel 702 03/18/2015 04/28/15 Microsemi Vitesse 348.6 03/08/2015 12/7/15 NXP Freescale 15,945 10/20/2014 07/01/15 GlobalFoundries IBM Semiconductor (1,500)* 08/20/2014 01/13/15 Infineon International Rectifier 2,255 06/09/2014 07/22/14 Analog Devices Hittite Microwave 2,500 02/24/2014 01/02/15 RF Micro Devices TriQuint Semi 1,646 12/16/2013 05/06/14 Avago LSI 6,600 09/24/2013 Terminated 04/26/15 Applied Materials Tokyo Electron ~29,000 *IBM paid $1.5 billion to GlobalFoundries Source: FactSet, Company Reports and Wells Fargo Securities, LLC

Our Coverage

The following are the stocks we cover.

Table B: Stocks we cover/Dividend monitor: Annualized Price Annual Dividend Company Name Ticker 11/10/17 Dividend Yield Rating AMD $11.25 - - Outperform Analog Devices ADI $89.53 $1.80 2.0% Market Perform Broadcom Limited AVGO $264.88 $4.08 1.5% Market Perform Intel INTC $45.56 $1.09 2.4% Outperform Maxim Integrated Products MXIM $53.55 $1.44 2.7% Market Perform Micron Technology MU $44.75 - - Outperform Microsemi MSCC $52.59 - - Outperform Monolithic Power Systems MPWR $121.71 $0.80 0.7% Market Perform Nvidia Corporation NVDA $215.85 $0.56 0.3% Underperform Qualcomm QCOM $64.51 $2.24 3.5% Market Perform Qorvo QRVO $79.57 - - Market Perform Skyworks Solutions SWKS $110.40 $1.28 1.2% Outperform Texas Instruments TXN $96.90 $2.48 2.6% Market Perform XLNX $71.79 $1.38 1.9% Market Perform Source: FactSet, Wells Fargo Securities, LLC

Gartner disclaimer: All statements in this report attributable to Gartner represent Wells Fargo Securities’ interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice.

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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: November 12, 2017

44% of companies covered by Wells Fargo Securities, LLC Equity Wells Fargo Securities, LLC has provided investment banking Research are rated Outperform. services for 45% of its Equity Research Outperform-rated companies. 53% of companies covered by Wells Fargo Securities, LLC Equity Wells Fargo Securities, LLC has provided investment banking Research are rated Market Perform. services for 31% of its Equity Research Market Perform-rated companies. 2% of companies covered by Wells Fargo Securities, LLC Equity Wells Fargo Securities, LLC has provided investment banking Research are rated Underperform. services for 24% of its Equity Research Underperform-rated companies.

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Chip Weekly: Broadcom Bidding For Qualcomm, Intel Working With AMD Equity Research

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