MXIM, TXN, NXPI and BRCM. Semiconductors - Jefferies Weekly: Moore Stress Evidence? AS ... CapIQ,...

INDUSTRY NOTE

USA | Technology

Semiconductors November 6, 2012

SemiconductorsWeekly: Moore Stress Evidence?

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Mark Lipacis *Equity Analyst

(415) 229-1438 [email protected] Bajikar *

Equity Analyst(415) 229-1552 [email protected]

Jonnathan Lee *Equity Associate

(415) 229-1503 [email protected]

* Jefferies & Company, Inc.

Key TakeawayReports from BRCM, ALTR, CAVM, SNDK, MU and SKHynix are consistent withour "Moore Stress" thesis that transistor costs are inflecting at the leadingedge after 40 yrs of consistent declines. Stocks we identified as Moore Stressbeneficiaries have outperformed the SPX as well as those we identified as MooreStress Challenged by 5% QTD. We remain buyers of Moore Stress beneficiariesMXIM, TXN, NXPI and BRCM.

Moore Stress Evidence? There were several datapoints that we think are consistentwith our Moore Stress thesis since we published it on Sep 26: 1) ASML announced itsintention to acquire CYMI for a substantial premium; we think in an attempt to acceleratethe development of EUV lithography tools, 2) on its earnings call, BRCM CEO posited thatcost per transistor on 20nm would not likely decline, and 3) ALTR announced that it lostthree high-volume sockets to ASICs. None is proof of our Moore Stress thesis, but all threeare consistent with our view that cost per transistor is inflecting on leading edge nodes, andis impacting the industry today.

Memory Cost Improvement Slowdown: MU, SNDK and SKHynix discussed their viewthat the memory cost improvements would decelerate from the historical cost curve, due inpart to a slower pace of technology node transitions and less cost improvement from eachtransition - consistent with our Moore Stress Thesis.

Don't Listen to Us - Listen to the Stocks: Of the 7 stocks in our coverage universe thatoutperformed both the SOX and SPX, we had identified 5 as being beneficiaries of MooreStress (SNDK, CAVM, MXIM, NXPI, LSCC). An index of the top 4 stocks we identified as beingbeneficiaries of Moore Stress (MXIM, TXN, NXPI, BRCM), outperformed the SPX, SOX andan index of the top 3 stocks we identified as being challenged by Moore Stress (NVDA, ALTR,XLNX) by 5% QTD.

Inventory Update. Excluding INTC (Hold, $22.06), semiconductor inventory (75% ofsample) dollars increased by 2% QoQ while inventory days decreased by 2 days. Fablesssemiconductor inventory dollars increased by 5% QoQ as inventory days were flat QoQ.Component distributors inventory dollars decreased by 1% while days increased by 2 days.Lastly, system disti companies increased inventories by 4% QoQ on a dollar basis and on adays basis, system disti inventories increased by 1 day QoQ.

Moore Stress Related Notes:10/24/2012: Takeaways from "Moore Stress" Conf Call w/ Dr. Handel Jones10/23/2012: Moore Stress? 3 Volume Sockets Lost to ASICs10/21/2012: Moore Stress in DRAM and NAND = Structural Price Stability10/11/2012: Moore Feedback - EUV Push?9/26/2012: Moore Stress = Structural Industry Shift

Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflictof interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 26 to 29 of this report.

Moore Stress Evidence

Chart 1: QTD Stock Performance

Source: CapIQ, Jefferies

Chart 2: Moore Beneficiary Performance Relative to SOX, SPX, and Moore

Stress Challenged Stocks

Source: CapIQ, Jefferies. Moore Beneficiary stocks are MXIM, NXPI, BRCM, TXN. Moore Stress Challenged are NVDA, ALTR, and XLNX

21

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Moore Stress BeneficiariesOutperforming QTD

0.80

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-11

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Moore Stress Beneficiaries SOX

SP500 Moore Stress Challenged

Moore Stress BeneficiariesOutperformed SOX and SP500 YTD and QTD

The top four stocks we identified as

being beneficiaries of Moore Stress,

(MXIM, NXPI, BRCM and TXN) have

outperformed the SPX, SOX and the

three stocks we identified as being

challenged by Moore Stress (ALTR,

XLNX and NVDA) both YTD and QTD

Stocks that have outperformed QTD

largely include those we’ve

identified as being beneficiaries of

Moore Stress: SNDK, CAVM, MXIM,

NXPI, LSCC

page 2 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis

Please see important disclosure information on pages 26 - 29 of this report.

Technology

Semiconductors

November 6, 2012

Chart 3: ASML Announced Intention to Acquire CYMI

Source: Company Press and Company website http://www.asml.com/asml/show.do?lang=EN&ctx=5866&rid=47397

Chart 4: ASML and CYMI Management Commentary

Source: Company Press Release and Company Website http://www.asml.com/asml/show.do?lang=EN&ctx=5866&rid=47397

10/17/2012 ASML/CYMI

ASML acquire CYMI for 70% premium ($1.95 billion euros) to

accelerate development of EUV technology

CYMI is a leader in light wavelength of 13.5 nm in EUV lithography

10/17/2012 ASML

CEO Eric Meurice said: We expect the merger to make EUV

technology development significantly more efficient and simplify the

supply chain and integration flow of the EUV modules. We are also

very much encouraged by the opportunities that we expect to create

around Cymer’s growing advanced Immersion systems and dry Deep

Ultraviolet (DUV) Installed Base Products (IBP) business

10/17/2012 CYMI

CEO Bob Akins said: Over the last several years, Cymer has been

investing significant capital towards developing EUV source

technology. We are very encouraged that ASML’s resources will

enable the combined company to continue to develop and

successfully commercialize EUV on an accelerated time frame

The success of EUV is critical to the semiconductor industry, and we

view this merger as very attractive for our shareholders, customers

and employees as well as our industry

We view the 25% investment in

ASML by Intel, Samsung and TSMC

and the subsequent announcement

of ASML’s intention to acquire CYMI

as signals that the industry is

concerned about the delay of EUV

tools necessary to keep it on its 40-yr

cost curve



Technology

Semiconductors

November 6, 2012

http://www.asml.com/asml/show.do?lang=EN&ctx=5866&rid=47397

http://www.asml.com/asml/show.do?lang=EN&ctx=5866&rid=47397

Chart 5: Die Size of NVidia’s Flagship Desktop GPU over Time

Source: CAPIQ, Jefferies Research

Chart 6: Quote from BRCM CEO Scott McGregor

Source: Broadcom 3Q12 Earnings Call. http://www.electronicsweekly.com/blogs/david-manners-semiconductor-blog/2012/05/the-end-of-the-learning-curve.html

111

111 128

142

207

287

225

484(GT80)

324(GT92)

576(GT200)

470(GT200)

529(Fermi1GTX480)

520(Fermi2GTX580)

294(Kepler

GTX680)

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Linear Fit

...but a 44% reduction in die size for most recent flagship product "Kepler" supports the thesis that there is a change in the Cost per Transitor curve at the leading edge

10/23/2012 BRCM

CEO said: the price for transistor, cost per transistor is no longer

going down. So I don't think 20-nanometer is going to give you any

cost breaks. It may allow you to design a faster chip but the cost per

transistor will start going up us you start going into these notes.

I think that's going to cause a real change in the industry in that

you're going to stay with some of the older notes longer and for

products that are more focus on cost, especially stay with those older

nodes and try and get the best cost per transistor out of those, rather

than pushing the envelope on geometry.

It used to be in the industry for decades that if you were to push to

geometry, you would find better cost solutions and that's no longer

the case going forward. So we'll start to see sort of a bottoming out

of that eventually, an increase as you go into smaller geometries and

the cost per transistor.

3/9/2012 BRCM

What we're seeing in the industry is the cost of next-generation

nodes rising exponentially

What this means is, unless you need the advanced process because

of performance reasons or die-size reasons, you're not going to get a

cost benefit from converting to the new node"

NVidia’s Kepler Die Size Declined by

44% Compared to Fermi2,

highlighting a departure from the

Historical Trend for Increasing Die

Size

BRCM CEO indicated that advanced

process nodes 28nm and 20nm may

not provide improvements in cost

per transistor



Technology

Semiconductors

November 6, 2012

Chart 7: Description of ALTR socket losses

Source: Altera 3Q12 Earnings Call

Chart 8: CAVM CEO quote

Source: CAVM 3Q12 Earnings Call

10/23/2012 ALTR

3 Volume Sockets Lost to ASICs:

CEO said: 1) One customer converted a high-volume design last year

to an ASIC 2) The second customer has converted 2 high-volume

designs, one in networking and one in wireless, both mainstream

products from Altera to ASICs. 3) So the customer is in

communications. One of the designs was in wireless, one of the

designs was in networking.

10/29/2012 CAVM

We have started seeing places that our multi-cores is being

deployed...Where in the previous generations, FPGAs used to be

used one classic example, of course, as base stations. But we're also

starting to see a few other designs in the bigger iron, if you will, and

the bigger infrastructure where the value proposition that multi-core

processors is bringing in terms of programmability, functionality, cost

and power is pretty compelling. So we are definitely starting to see it.

Now it's still -- time will tell how much the penetration will be.

ALTR announced 3 high volume

socket losses to ASICs on its Sep-12Q

earnings call. We view this as

evidence that that the most

advanced process nodes are not as

cost effective as they once were –

consistent with our Moore Stress

thesis.

CAVM noted that its merchant

multicore ASSPs have started to take

share from FPGAs



Technology

Semiconductors

November 6, 2012

Chart 9: NVidia’s Calculation of Cost per Transistor

Crossover Curves

Source: NVIDIA . http://www.extremetech.com/computing/123529-nvidia-deeply-unhappy-with-tsmc-claims-22nm-essentially-worthless

Chart 10: IBS Calculation of Cost per Transistor by Node

Source: IBS. http://embedded.com/discussion/other/4238315/Feature-dimension-reduction-slowdown

Chart 11: Decelerating Cost Reductions in DRAM and NAND

Source: Micron, SanDisk, SKHynix, DRAMeXchange, Jefferies

Cost Reduction YoY Historical Future D

DRAM

Micron ~30% 25-30% -250 bps

SKHynix ~33% 20-30% -800 bps

NAND

Micron ~40% 25-30% -1250 bps

SanDisk 30-55% 25-35% -1250 bps

Micron, Hynix and SanDisk all have

noted a deceleration in the

improvement of cost reductions in

DRAM and NAND.

.



Technology

Semiconductors

November 6, 2012

http://www.extremetech.com/computing/123529-nvidia-deeply-unhappy-with-tsmc-claims-22nm-essentially-worthless

http://www.extremetech.com/computing/123529-nvidia-deeply-unhappy-with-tsmc-claims-22nm-essentially-worthless

http://embedded.com/discussion/other/4238315/Feature-dimension-reduction-slowdown

http://embedded.com/discussion/other/4238315/Feature-dimension-reduction-slowdown

Chart 12: Micron’s Commentary on Decelerating DRAM Cost Reductions

Source: Micron’s Fall Analyst Day 2012

Chart 13: SanDisk’s Commentary on Decelerating NAND Cost Reductions

Source: SanDisk 3Q112 Earnings Call

10/12/2012 Micron

There is a slowing in the pace of -- a potential slowing, at least, in the

pace of the cost reduction for both NAND and DRAM. And this -- I put

one graph here that shows at least a perspective of what we think

this may look like going forward. But in terms of a wall, from our

perspective, we have clear visibility into 2-plus more nodes of both of

our primary products, NAND and DRAM, from a technology level. Not

that there aren't significant challenges to make both of those

happen, but we believe we know how we're going to do that.

And really on the second piece of that, on the pace of cost reduction,

the pace of these nodes, depending on how big of a shrink a

company chooses to do, the pace can be moved a little bit. If you can

take a big, aggressive shrink on the technology, that's the thing that is

extending out. Now different people right now are making decisions

to do small 10%, 15% shrinks and try to pull them in time-wise. But if

you look at something compared to a historical pace, we believe that

the technology node migration is going to slow.

10/18/2012 SanDisk

What I said was that we expect that cost reduction next year will be

somewhat less than it was this year. And there's a couple of reasons

for that. One is that the length of the technologies transitions is

getting longer, it's just taking longer between technology transitions.

Another reason is that we are getting less cost reduction from each

successive technology transition. By the way, in addition, we expect

that we will have somewhat less X3 mix next year, given our product

mix, and our product mix itself is moving towards products that tend

to have a higher cost per gigabyte because they, for example, in SSD,

has more non-memory cost in it and that causes a higher cost per

gigabyte but comes with a higher price per gigabyte as well. So there

are many factors that are leading us to believe our cost reduction will

be less next year than it is this year.

Micron’s view is that technology node

migration in DRAM and NAND is

slowing down.

SanDisk highlighted three reasons for

a deceleration in NAND cost

reductions:

1. Increasing length of

technology transitions

2. Less cost reduction from

each node transition

3. Lower mix of X3 (TLC) vs. X2

(MLC)



Technology

Semiconductors

November 6, 2012

Chart 14: Micron and SanDisk’s Commentary on Slower Node Transitions

Source: Capital IQ, SanDisk 3Q12 Earnings Call

10/12/2012 Micron

Existing capacity is becoming more valuable than it had been

historically … what's different is that because the rate of technology

change is slowing and because lithography is not changing as rapidly

as it -- in fact, it's stagnant right now. At some point, EUV will come

along, and that will change. But today, lithography is really essentially

stagnant ... what that means is that existing in-place capacity has

more longevity and therefore, delivers a better return. You have

more time to amortize that capacity.

... I would add as well on the DRAM side that as some of the scaling

starts to slow down, some of these technologies like through-silicon

vias, like assembly technologies, lower-power transistors, lower-

voltage logic transistors, these become more important, both to the

application, as well as the overall system. So that's a pretty good

piece of our focus right now on the DRAM side. Things may be

slowing down on just the traditional bit shrinking, but there's so

much more that has to happen when you have all of this memory in

that application. You got to get the form factor right, you got to get

the package right and you got to keep the power down.

10/18/2012 SanDisk

I think in terms of the bit growth, the factors there are, that's --

technologies also getting more complex. So the new technologies are

taking longer to develop as well as the gigabytes that you gained

from a technology transition is lessening compared to the past.

1Y nanometer NAND technology development activity is on track to

begin production in mid-2013.

In terms of future technologies, mixed NAND and 3D resistive RAM,

related research and development is progressing well. We continue

to believe that this NAND or any other 3D NAND is 2 to 3 years away

from the start of any meaningful production ramp in the industry.

We also believe that 3D NAND will not start production until

sometime beyond 2015, given its need for EUV lithography, which is

still in development phase.

Micron and SanDisk expect future

technology node transitions in DRAM

and NAND to occur at a slower pace.

New types of memory such as 3D are

a factor in the 2015+ timeframe, and

as such would not help relieve Moore

Stress in the interim.



Technology

Semiconductors

November 6, 2012

Chart 15: Micron and SanDisk Supply Commentary

Source: Capital IQ, SanDisk’s 3Q12 Earnings Call

Chart 16: Samsung Commentary on NAND

Source: Capital IQ, Samsung 3Q12 Earnings Call

Chart 17: SKHynix DRAM Commentary

Source: Capital IQ, SKHynix 3Q12 Earnings Call

10/12/2012 Micron … [DRAM] supply growth on a go-forward basis is going to be in this

25% to 30% range.

10/18/2012 SanDisk

... we now estimate 2012 industrybased supply growth to be

approximately 60%, down from our previous estimate of

approximately 70%. And for SanDisk, our 2012 captive supply rate

growth is approximately 80%. For 2013, we now expect industry

supply-based growth rate will be in the 30% to 40% range, lower than

the 40% to 50% range we estimated back in July

... we have not yet made a decision as to when we will resume the

ramp of Phase I of Fab 5. And the earliest timeframe for production

ramp would be the second quarter of 2013. However, we do expect

to substantially complete Phase I expansion in 2013.

We expect our 2013 captive supply base growth to be around the low

end of the industry range.

Factors influencing our bit supply growth in 2013 will include greater

X2 mix, a continuing long tail of production of

24-nanometer to support our growing OEM customer requirements

for embedded and SSD products ...

10/25/2012 Samsung

… On the supply side, NAND makers stayed with their conservative

CapEx plans as they had to cut back production and change their

product mixes amid earnings deterioration and increase in

inventories

... On the supply side, we expect the market supply to be tight for the

time being as the improvement in market conditions may lead to

only a limited increase in supply due to conservative CapEx

strategies.

10/23/2012 SKHynix

... For PC DRAM, we expect the environment to continue to be

difficult. But any additional drop in prices would be limited as

there are moves by some suppliers to cut production.

Micron expects DRAM industry supply

growth to be limited to 25-30% per

year going forward.

SanDIsk expects to restart its Fab 5

Phase I ramp in 2Q13 at the earliest.



Technology

Semiconductors

November 6, 2012

3Q Earnings Update

Chart 18: Revision of 4Q Guidance and Stock Performance

Source: Jefferies, CapIQ

StockEarnings

Date

4Q Rev Guidance

vs. Consensus

Stock Performance

On Day After

Stock Performance

Since Reporting

CRUS 10/31/12 22% -11% -21%

RFMD 10/23/12 12% 11% 12%

SLAB 10/24/12 4% -2% 0%

DLG 10/28/12 2% -3% -7%

TQNT 10/24/12 1% -13% -6%

CAVM 10/29/12 1% 0% 9%

AMCC 10/25/12 1% 26% 36%

PSMI 10/31/12 1% 3% 0%

EXAR 10/24/12 1% 8% 12%

ISSI 11/01/12 0% 7% 3%

SWKS 11/01/12 0% -17% -13%

SNDK 10/18/12 0% 3% 3%

HITT 10/25/12 -1% 0% 3%

CREE 10/17/12 -1% 0% 8%

INTC 10/16/12 -1% -3% -2%

MXIM 10/26/12 -2% 0% 3%

CODE 10/31/12 -2% 3% 5%

ENTR 10/24/12 -2% -12% -14%

STM 10/23/12 -3% 4% -1%

POWI 10/25/12 -3% 5% 4%

LSCC 10/18/12 -4% 5% 15%

BRCM 10/23/12 -4% -3% -5%

FSL 10/25/12 -6% 3% 5%

CY 10/18/12 -6% -4% 3%

MLNX 10/17/12 -6% -21% -15%

NXPI 10/25/12 -6% 15% 23%

XLNX 10/17/12 -6% -1% -2%

AMKR 10/25/12 -6% -2% 4%

MCRL 10/25/12 -8% 2% 2%

SIMG 10/30/12 -8% -4% -5%

ALTR 10/24/12 -8% 1% 4%

TXN 10/22/12 -8% 0% 6%

LRCX 10/17/12 -8% 7% 10%

LLTC 10/16/12 -8% -1% 1%

VSH 10/30/12 -9% -6% 4%

ONNN 11/01/12 -10% -3% 3%

ISIL 10/24/12 -10% 8% 15%

INVN 10/23/12 -10% -7% -8%

FCS 10/18/12 -11% -5% 2%

GSIT 10/25/12 -11% -5% 1%

PMCS 10/29/12 -11% 0% 3%

AMD 10/18/12 -12% -17% -19%

ASML 10/17/12 -13% 1% 12%

MPWR 11/01/12 -13% -4% -2%

AEIS 10/29/12 -14% 0% 2%

VLTR 10/22/12 -14% 2% 3%

IDTI 10/29/12 -14% 0% 7%

IPHI 11/01/12 -15% 0% -1%

MKSI 10/24/12 -15% -3% 0%

KLAC 10/25/12 -16% 0% 2%

VECO 10/22/12 -20% 7% 9%

TER 10/25/12 -29% -2% 6%

Median -6% 0% 3%

Chart 18 shows 52 semiconductor

companies that have reported 3Q

results. At the median, semis lowered

4Q revenue expectations by 600

bps, and then saw their stocks flat

the day after reporting.

We believe this indicates that

semiconductor stocks are already

discounting worse fundamentals

than are being reported.



Technology

Semiconductors

November 6, 2012

Chart 19: 4Q Revenue Guidance vs. Consensus vs. Stock Performance on Day

After

Source: Jefferies and Capital IQ

Chart 20: Semis NTM Earnings Forecast vs. Relative Performance


CRUS

RFMD

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CAVM

AMCC

PSMI

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SNDK

HITT

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Consensus NTM

Earnings Forecast

SOX/SPX

Semis started to underperform at the end of Jan '12, anticipating cuts

that started in May '12.

Vertical lines represent

start of earnings cuts

NTM est cut

by 17% since

May '12

Chart 19 shows a scatterplot of the

data in Chart 1.

NTM earnings estimates have been

cut by 17% since May 2012.

Consensus is forecasting similar NTM

earnings for the group that it was in

2006.



Technology

Semiconductors

November 6, 2012

Inventory Update

Chart 21: Ex-INTC Semiconductor Devices Inventories (75% of Sample)

Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 12/5/2008, 9/10/2010, and 8/19/2011; Data set includes: AMD, BRCM, PMCS, TXN, STM, LLTC, MXIM, ALTR, XLNX, ONNN, AMCC, ARMH, CAVM, CNXT, LSI, RFMD, SWKS, LSCC, SLAB, CY, IDTI, FCS, ISIL, SMSC, MSCC, IFX, MCRL, CRUS, AATI, IRF, POWI, VSH, ISSI, SIMG, ANAD, MSPD, VLTR, ZRAN, TQNT, NETL, MPWR, CREE

Chart 22: Fabless Semiconductor Devices Inventories (75% of Sample)

Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 11/21/2008, 9/10/2010, and 8/19/2011; Data set includes: BRCM, PMCS, ALTR, XLNX, AMCC, ARMH, CAVM

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02

3Q

03

3Q

04

3Q

05

3Q

06

3Q

07

3Q

08

3Q

09

3Q

10

3Q

11

3Q

12

Sem

icond

ucto

r In

vento

ry D

ays

Sem

is Inv.

($ b

illio

ns)

Ex-I

NT

C

Inventory$ ex-INTC Inv Days75% of sample set as

of 11/2/12

Inventory $ Increased by 2% QoQ

Semi inventory peaks have historically marked SOX troughs

00000000000

0

1

1

1

1

1

000000000

0

11101

11111

1111111

11

111

11

11

1

111

111

1

65

6760

6970 71

(80)

(30)

20

70

120

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3Q

97

2Q

98

1Q

99

4Q

99

3Q

00

2Q

01

1Q

02

4Q

02

3Q

03

2Q

04

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

Fa

ble

ss S

em

i In

vento

ry D

ays

Fable

ss S

em

i In

v. (

$ b

illio

ns)

Total Fabless Semi Inventory $s Fabless Semis Inv Days 75% of sample set as of 10/31/12

Inventory days were flat QoQ, and were 5 days above 5-year avg.

Inventory $ increased by 5% QoQ

Semiconductor (excluding Intel)

inventories increased by 2% QoQ on a

dollar basis, and decreased by 2 days

QoQ (9 days above 5-yr avg);

Historically, peaking semiconductor

inventories marked cycle troughs

Including only fabless

semiconductor, inventory dollars

increased by 5% QoQ. On a days

basis, Semis inventory days were

flat QoQ and are 5 days above the

5-year average.



Technology

Semiconductors

November 6, 2012

Chart 23: Component Disti (100% of Sample)

Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 12/5/2008, 9/10/2010, and 8/19/2011; Data set includes: Arrow (ARW), Avnet (AVT), Nu Horizons (NUHC) acquired by ARW (1/1/2011), Bell Micro (BELM) acquired by Avnet (7/6/2010)

Chart 24: System Distributor (60% of Sample)

Source: Jefferies, Company Reports, Capital IQ. Red squares represent SOX/SPX troughs on: 10/4/2002, 9/3/2004, 7/21/2006, 11/21/2008, 9/10/2010, 8/19/2011 Data set includes: Ingram Micro(IM), Synnex (SNX), Insight Enterprise (NSIT)

22323333333

44

65

4

4333

333333333333334444444444

44333

344

55555

4544

40 36

43 43 42

(30)

(10)

10

30

50

70

90

0

1

2

3

4

5

6

7

8

9

10

Sep

-97

Jun-9

8

Mar-

99

Dec-9

9

Sep

-00

Jun-0

1

Mar-

02

Dec-0

2

Sep

-03

Jun

-04

Mar-

05

Dec-0

5

Sep

-06

Jun-0

7

Mar-

08

Dec-0

8

Sep

-09

Jun-1

0

Mar-

11

Dec-1

1

Sep

-12

Co

mponen

t Dis

ti Invento

ry D

ays

Co

mpon

ent D

isti Invento

ry $

(bill

ion)

Inventory $ Inventory Days100% of sample set

11/02/12

Inventory days increased by 2 days QoQ, and one day above 5-year avg.

Inventory $ decreased by 1% QoQ

3

4

33332

2222222222

2222

33333333

43334433333

3334444444444

28

32 33

-

5

10

15

20

25

30

35

40

45

0

2

4

6

8

10

12

Sep-9

9M

ar-

00

Sep-0

0M

ar-

01

Sep-0

1M

ar-

02

Sep-0

2M

ar-

03

Se

p-0

3M

ar-

04

Sep-0

4M

ar-

05

Sep-0

5M

ar-

06

Sep-0

6M

ar-

07

Sep-0

7M

ar-

08

Sep-0

8M

ar-

09

Sep-0

9M

ar-

10

Sep-1

0M

ar-

11

Sep-1

1M

ar-

12

Sep-1

2

Syste

m D

isiti In

vento

ry D

ays

Syste

m D

isti Invento

ry $

(bill

ions)

Inventory $ Inventory Days

Inventory days increased by 1 day QoQ, and 4 days above 5-year avg.

Inventory$ increased by 4% QoQ

60% of sample set as of 11/2/12

Component disti companies

inventory dollars decreased by 1%

QoQ while on a days basis,

component distis inventories

increased by 2 days QoQ, and are 1

day above the 5-yr average

System Disti companies increased

inventories by 4% QoQ on a dollar

basis. On a days basis, system disti

inventories increased by 1 day QoQ,

and are 4 days above the 5-yr

average for the SepQ.



Technology

Semiconductors

November 6, 2012

Mercury 3Q12 MPU Final Update

Chart 25: INTC Server MPU

Source: Mercury, Jefferies Research

Chart 26: AMD Server MPU


$300

$350

$400

$450

$500

$550

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

INT

C S

erv

er

MP

U A

SP

($

)

INT

C Q

ua

rte

rly S

erv

er

MP

U U

nit

s

INTC Quarterly Server Units

INTC Server ASP ($)

Linear (INTC Quarterly Server Units)

$290

$340

$390

$440

$490

$540

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

AM

D S

erv

er

MP

U A

SP

($

)

AM

D Q

ua

rte

rly S

erv

er

MP

U U

nit

s

AMD Quarterly Server Units

AMD Server ASP ($)

Linear (AMD Quarterly Server Units)

We estimate that Intel’s unit share of

Server MPU increased by ~100 bps

to ~95.5% in 3Q12.

We continue to believe Intel is well

positioned to grow Server revenues

as the worldwide communications

infrastructure, including Cloud and

Data Center, undergo an upgrade.

We estimate that AMD’s Server MPU

shipments decreased by ~1700bps

QoQ.



Technology

Semiconductors

November 6, 2012

Chart 27: INTC PC MPU


Chart 28: AMD PC MPU


70

80

90

100

110

120

130

140

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

INT

C P

C M

PU

AS

P (

$)

INT

C P

C M

PU

un

its

INTC PC MPU units INTC PC MPU ASP

40

45

50

55

60

65

70

75

80

85

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

AM

D P

C M

PU

AS

P (

$)

AM

D P

C M

PU

un

its

AMD PC MPU units AMD PC MPU ASP

We estimate that Intel’s PC MPU

units decreased by ~220 bps QoQ

(Desktop and Notebook combined)

in 3Q12.

We estimate INTC gained ~140bps of

PC unit market share.

We estimate that AMD’s PC MPU

shipments declined by 1100bps

QoQ.

We think AMD’s product cycle in the

mainstream (Trinity) and low-end

(Brazos 2.0) should translate to more

notebook MPU share gains and

upside to ASPs.



Technology

Semiconductors

November 6, 2012

Chart 29: INTC Mobile MPU


Chart 30: AMD Mobile MPU


$65

$85

$105

$125

$145

$165

$185

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

INT

C M

ob

ile

MP

U A

SP

($

)

INT

C Q

ua

rte

rly M

ob

ile

MP

U U

nit

s

INTC Quarterly Mobile Units INTC Mobile ASP ($)

$30

$35

$40

$45

$50

$55

$60

$65

$70

$75

1Q

05

2Q

05

3Q

05

4Q

05

1Q

06

2Q

06

3Q

06

4Q

06

1Q

07

2Q

07

3Q

07

4Q

07

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

AM

D P

C M

PU

AS

P (

$)

AM

D P

C M

PU

un

its

AMD Mobile MPU units AMD Mobile MPU ASP

We estimate that Intel’s Mobile MPU

units decreased by ~500bps QoQ in

3Q12.


Mobile MPU unit market share.

We estimate that AMD’s Mobile MPU

shipments declined by 800bps QoQ

in 3Q12.

We think AMD’s product cycle in the

mainstream (Trinity) and low-end

(Brazos 2.0) should translate to more

notebook MPU share gains and

upside to ASPs.



Technology

Semiconductors

November 6, 2012

Chart 31: INTC Desktop MPU


Chart 32: AMD Desktop MPU


$75

$85

$95

$105

$115

$125

$135

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

INT

C D

es

kto

p M

PU

AS

P (

$)

INT

C Q

ua

rte

rly D

es

kto

p M

PU

Un

its

INTC Quarterly Desktop Units INTC Desktop ASP ($)

$44

$49

$54

$59

$64

$69

$74

$79

$84

$89

1Q

05

4Q

05

3Q

06

2Q

07

1Q

08

4Q

08

3Q

09

2Q

10

1Q

11

4Q

11

3Q

12

AM

D D

eskto

p M

PU

AS

P (

$)

AM

D D

es

kto

p M

PU

un

its

AMD Desktop MPU units AMD Desktop MPU ASP

We estimate that Intel’s Desktop

MPU units increased by ~200 bps

QoQ in 3Q12.


Desktop unit market share.

We estimate that AMD’s Desktop

MPU shipments declined by

1500bps QoQ in 3Q12.

We estimate AMD’s Desktop ASP

declined by 200bps in 3Q12.



Technology

Semiconductors

November 6, 2012

Chart 33: SOX vs. NDX/SOX


-800

-300

200

700

1200

2

4

6

8

10

12

14

No

v-9

9

No

v-0

0

No

v-0

1

No

v-0

2

No

v-0

3

No

v-0

4

No

v-0

5

No

v-0

6

No

v-0

7

No

v-0

8

No

v-0

9

No

v-1

0

No

v-1

1

No

v-1

2

SO

X I

nd

ex

ND

X/S

OX

Rati

o

SOX bottomed at 370 on 04/30/99 and ran 260% trough-to-peak

SOX bottomed at 307.5 on 08/31/10

and ran 54% trough-to-peak

SOX bottomed at 171 on 11/20/08

and ran 134% trough-to-peak

Historical Maximum Negativity

for SOX relative to NDX is 6.0

NDX/SOX

SOX

SOX is above historical level of

maximum negativity



Technology

Semiconductors

November 6, 2012

Chart 34: Relative SOX/SPX Values in 2004 and 2012

Source: Capital IQ, Jefferies




Source: Capital IQ , Jefferies



28

-Fe

b-1

2

28

-Ma

r-1

2

28

-Ap

r-1

2

28

-Ma

y-1

2

28

-Ju

n-1

2

28

-Ju

l-1

2

28

-Au

g-1

2

28

-Se

p-1

2

28

-Oct-

12

28

-No

v-1

2

28

-De

c-1

2

1.0

1.2

1.4

1.0

1.2

1.4

20

-Ap

r-0

4

20

-Ma

y-0

4

20

-Ju

n-0

4

20

-Ju

l-0

4

20

-Au

g-0

4

20

-Se

p-0

4

20

-Oct-

04

20

-No

v-0

4

20

-De

c-0

4

20

-Ja

n-0

5

20

-Fe

b-0

5

SO

X/

SP

X V

alu

es

Ind

ex

ed

on

7/

17

/1

2

SO

X/

SP

X V

alu

es

Ind

ex

ed

on

09

/0

8/

04

SOX bottomed at 352 on

09/08/04 and ran 57%

trough-to-peak

SOX /SPX

(2/12 - 10/12)

SOX /SPX

(4/04 - 2/05)

25

-Feb

-12

25

-Ma

r-1

2

25

-Ap

r-1

2

25

-Ma

y-1

2

25

-Ju

n-1

2

25

-Ju

l-1

2

25

-Au

g-1

2

25

-Sep

-12

25

-Oct

-12

25

-No

v-1

2

25

-Dec

-12

1.0

1.1

1.2

1.3

1.4

1.0

1.1

1.2

1.3

1.4

17

-Au

g-0

8

17

-Sep

-08

17

-Oct

-08

17

-No

v-0

8

17

-Dec

-08

17

-Ja

n-0

9

17

-Feb

-09

17

-Ma

r-0

9

17

-Ap

r-0

9

17

-Ma

y-0

9

17

-Ju

n-0

9

SOX

/SP

X V

alu

es I

nd

exed

on

7/1

7/12

SOX

/SP

X V

alu

es I

nd

exed

on

12

/8/0

8

SOX bottomed at

171 on 11/20/08

and ran 134%

trough-to-peak

SOX /SPX

(2/12 - 10/12)

SOX /SPX

(8/08 - 6/09)

27

-Fe

b-1

2

27

-Ma

r-1

2

27

-Ap

r-1

2

27

-Ma

y-1

2

27

-Ju

n-1

2

27

-Ju

l-1

2

27

-Au

g-1

2

27

-Se

p-1

2

27

-Oct-

12

27

-No

v-1

2

27

-De

c-1

2

1.0

1.1

1.2

1.3

1.0

1.1

1.2

1.3

1-F

eb

-06

1-M

ar-

06

1-A

pr-

06

1-M

ay

-06

1-J

un

-06

1-J

ul-

06

1-A

ug

-06

1-S

ep

-06

1-O

ct-

06

1-N

ov

-06

1-D

ec-0

6

SO

X/

SP

X V

alu

es

Ind

ex

ed

on

7/

17

/1

2

SO

X/

SP

X V

alu

es

Ind

ex

ed

on

07

/2

1/

06

SOX bottomed at 385 on

07/21/06 and ran 42%

trough-to-peak

SOX /SPX

(2/12 - 10/12)

SOX /SPX

(2/06 - 12/07)

26

-Feb

-12

26

-Ma

r-1

2

26

-Ap

r-1

2

26

-Ma

y-1

2

26

-Ju

n-1

2

26

-Ju

l-1

2

26

-Au

g-1

2

26

-Sep

-12

26

-Oct

-12

26

-No

v-1

2

26

-Dec

-12

1.0

1.1

1.2

1.3

1.0

1.1

1.2

1.3

20

-Ap

r-1

0

20

-Ma

y-1

0

20

-Ju

n-1

0

20

-Ju

l-1

0

20

-Au

g-1

0

20

-Sep

-10

20

-Oct

-10

20

-No

v-1

0

20

-Dec

-10

20

-Jan

-11

20

-Feb

-11

SOX

/SP

X V

alu

es I

nd

exed

on

07/

17/1

2

SOX

/SP

X V

alu

es I

nd

exed

on

09/

10

/10

SOX bottomed at 307.5

on 08/31/10 and ran

54% trough-to-peak

SOX /SPX

(2/12 - 10/12)

SOX /SPX

(4/10 - 2/11)



Technology

Semiconductors

November 6, 2012

Semis Discounting a Worse than Average Trough – In the Chart directly below, we compare the EV/S today to the average EV/S during cycle

troughs over the past half dozen years (’06, ’08, ’10). A stock with a negative reading

indicates that the EV/S today is lower than the average of those previous cycles. Our

interpretation of Chart below is that 46% of our coverage universe is discounting

something worse that the average trough over the past decade.

But Not an ’08-Style Financial Crisis In the Chart directly below, we compare the EV/S today to the EV/S when semis troughed

during the 2008 financial crisis. Here, only AMD, EZCH, MRVL, and MU are close to those

valuation levels. Our take on these slides is that semis are discounting something worse than

the average trough, but not as bad as the 2008 financial crisis.

Chart 38: EV/Sales (trailing) Current vs. Avg at Past Decade Troughs


Chart 39: EV/Sales (trailing) Current vs. ‘08 Financial Crisis Trough


NM

NM

53

%

52

%

47

%

43

%

41

%

41

%

38

%

37

%

36

%

12

%

8%

-2%

-3%

-4%

-6%

-17

%

-19

%

-21

%

-23

%

-58

%

-68

%

-73

%

-100%

-50%

0%

50%

100%

BC

DS

MTS

I

AD

I

NX

PI

SND

K

AV

GO

ALT

R

CA

VM

XLN

X

TXN

MX

IM

LSC

C

LLTC

INTC

BR

CM

PM

CS

NV

DA

MC

HP

EZC

H

ON

NN

MU

AM

D

IPH

I

MR

VL

EV/S

vs.

Avg

EV

/S a

t C

ycle

Tro

ugh

s

46% near or below the average EV/S at cycle troughs over the past half-dozen years('06, '08 and '10).

NM

NM

NM

NM

NM

23

6%

19

3%

14

0%

12

6%

12

2%

11

2%

10

4%

82

%

70

%

45

%

41

%

25

%

18

%

11

%

-6%

-6%

-10

%

-53

%

-100%

0%

100%

200%

300%

400%

500%

AV

GO

BC

DS

IPH

I

MTS

I

NX

PI

SND

K

LSC

C

MX

IM AD

I

NV

DA

TXN

BR

CM

CA

VM

XLN

X

ALT

R

PM

CS

LLTC

INTC

MC

HP

ON

NN

EZC

H

MU

MR

VL

AM

D

EV/S

, C

urr

en

t vs

@ 2

00

8 T

rou

gh

17% near or below EV/S at the financial crisis('08) trough including AMD, MU, MRVL and EZCH



Technology

Semiconductors

November 6, 2012

Chart 40: EV/S (trailing): Current and vs. Cycle Troughs over ’06, ‘08 and ‘10

Source: Jefferies, company data, CAPIQ

CoP/E

TTM

P/E

NTMP/TB

Current

EV/S2002 2004 2006 2008 2010

Avg

Trough

EV/S

('06, '08,

% Diff

Current vs

Min

% Diff Current

EV/S vs. '08

Trough EV/S

% Diff Current

EV/S vs. Avg

Trough EV/S

('06, '08, '10)ADI 19.1 17.0 3.3 3.4 3.2 3.9 2.8 1.4 2.4 1.4 2.2 143% 143% 55%

ALTR 17.4 17.5 3.1 4.2 3.3 4.8 3.4 2.5 3.1 2.5 3.0 67% 67% 39%

AMD NM NM 4.5 0.4 0.5 1.2 1.2 0.8 0.7 0.5 0.9 -25% -53% -58%

AVGO 15.4 11.7 5.0 3.1 2.2 2.2 2.2 43% NM 43%

BCDS NM 8.2 0.6 0.3 NM NM NM NM NM

BRCM 24.7 11.3 9.5 2.3 2.4 3.2 3.5 1.1 2.6 1.1 2.4 109% 109% -4%

CAVM NM 38.2 11.5 7.0 3.5 6.6 3.5 5.1 101% 101% 39%

EZCH NM 43.0 5.6 12.2 11.2 21.8 27.6 13.1 5.0 5.0 15.2 143% -7% -20%

INTC 9.5 11.0 3.3 2.0 3.1 3.4 2.4 1.6 2.1 1.6 2.0 23% 23% -4%

IPHI NM NM 1.5 1.5 4.3 4.3 4.3 -65% NM -65%

LLTC 19.6 18.7 9.6 5.7 9.5 10.7 6.3 4.0 5.4 4.0 5.2 42% 42% 9%

LSCC 25.6 21.4 1.5 1.0 1.9 1.4 1.8 0.3 0.6 0.3 0.9 237% 237% 12%

MCHP 20.9 16.1 3.5 3.7 5.3 6.0 6.2 3.1 3.9 3.1 4.4 18% 18% -17%

MRVL 10.4 10.6 1.7 0.7 3.8 5.3 4.9 0.8 2.3 0.8 2.7 -9% -9% -73%

MTSI 5.0 12.7 3.5 1.5 3.4 NM NM NM NM

MU NM NM 0.8 0.9 2.0 1.5 1.6 0.9 1.0 0.9 1.2 -5% -5% -23%

MXIM 24.6 16.2 4.3 3.2 6.2 7.8 3.9 1.1 2.1 1.1 2.4 195% 195% 37%

NVDA 17.2 9.9 2.3 1.2 0.4 0.5 2.1 0.5 1.0 0.4 1.2 201% 141% 0%

NXPI NM 11.6 NM 2.3 1.5 1.5 1.5 52% NM 52%

ONNN 75.4 12.3 2.9 1.1 1.2 1.5 1.8 1.0 1.4 1.0 1.4 12% 12% -20%

PMCS NM 13.7 4.3 1.6 1.6 3.6 1.8 1.1 2.1 1.1 1.7 49% 49% -1%

SNDK 22.5 14.6 1.6 1.9 1.1 1.2 2.2 0.3 1.4 0.3 1.3 540% 540% 47%

TXN 19.3 18.6 8.0 2.6 3.1 2.5 2.5 1.2 2.1 1.2 1.9 120% 120% 37%

XLNX 18.1 18.4 3.4 3.6 4.5 5.5 3.2 2.0 2.7 2.0 2.6 81% 81% 37%

Median 19.2 14.6 3.4 2.1 3.1 3.5 2.7 1.1 2.2 1.4 2.2 59% 67% 5%

Average 21.5 16.8 4.1 2.8 3.6 4.8 4.4 2.1 2.6 1.9 3.0 94% 32% -6%

EV/S at Stock Trough

Min

EV/S



Technology

Semiconductors

November 6, 2012

Chart 41: WTD Stock Performance


Chart 42: QTD Stock Performance


Chart 43: YTD Stock Performance


Chart 44: 2011-12 Stock Performance


9%

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Technology

Semiconductors

November 6, 2012

Chart 45: P/E TTM


Chart 46: P/E NTM


Chart 47: P/Tangible BV


Chart 48: EV/Sales TTM


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Technology

Semiconductors

November 6, 2012

Chart 49: EV/FCF (2012)


Chart 50: Dividend Yield (%)

Source: Capital IQ Jefferies

Chart 51: 2012 FCF Yield (%)


Chart 52: Net Cash/Share


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Technology

Semiconductors

November 6, 2012

Chart 53: Semi Valuation Table

Source: Jefferies estimates, company data, Capital IQ

Price Market EV/S EV/FCF

5-Nov-12 Cap 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012

Large Cap*

ADI 40.77 $12,449 Hold $44.0 $2.19 $2.56 $2.22 $2.59 $2,141 $2,887 $2,751 $2,992 19 16 3.3 5% 6% 15

ALTR 31.21 $10,098 Hold $36.0 $1.74 $1.82 $1.74 $1.89 $1,799 $1,969 $1,799 $1,989 18 17 4.0 6% 15% 12

AMD 2.11 $1,572 Buy $5.0 -$0.04 -$0.02 -$0.20 -$0.24 $5,409 $4,813 $5,422 $4,868 NM NM 0.4 4% -12% 34

AVGO 34.32 $8,580 Buy $43.0 $2.79 $3.08 $2.82 $3.12 $1,665 $1,572 $2,408 $2,691 12 11 3.1 6% 9% 16

BRCM 31.58 $18,285 Buy $40.0 $2.89 $2.93 $2.87 $2.93 $7,992 $8,861 $7,975 $8,708 11 11 2.3 9% 11% 10

INTC 21.84 $112,537 Hold $24.0 $2.20 $2.17 $2.21 $2.13 $53,464 $54,647 $53,439 $54,702 10 10 2.0 6% 10% 16

LLTC 32.92 $7,769 Hold $35.0 $1.79 $1.93 $1.75 $1.85 $1,288 $1,357 $1,288 $1,358 18 17 5.6 7% 6% 14

MCHP 32.39 $6,598 Buy $38.0 $1.89 $2.27 $1.91 $2.18 $1,519 $1,809 $1,528 $1,823 17 14 3.6 8% 8% 10

MRVL 8.14 $4,642 Hold $9.0 $0.87 $1.02 $0.86 $0.88 $3,178 $3,356 $3,146 $3,231 9 8 0.7 13% 12% 4

MTSI 12.04 $569 Buy $21.0 $0.14 $0.18 $0.96 $1.16 $302 $322 $304 $326 NM NM 1.5 8% 8% 10

MXIM 28.72 $8,581 Buy $33.0 $1.66 $1.99 $1.66 $1.87 $2,409 $2,593 $2,410 $2,577 17 14 3.2 7% 7% 14

NVDA 13.02 $8,113 Hold $16.0 $1.15 $1.28 $1.13 $1.28 $4,415 $4,594 $4,367 $4,734 11 10 1.1 6% 9% 11

NXPI 25.82 $6,534 Buy $28.0 $1.62 $2.44 $1.69 $2.49 $4,334 $4,602 $4,344 $4,640 16 11 2.3 8% 12% 17

ONNN 6.46 $2,947 Buy $8.0 $0.47 $0.69 $0.46 $0.64 $2,885 $2,990 $2,886 $3,015 14 9 1.1 7% 9% 15

TXN 29.47 $33,625 Buy $33.0 $1.84 $2.05 $1.64 $1.73 $12,796 $13,103 $12,784 $12,680 16 14 2.6 8% 8% 13

XLNX 33.44 $9,038 Hold $36.0 $1.79 $1.96 $1.79 $1.96 $2,213 $2,266 $2,213 $2,302 19 17 3.6 8% 6% 12

Small-Mid Cap & Memory **

BCDS 4.16 $76 Buy $8.0 $0.32 $0.42 $0.45 $0.63 $144 $168 $143 $157 13 10 0.3 0% 20% NM

CAVM 32.48 $1,626 Buy $39.0 $0.40 $1.05 $0.39 $1.02 $235 $320 $235 $310 NM 31 6.9 2% 2% NM

EZCH 32.65 $941 Hold $33.0 $0.77 $0.86 $0.78 $1.27 $51 $61 $51 $75 NM 38 12.1 1% 2% NM

IPHI 8.34 $238 Buy $11.0 $0.16 $0.24 $0.23 $0.53 $92 $111 $92 $109 NM 35 1.5 1% 2% 34

LSCC 4.03 $471 Buy $5.0 -$0.01 $0.30 -$0.03 $0.25 $284 $308 $284 $308 NM 13 1.0 -7% 7% NM

MU 5.84 $5,917 Buy $10.0 -$1.11 $0.11 -$0.24 $0.55 $8,056 $9,410 $8,212 $9,046 NM 53 0.9 10% 3% 11

PMCS 5.05 $1,058 Hold $5.5 $0.35 $0.40 $0.33 $0.41 $528 $540 $528 $548 14 13 1.6 0% 0% NM

SNDK 44.31 $10,821 Buy $51.0 $2.02 $3.38 $2.02 $3.40 $5,011 $6,290 $5,042 $5,983 22 13 1.9 0% 7% NM

Median 16 14 2.1 6% 8% 13 Average 15 18 2.8 5% 7% 15 Total $122,210 $128,951 $123,651 $129,173* Mark Lipacis

** Sundeep Bajikar

FCF YieldTicker Rating PT

JEF EPS JEF RevenuesStreet EPS Street Revenues P/E



Technology

Semiconductors

November 6, 2012

Analyst CertificationI, Mark Lipacis, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Sundeep Bajikar, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Jonnathan Lee, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.

For Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.

Meanings of Jefferies RatingsBuy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more withina 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock priceconsistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperformrated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12-month period.NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions onthe investment merits of the company are provided.

Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of marketrisk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.

Conviction List Methodology

1. The aim of the conviction list is to publicise the best individual stock ideas from Jefferies Global Research2. Only stocks with a Buy rating are allowed to be included in the recommended list.3. Stocks are screened for minimum market capitalisation and adequate daily turnover. Furthermore, a valuation, correlation and style screen

is used to ensure a well-diversified portfolio.4. Stocks are sorted to a maximum of 30 stocks with the maximum country exposure at around 50%. Limits are also imposed on a sector basis.5. Once a month, analysts are invited to recommend their best ideas. Analysts’ stock selection can be based on one or more of the following:

non-Consensus investment view, difference in earnings relative to Consensus, valuation methodology, target upside/downside % relativeto the current stock price. These are then assessed against existing holdings to ensure consistency. Stocks that have either reached theirtarget price, been downgraded over the course of the month or where a more suitable candidate has been found are removed.

6. All stocks are inserted at the last closing price and removed at the last closing price. There are no changes to the conviction list duringthe month.

7. Performance is calculated in US dollars on an equally weighted basis and is compared to MSCI World AC US$.8. The conviction list is published once a month whilst global equity markets are closed.9. Transaction fees are not included.

10. All corporate actions are taken into account.page 26 of 29 , Equity Analyst, (415) 229-1438, [email protected] Lipacis


Technology

Semiconductors

November 6, 2012

https://javatar.bluematrix.com/sellside/Disclosures.action


Risk which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.

Other Companies Mentioned in This Report• Advanced Micro Devices, Inc. (AMD: $2.11, BUY)• Altera Corp (ALTR: $31.21, HOLD)• Audika (ADI FP: €8.97, BUY)• Avago Technologies (AVGO: $34.32, BUY)• BCD Semiconductor Manufacturing Ltd. (BCDS: $4.19, BUY)• Broadcom Corporation (BRCM: $31.58, BUY)• Cavium Inc. (CAVM: $32.48, BUY)• EZchip Semiconductor Ltd. (EZCH: $32.65, HOLD)• Inphi Corporation (IPHI: $8.34, BUY)• Intel Corporation (INTC: $21.84, HOLD)• Lattice Semiconductor Corporation (LSCC: $4.03, BUY)• Linear Technology (LLTC: $32.92, HOLD)• M/A-COM Technology Solutions Holdings, Inc. (MTSI: $12.04, BUY)• Marvell Technology Group Ltd. (MRVL: $8.14, HOLD)• Maxim Integrated Products, Inc. (MXIM: $28.72, BUY)• Microchip Technology Inc. (MCHP: $32.39, BUY)• Micron Technology, Inc. (MU: $5.84, BUY)• NVIDIA Corporation (NVDA: $13.02, HOLD)• NXP Semiconductors NV (NXPI: $25.82, BUY)• ON Semiconductor Corporation (ONNN: $6.46, BUY)• PMC-Sierra, Inc. (PMCS: $5.05, HOLD)• SanDisk Corporation (SNDK: $44.31, BUY)• Texas Instruments Incorporated (TXN: $29.47, BUY)• Xilinx Corp (XLNX: $33.44, HOLD)

Distribution of RatingsIB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY 747 47.34% 115 15.39%HOLD 709 44.93% 82 11.57%UNDERPERFORM 122 7.73% 0 0.00%

Other Important Disclosures

Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group, Inc. (“Jefferies”) groupcompanies:

United States: Jefferies & Company, Inc., which is an SEC registered firm and a member of FINRA.

United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Services Authority; registered in England andWales No. 1978621; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0)20 7029 8000; facsimile +44 (0)207029 8010.

Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; locatedat Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong.

Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2,Singapore 048624, telephone: +65 6551 3950.

Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a memberof the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, 1-5-1 Yuraku-cho, Chiyoda-ku, Tokyo 100-0006; telephone +813 52516100; facsimile +813 5251 6101.



Technology

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November 6, 2012

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November 6, 2012


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November 6, 2012

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