cer rf tam analysis 5.21.12

May 21, 2012

Edward Snyder

Managing Director

Ph: 415.931.9955 . [email protected]

Ryan Cram

Analyst

Ph: 415.931.9955 . [email protected]

Strategic Report

Please see analyst certification and important disclosures at the end of this report.

RF TAM Analysis A Detailed Look at Spending on RF Components for Mobile Devices.

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RF Semiconductors

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RF TAM Analysis May 21, 2012

RF TAM Analysis

Table of Contents

Growth in the RF TAM will accelerate in 2012 after slowing last year.........................4 Trends………………………………………………..………………….…..…........4 Stocks………………………………… …………………………………................5 RF TAM Rises As Unit Growth Trumps Content Compression…….…..…….………6 RF content is being driven by four factors, two positive and two negative… ..…....6

Smartphones Will Remain the Growth Engine Through 2014………….………..........8 The growing popularity should more than offset declining RF Content..............…..9

2G to 3G Conversion is the Next Big Thing…………………………………...........….11 The second largest boost to RF TAM will be the 2G to 3G migration...….…....….11 Billions Waiting To Be Served…………………………………………..………...11 Worth More Than All Spending in 2011………………………………..….............13 Unit Growth at the Expense of Content.............................................................…...14 This will slow but not reverse RF spending in WCDMA….....................................14

High Density Amplifiers: The Downside of LTE…………………………..……..……16 LTE will lead to declining RF content in Smartphones……………………………16 High Density Amplifiers Won’t Stop Growth in RF TAM…………………………17 Accelerating Price Erosion In Commoditized Devices……………………...………...18 2G Content Is Low and In Decline…………………….………...……..…….……18 Excess Capacity Driving Down Commodity 3G Components………...……….….19 Accelerating price erosion in commodity 3G amplifiers……………....………...…19 Unit Volume Growth Will Outstrip Content Compression …..…….………....……20 Appendix 1…………………………………………………………..……...……….…...21 The Largest Customers Are Not Always The Best…………………………...…....21 Appendix 2…………………………………………………………………...….….……23 EDGE is Everywhere…………………………………………………………....…23

Appendix 3…………………………………………………………………………..…...24 What Gets Added To 2G to Make A 3G Phone………………………………..…..24

WCDMA Requires Filters Which Can Be Expensive…….……………….….....…24 Endnotes……………………………………………………………………………..…...25



RF TAM Analysis

List of Exhibits

1.

RF TAM Growth Rate, ’09–‘14……………………………………..…….4

1. RF Content by Model Type, ’08–‘14…………………………………..….5

2. RF TAM by phone classification, ‘11……………………………….…….6

3. Handset Unit Sales by Air Interface, ’08-‘14…..…….……………..…….7

4. RF Content by Air Interface, ’08-‘14………………….………………….7

5. RF TAM by Air Interface, ’08-‘14…………………..…………………….8

6. Handset Unit Growth by Model Type, ’08-‘14……..…………………….8

7. Smartphone Unit Growth, ’09-‘14…………………..…………………….9

8. RF Content by Model Type, ’08-‘14………………...…………………….9

9. RF TAM by OEM, Model, Vendor, ‘11………….……………………10

10. RF Content by Air Interface, ’08-‘14…………………….………………10

11. RF TAM by Model Type, ’08-‘14…………………………………………11

12. Handset Unit Sales by Generation, ’08-‘14……………...............……….12

13. World Cellular Subscribers by Air Interface, ‘11………………...……….12

14. RF Content by Generation, ’08-‘14……………...…………..…………….13

15. WCDMA Unit Growth by Category, ’09-‘14……………......…………….13

16. Handset Unit Sales by Air Interface, ’08-‘14…………….......…………….14

17. RF Content by Air Interface, ’08-‘14……………...………….…………….14

18. RF TAM by Air Interface, ’08-‘14……………...……………..…………….15

19. Smartphone Unit Sales by Band Count, ‘11…………………..…...……….16

20. RF Content by Model Type, ’08-‘14…………………………..…...……….16

21. RF TAM by Model Type, ’08-‘14……………………………..…...……….17

22. RF Content by Generation, ’08-‘14………………………………...……….18

23. Handset Unit Sales by Generation, ’08-‘14………………………...……….18

24. RF Content by Generation, ’08-‘14………………………………...……….19

25. RF TAM by Generation, ’08-‘14…………………………………...……….20

26. RF TAM by OEM, Model, Vendor, ‘11……………………....…...……….21

27. Spending on RF Content by OEM, ‘11……………………….…...……….21

28. Phone Models by OEM, ‘11………………………………………...……….22

29. Phone Value Density by OEM, ‘11………………………………...……….22

30. GSM Models by Band Count, ‘11……………………………..…...……….23

31. GSM Unit sales by RF Content, ‘11…………………………..…...……….23

32. 3G Handsets by Band Count, ‘11……………………………..…...……….24

33. RF TAM by Air Interface, ’08-‘14………………………………...……….25

34. Smartphone, Feature Phone comparison…………………….…...……….26

35. RF Content by Air Interface, ’08-‘14……………………………...……….26

1. RF TAM Growth Rate, ’09–‘14……………………………

2. RF Content by Model Type, ’08–‘14………………………

3. RF TAM by phone classification, ‘11………………………

4. Handset Unit Sales by Air Interface, ’08-‘14…..…….……

5. RF Content by Air Interface, ’08-‘14………………….……

6. RF TAM by Air Interface, ’08-‘14…………………..……

7. Handset Unit Growth by Model Type, ’08-‘14……..…………………

8. Smartphone Unit Growth, ’09-‘14…………………..……

9. RF Content by Model Type, ’08-‘14………………...…………………….9

10. RF TAM by OEM, Model, Vendor, ‘11………….……………………10

11. RF Content by Air Interface, ’08-‘14…………………….

12. RF TAM by Model Type, ’08-‘14…………………………

13. Handset Unit Sales by Generation, ’08-‘14……………......

14. World Cellular Subscribers by Air Interface, ‘11…………

15. RF Content by Generation, ’08-‘14……………...…………

16. WCDMA Unit Growth by Category, ’09-‘14……………...

17. Handset Unit Sales by Air Interface, ’08-‘14……………...

18. RF Content by Air Interface, ’08-‘14……………...………

19. RF TAM by Air Interface, ’08-‘14……………...…………

20. Smartphone Unit Sales by Band Count, ‘11………………

21. RF Content by Model Type, ’08-‘14………………………

22. RF TAM by Model Type, ’08-‘14…………………………

23. RF Content by Generation, ’08-‘14………………………

24. Handset Unit Sales by Generation, ’08-‘14………………

25. RF Content by Generation, ’08-‘14………………………

26. RF TAM by Generation, ’08-‘14……………………………

27. RF TAM by OEM, Model, Vendor, ‘11……………………

28. Spending on RF Content by OEM, ‘11……………………

29. Phone Models by OEM, ‘11…………………………………

30. Phone Value Density by OEM, ‘11…………………………

31. GSM Models by Band Count, ‘11…………………………

32. GSM Unit sales by RF Content, ‘11………………………

33. 3G Handsets by Band Count, ‘11…………………………

34. RF TAM by Air Interface, ’08-‘14…………………………

35. Smartphone, Feature Phone comparison…………………

36. RF Content by Air Interface, ’08-‘14………………………



Growth in the RF TAM1 will accelerate in 2012 after slowing last year. It won’t achieve the rate seen in

2010 which was artificially inflated by the see-saw effect of the recession, but it should exceed 2011 for the next two years. The resurgence is driven by content growth in Smartphones, which will accelerate with the release of iPhone 5 and Samsung's Galaxy S3. Spending will also get a boost from 2G to 3G conversion which is starting to pick up steam on Qualcomm’s success with the QRD product in China and Broadcom’s ramp of its low cost 3G SOC2 at Samsung.

0%

10%

20%

30%

'09 '10 '11 '12 '13 '14e e e

Growth Rate in RF TAM(y/y)

Rebound on higher

units and content in

smartphones

To quantify these factors and develop a forecast of RF TAM through 2014, we undertook a detailed study of the RF content in every phone offered in 2011. The results, which include all phones and every major phone OEM, are summarized in our publication, “2011 TAM Analysis, RF Components in Mobile Devices”, May 21, 2012. This analysis yielded a more accurate description of growth, identified the factors that are driving spending and led us to the following conclusions:

Trends: 1) Growth in RF TAM,

a. accelerates in 2012 b. positive but slowing through 2014 c. driven by unit growth in WCDMA d. muted by declining content beginning in 2013 e. not materially effected by LTE until 2013

2) Smartphones drive growth through 2014 3) 2G to 3G conversion drives growth after 2014

Stocks: 4) Skyworks (SWKS) is the biggest beneficiary of growth in RF TAM. 5) TriQuint (TQNT) gains later in 2012 and more from 2G to 3G than Smartphones. 6) RF Micro Devices (RFMD) gains more from Smartphones than 2G to 3G. 7) Avago (AVGO) benefits from both trends but not to the same extent as competitors. 8) Anadigics (ANAD) is relatively unaffected by trends in RF TAM.



$0

$2

$4

$6

'08 '09 '10 '11 '12 '13 '14

Smartphone

Feature Phones .

Average content begins

to decline in 2013RF Content

(by Model)

e e e

Skyworks (SWKS) benefits the most from near-term growth in RF TAM. Partnerships with Qualcomm, Broadcom and Apple position it well for growth from Smartphones and the 2G-3G conversion. As the primary supplier to Broadcom’s baseband SOCs it should profit from the 2G to 3G migration at Nokia and Samsung while higher content in iPhone 5 will yield share gains in Smartphone content near-term.

TriQuint (TQNT) gains late in 2012 and more from 2G to 3G than Smartphones. With a large filter business and a dominant position in EDGE on Qualcomm’s 3G reference designs, Triquint’s largest growth will be from the 2G to 3G conversion and LTE filter sales. Without a high efficiency or converged amplifier, it won’t benefit as much as Skyworks and RF Micro Devices from higher Smartphone content and with copious excess capacity, it probably can’t achieve parity in margins or earnings until 2013.

RF Micro Devices (RFMD) gains more from Smartphones than 2G to 3G conversion. The company leads in SOI switches, high efficiency and converged amplifiers putting it in excellent position to benefit from higher content Smartphones and the arrival of LTE. We expect Phenom to win most of the Galaxy S3 models while its SOI switch products will likely triple the company’s content in iPhone 5. This will be moderated by 2G contraction and excess capacity holding margins and earnings below normal levels until late 2012 or early 2013.

Avago (AVGO) benefits from both trends, but not as much as other suppliers. The company is the largest supplier of WCDMA devices to Qualcomm’s reference designs and is the only real rival to Triquint in filters. Nevertheless without a competitive high efficiency amplifier or its own SAW filter line, we expect it will lose share in PAs to Skyworks on iPhone 5 and in LTE filters to Triquint. Moreover, with less than half of its revenue coming from mobile phone products, what growth it does enjoy will be diluted by its wired, industrial and consumer segments, making it less of a play on RF TAM growth than its competitors.

Anadigics’ (ANAD) fortunes are not tied to growth in RF TAM. The company’s revenue has atrophied to the point that record growth could be had by simply winning a new reference design at Qualcomm. It is investing in high efficiency, hybrid and converged amplifiers, but doesn’t need a win in any of these or an acceleration in growth of RF TAM to return to profitability. That can be done with a single WCDMA amplifier win at a major OEM. It is therefore relatively unaffected by trends in RF TAM.



RF TAM Rises As Unit Growth Trumps Content Compression The rise in demand for cell service over the last twelve years has expanded the base of subscribers from about 710M3 in 2000, to about 6B today. Accommodating this growth required capacity upgrades that added both new frequency bands and new networks. This allowed for more users but increased the complexity of phones, and as a result, the number and cost of RF components.

(by phone classification)

Feature

WCDMA

Smart

2G

3G

LTE4G

GSM

CDMA

$0B

$1B

$2B

$3B

$4B

$5B

Models Generation Air Interface

Total ~ $4.34B

2011 RF TAM(by phone classification)

More spending in

legacy systems

RF content is being driven by four factors, two positive and two negative. The positive factors derive from carriers’ appetite for more coverage and higher capacity and as such, are large and pervasive, they are:

1) Smartphone growth 2) 2G to 3G conversion

The negative factors stem from market share battles among RF semiconductor manufacturers, both new and established, and because they originate with suppliers instead of customers, their impact on RF content is more muted. The two negative factors are:

3) high density4 RF amplifiers 4) price erosion in commoditized components

Because they are larger and had an earlier start, the positive factors have had a greater impact on RF TAM

over the last two years, driving it up 28% year-over-year in 2010 after less than 5% growth in 20095. By

the late 1990’s new bands and modes were being added to networks, but didn’t reach critical mass in handsets until the iPhone 3G in 2008. Demand for Apple’s first 3G product boosted growth in WCDMA starting the following year. Plans for the 2G to 3G migration were also put in place in 2009 when Qualcomm launched its QRD6 program to produce low-cost 3G basebands for 2G OEMs in China.

Findings



0

200

400

600

800

1,000

1,200

'08 '09 '10 '11 '12 '13 '14

(M)

LTE

WCDMA

CDMA

GSM

Units (by Air Interface)

e e e

Major trends fueling

growth into WCDMA

Strong sales of Smartphones resulted in higher units and content in WCDMA starting in 2009 and expanding rapidly in 2010. Growth wasn’t impacted much by the negative factors which were just beginning to appear in the supply chain. High density amplifiers didn’t show up until 20117 and then in only a handful of phones. Price erosion was virtually non-existent exiting the recession when big cuts in capacity bled inventories and stretched out lead times.

Air Interface)

$0

$2

$4

$6

$8

'08 '09 '10 '11 '12 '13 '14

($B

)

LTE

WCDMA

CDMA

GSM

Price erosion and high

density amplifiers

e e e

RF Content(by Air Interface)

By the end of 2011 the situation had changed though. Content growth in Smartphones slowed as high density amplifiers found their way into the iPhone 4S and the Galaxy S2 and low-cost vendors like RDA begin to weigh heavily on 2G pricing. The emergence of these negative factors lowered RF TAM growth to 16% in 2011. We expect a rebound in 2012, but much of that depends on economic growth as well as the ebb and flow of each of the factors outlined here. The net effect will almost certainly be declining content beginning in 2013 offset by strong unit growth and a mix shift to high-end models. LTE will buck that trend in 4G phones in 2012, but sales won’t be large enough8 to offset declines in other standards as high density amplifiers proliferate in 3G and price erosion accelerates in commoditized 3G devices.

Findings



0

2

4

6

8

'08 '09 '10 '11 '12 '13 '14

($B

)

LTE

WCDMA

CDMA

GSM

Unit growth increases

TAM even as content

per phone declinesRF TAM(by Air Interface)

e e e

Declining content notwithstanding, we believe demand for LTE and WCDMA will lead to 21% growth in RF

TAM in 2012 followed by year-over-year increases through 2014.

Smartphones Will Remain the Growth Engine Through 2014 Smartphones9, which combine both high RF content and high unit growth, will continue to be the largest driver of RF TAM10 until at least 2014. The popularity of iPhone and Galaxy and a slew of new offerings at legacy OEMs will accelerate adoption and skew global sales more to Smartphones. Indeed, since Apple’s success in 2008 a flood of competition has propelled unit growth from 27% in 2008 to 73% in 2010.

0

500

1,000

1,500

2,000

'08 '09 '10 '11 '12 '13 '14

(M)

Smartphone

Feature Phones .

Adoption exiting

the recession Units (by Model)

e e e

Growth slowed to 53% in 2011 and will decline again in 2012 as Nokia and RIM retrench in the run up to new platforms while Motorola, Sony-Ericsson and LG Electronics struggle through organizational changes and restructuring. Even at the lower rate however, we expect Smartphone sales to increase 36% y/y, which equates to about 165M additional phones in 2012.

Smartphones



0

50

100

150

200

250

'09 '10 '11 '12 '13 '14

(M)

GSM

WCDMA

LTE

Low-end 3G emerges as

high-end moves to LTESmartphone Unit Growth(by Air Interface)

e e e

We believe growth will accelerate in 2013 if new models from Nokia or RIMM are even modestly successful and the pipeline of LTE phones in development today enter production. Growth could get a further boost once Samsung and Nokia begin migrating a share of their large feature phone base to low-end Smartphones. That is proving to be more of a challenge than expected, but the recent success of Mediatek’s 3G platform and low-cost 3G SOCs at Qualcomm and Broadcom suggest it’s picking up steam and could be material in 2013. Growing popularity of Smartphones should more than offset declining RF Content. Between the proliferation of high-density RF amplifiers (see “High Density Amplifiers: The Downside of LTE”, page 16) and a larger mix of low-end models, we expect average RF content in Smartphones to peak this year and begin to decrease in 2013.

$0

$2

$4

$6

'08 '09 '10 '11 '12 '13 '14

Smartphone

Feature Phones .

Decline begins in 2013RF Content(by Model)

e e e

The profile of this decline is heavily dependent on several factors including the success of LTE, the mix of low-end phones and, perhaps most importantly, Apple’s choice of RF architecture. With about 25% of the Smartphone market, nearly all of which is concentrated in one model, Apple has a disproportionately large impact on the RF TAM (see “The Largest Customers Are Not Always The Best”, Appendix 1). Choices it makes with regard to front-end design have a significant impact on total spending for RF components and on the rise and fall of manufacturers that supply them.

Smartphones



RFMD

SWKS

ANADAVGO

EPCOMURT

RDA RENS

TQNT

RF Suppliers

Total ~ $4.34B

Minor OEMs

SAMS

NOK

SNE

RIM

MMILGEHTC

Apple

$0B

$1B

$2B

$3B

$4B

$5B

OEMs

Feature

Models

Smart

(by phone, customers & suppliers)

2011 RF TAM

Per phone, Apple is the

most lucrative customer.

If, as we expect, the company moves away from the architecture used in the iPhone 4S to a more feature-rich LTE design, content in its new phone is likely to increase 50% over that in the iPhone 4S11. Multiplied across tens of millions in unit sales, this could boost RF TAM even if blended content in other models declines.

$0

$2

$4

$6

$8

'08 '09 '10 '11 '12 '13 '14

($B

)

LTE

WCDMA

CDMA

GSM

Richest phone in the

world is now LTERF Content

(by Air Interface)

e e e

For all its power however, iPhone can’t turn back the tide of high density amplifiers, or offset price erosion in commodity devices. So while we believe Apple’s new phone will increase average content in 2012, we expect a steady decline in all air interfaces beginning in 2013.

Smartphones



0

2

4

6

8

'08 '09 '10 '11 '12 '13 '14

($B

)

Smartphone

Feature Phones .

Virtually all new spending

is in smartphones

e e e

RF TAM(by Model)

Ebbing content won’t preclude growth in RF TAM however because demand will increase faster than content declines. We believe growth at leading OEMs and new products at Nokia, RIM, HTC, LG, Sony-Ericsson and Motorola will increase the mix of sales to high-end models and continue the migration of subscribers to Smartphones.

2G to 3G Conversion is the Next Big Thing

The second largest boost to RF TAM will be the 2G to 3G migration. With only a fraction of the content of Smartphones (see “EDGE is Everywhere”, Appendix 2, page 23), 2G handsets have a relatively small impact on RF TAM. Nevertheless, the conversion of large swaths of these phones to 3G, enabled by low-cost baseband SOCs will be a significant driver of RF content over the next several years12.

Billions Waiting To Be Served

Delays in the uptake of 3G meant that for most of the last decade the best selling phones were 2G. Originally comprised of GSM and cdmaONE models, 2G sale have been dominated by GSM since 2004. The rise of China and India stoked demand for GSM-only models which have far outsold all other technologies since 2000.

2G to 3G Conversion



0

500

1,000

1,500

'08 '09 '10 '11 '12 '13 '14

(M)

4G

3G

2G

2G dominated demand

’98 – ’10

e e e

Units (by Generation)

GSM phone sales added hundreds of millions of users to the subscriber base every year, so that by the end of 2011, 2G accounted for about 75%13 of all subscribers, or about 3.1B14 of the 4.5B phones in use today.

GSM

UMTS

CDMA

LTE

4.5B

76%

16M

1% 867M

15%

543M

9%

World Cellular Subscriptions 2011

Most of GSM ready

for 3G upgrade

Lots of users doesn’t translate into lots of spending though, because content in 2G phones is low and has been in decline for years. Without the need for extra bands to handle data, RF components for 2G handsets quickly became commoditized and content started a long slide beginning in the early 2000s. Volumes remained strong but with so little content, the value of these handsets to RF suppliers is low as is the attention this segment receives from analysts and investors.

2G to 3G Conversion



$0

$2

$4

$6

$8

'08 '09 '10 '11 '12 '13 '14

4G

3G

2G

e e e

Long steady

decline in 2G

RF Content(by Generation)

That will change in the next two years when carriers begin to convert GSM-only phones to WCDMA. The migration is significant because it increases content by 50%-150% per handset (see, “What Gets Added to 2G to Make a 3G Phone”, Appendix 3). When applied across the huge base of 2G users, this yields a significant increase in RF TAM.

Worth More Than All Spending in 2011

How big an impact the 2G to 3G conversion has on RF TAM depends on the rate at which GSM users make the leap to WCDMA. That will be affected by several factors, but converting the entire base of GSM-only phones in a single year would increase RF TAM by $9.3B15, or roughly twice total spending in 2011. Of course, not all users will convert at the same time so the value of migration will be much lower in any one year. We believe the most likely scenario will be a gradual increase in contribution to RF TAM as a slow start is followed by a rapid acceleration once OEMs such as Nokia, Samsung and RIM begin converting their legacy products. If this occurs, we believe growth will follow a slow-fast-slow “S” pattern, with the conversion of 40M - 70M phones adding $60M - $110M in RF content in 2012 and 100M – 200M phones adding $160M - $320M in 2014. Migrating the remaining 2G phones will probably take another decade just as with the analog-to-digital transition after 2000.

0

45

90

135

180

225

'09 '10 '11 '12 '13 '14

(M)

Generic 3G

2G-3G

Smartphone

2G – 3G kicks in

WCDMA Unit Growth(by Category)

e e e

2G to 3G Conversion



This stampede to 3G will accelerate growth in WCDMA16 and reduce sales of GSM handsets in spite of the 100M – 200M new subscribers added in emerging markets each year. The result will be a slow decline in GSM-only sales beginning in 2013.

0

200

400

600

800

1,000

1,200

'08 '09 '10 '11 '12 '13 '14

(M)

LTE

WCDMA

CDMA

GSM

Units (by Air Interface)

e e e

GSM only subs leaving for

WCDMA

Unit Growth at the Expense of Content

The 2G to 3G migration will increase unit volumes in WCDMA, but it will have the opposite affect on content. Just as emerging markets add low-end 2G users while high end subscribers leave for 3G, the 2G to 3G migration is adding low-end 3G users while high-end subscribers leave for LTE. The impact in both cases is a reduction in average content as the mix shifts and content steadily declines in both GSM and WCDMA beginning in 2012.

$0

$2

$4

$6

$8

'08 '09 '10 '11 '12 '13 '14

($B

)

LTE

WCDMA

CDMA

GSM

Low-end 3G weighing

on WCDMARF Content(by Air Interface)

e e e

This will slow but not reverse growth in spending on RF components in WCDMA. Because 2G still accounts for the largest portion of phone production at Nokia and Samsung, acceleration in 2G to 3G migration could lead to a materially faster increase in RF TAM than we are predicting.

2G to 3G Conversion

2G to 3G Conversion



0

2

4

6

8

'08 '09 '10 '11 '12 '13 '14

($B

)

LTE

WCDMA

CDMA

GSM

RF TAM(by Air Interface)

e e e

2G to 3G takes from GSM,

gives to WCDMA

Whatever the rate though, the net impact of this conversion will be a higher contribution from WCDMA and a lower one from GSM. Indeed, declining replacement sales from a shrinking base of users and lower content per phone will reduce spending on RF components for GSM-only phones to under $1B by 2013. Subscriber growth will slow this decline but not reverse it, and the importance of GSM to component suppliers will continue to fade.

2G to 3G Conversion



High Density Amplifiers: The Downside of LTE

LTE will lead to declining RF content in Smartphones.17

By adding another band to what is already a crowded handset, LTE increases the number of amplifiers to the point where the cost and space savings of high-density RF solutions begin to make sense. Today that threshold is seven bands18 for converged amplifiers like PowerSmart (RF Micro Devices) and five for hybrids like the one used in iPhone 4S (Avago). Given that half of all Smartphones offered last year had seven or more bands, adding even one channel of LTE greatly increases the number of phones available to these devices.

Smartphone Units(distribution by band/mode)

Converged amplifiers become

attractive at seven or more

bands

12%

5%

9%

5%

9%10%

28%

5%10%

2 bands

4 bands

6 bands7 bands

8 bands3 bands

5 bands

The impact this has on RF TAM depends on a number of factors, not the least of which is the type of solution employed19. Converged amplifiers offer the greatest flexibility but have the largest negative impact on RF content and are the most complex and expensive. On the other end of the spectrum are dual-band PADs which are significantly less expensive and can be used in the widest array of phones, but they are the least flexible and have the highest cost-per-band of the high-density architectures. They also have the smallest negative impact on content. Hybrids take the middle ground, offering better flexibility and cost-per-band than dual-band PADs, but less complexity and total cost than converged. They also fall between converged and dual-band PADs in their impact on content. Because all of these devices offer better per-band cost than individual amplifiers, they

are all getting traction in high-end Smartphones. This means the richest phones will soon be able to add one or more bands at little or no extra cost, forcing content growth to slow and then decline.

$0

$2

$4

$6

'08 '09 '10 '11 '12 '13 '14

Smartphone

Feature Phones .

Declining from wide-use

of high density ampsRF Content

(by Model)

e e e

High Density Amplifiers



So where normally an increase in the number of bands would yield a commensurate increase in RF TAM, there will be less of a correlation with Smartphones beginning in 2013 because adding additional bands will generate little additional spending.20

High Density Amplifiers Won’t Stop Growth in RF TAM

Because they only find application in high-content phones and with OEMs that have extensive R&D resources, we believe the uptake of high-density RF amplifiers will be slower than consensus expects, at least initially. Smaller manufacturers that rely on reference designs and those struggling with time-to-market issues have avoided the risk and complexity of these devices, while large OEMs like Apple have tried but not committed to them21. Even Nokia, which was the first to develop a converged architecture, struggled for years with technical issues only to realize modest volumes once phones using these solutions were released.

0

2

4

6

8

'08 '09 '10 '11 '12 '13 '14

($B

)

Smartphone

Feature Phones .

Tam growth slows

once content begins

to decline

e e e

RF TAM(by Model)

Low-end 3G models aimed at 2G users won’t employ high-density RF amplifiers nor will 2G feature phones. Smartphones will, but we believe the vast majority of these will be hybrid or dual-band PADs which have significantly less impact on RF content than do converged amplifiers22. So while nearly every OEM is planning a phone using these new devices, we don’t expect they will be widespread or successful enough to reverse growth in content until at least 2013. Even then we don’t believe the decline in Smartphone content will be enough to offset growth in demand.

High Density Amplifiers



Accelerating Price Erosion In Commoditized Devices The other trend slowing growth in spending is price erosion, which accelerated in 2G last year and is picking-up in commoditized 3G components in 2012. Combined with proliferation of high-density RF amplifiers, this will lower content-per-phone in everything but 4G in 2012 and then in that standard beginning in 2013.

2G Content Is Low and In Decline By discounting parts that are pin-for-pin compatible with tier-one suppliers, RDA began weighing on 2G pricing in the second half of 2011. The company’s willingness to suffer lower margins allowed for large discounts on what have long been commoditized parts and enabled it to take share from RF Micro Devices and, to a lesser extent Skyworks.

$0

$2

$4

$6

$8

'08 '09 '10 '11 '12 '13 '14

4G

3G

2G

e e e

Price cuts impacting 2G


The ensuing price war pummeled gross margins which have fallen well below 30% for standard 2G amplifiers at the leading manufacturers. Most of this price pressure is concentrated at white label OEMs in China where cost trumps performance. Because tier one Chinese manufacturers and the leading phone OEMs require a higher level of performance they are not large customers of RDA and are therefore relatively unaffected. Still, with so much of the 2G market concentrated in the low-end in China, the result has been a steep decline in already meager RF content in GSM-only phones, amplified across volumes that exceeded all other standards through 2011.

0

500

1,000

1,500

'08 '09 '10 '11 '12 '13 '14

(M)

4G

3G

2G

Large unit sales amplify

lower content

e e e

Units (by Generation)

Price Erosion

Price Erosion



The 2G price war also has a ripple affect in 3G. Because all WCDMA phones support GSM, price reductions on GSM amplifiers reduce content in WCDMA phones. The affect is muted by the fact that GSM accounts for a smaller portion of the total content in a WCDMA handset. That share can vary from 20% in a Smartphone, to 75% in a low-end 3G handset. This means a 20% decline in the price of a GSM amplifier translates to a 4% decline in content in a high-end Smartphone and a 15% decline in a low-end 3G handset. So where the impact is significant in low-end 3G, it is nearly immaterial in high-end Smartphones.

Excess Capacity Driving Down Commodity 3G Components Price erosion is also accelerating in commoditized 3G amplifiers. These standardized, WCDMA, “3 by 3”23, modules are offered by every major RF semiconductor manufacturer, are pin-for-pin compatible and directly replaceable across vendors. Pricing was relatively stable through much of last year until die shrinks, share shifts and the emergence of high-density amplifiers generated a glut of GaAs capacity. Since then the battle to fill fabs has led to steep price erosion in the hope that OEMs would change vendors on phones already in production. Unlike converged, hybrid, dual-band PADs or high efficiency amplifiers, 3 by 3 WCDMA PAMs pose no significant technical challenge for any of the major GaAs suppliers. They are widely available, pin-for-pin compatible, and present no switching costs for OEMs. With the industry rolling in GaAs capacity, prices for a 3 by 3 WCDMA PAM have fallen from $0.45 in 3Q11 to about $0.35 today. This 20% decline is about twice as fast as normal and about five times that exiting the recession in 2010. Absent a significant increase in consumption, we expect prices on these components to continue to decline until excess capacity is sopped up by the 2G to 3G conversion, Smartphone demand or the exit of one of the six major GaAs vendors (unlikely).

$0

$2

$4

$6

$8

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4G

3G

2G

e e e

Pricing in 3G

commodity device

clips growth


The impact of accelerating price erosion in commodity 3G amplifiers will show-up as content compression

in WCDMA. Unlike with 2G components, price reductions in WCDMA amplifiers have a one-to-one affect on content in 3G phones. Some of this will be offset by growing demand for high-efficiency amplifiers like Phenom and SkyHI which offer premium performance for a price. Relatively new and currently only available from RF Micro Devices and Skyworks, these devices are seeing rapid uptake in WCDMA phones and are considered essential for LTE. With only two vendors, pricing is robust, but the impact to overall RF TAM is limited. So while they will slow the decline in content, they won’t offset it given six vendors are pushing content down in commoditized 3G devices and only two are expanding it with high-efficiency PAs.

Price Erosion

Price Erosion



Unit Volume Growth Will Outstrip Content Compression

0

2

4

6

8

'08 '09 '10 '11 '12 '13 '14

($B

)4G

3G

2G

RF TAM(by Generation)

e e e

3G, 4G offset 2G

Competition in commoditized 3G amplifiers will have a larger impact on WCDMA content than the ripple effect of 2G price erosion, but both should be more than offset by strong unit growth in WCDMA. The increase in content in iPhone 5 and Samsung’s release of the Galaxy S3, combined with a greater mix of high-end Smartphones from all the other major phone OEMs should expand RF TAM even with the drag of price erosion.

Price Erosion



Appendix 1

The Largest Customers Are Not Always The Best One of the interesting conclusions from our study of the 2,076 phone models offered last year was the difference between size and value in OEM customers for RF components. Historically, the value of an OEM to an RF semiconductor manufacturer was proportional to its market share in phones. Today it is more tightly tied to market share in Smartphones and, more importantly, density share in Smartphones.

RFMD

SWKS

ANADAVGO

EPCOMURT

RDA RENS

TQNT

RF Suppliers

Total ~ $4.34B

Minor OEMs

SAMS

NOK

SNE

RIM

MMILGEHTC

Apple

$0B

$1B

$2B

$3B

$4B

$5B

OEMs

Feature

Models

Smart

(by phone, customers & suppliers)

2011 RF TAM

Per phone, Apple is the

most lucrative customer.

As would be expected, total spending on RF components generally follows market share with the largest OEMs spending the most. However, the value to component suppliers has less to do with total dollars spent than dollars per model. The distinction is important because RF semi manufacturers are limited in how many design wins they can support at one time, so individual phones are less valuable than large platforms. Suppliers can’t bid on every phone at every customer, so they have to place bets on which platforms have the potential to sell enough to offset the cost of winning them. That made Nokia’s strategy of lots of volume on a few platforms hugely valuable to suppliers, while Samsung’s swarm of hundreds of different designs less attractive.

NOK, $1,071

SAMS, $715

Apple, $668LGE, $136

Minor OEMs,

$1,212

RIM, $157

SNE, $135

HTC, $142

MMI, $104

Spending on RF Content(2011, M)

Samsung spends about as

much as Apple…

Appendix 1



Appendix 1

NOK, 181

SAMS, 482

Apple, 7

LGE, 256

RIM, 42

SNE, 109

Minor OEMs,

733

MMI, 174HTC, 93

…but has about 60 times as many models.

Phone Model Analysis(2011)

By this measure, the $668M Apple spent on RF components in 2011 is worth more than Nokia’s $1.1B. Given it sold only seven different models24 in 2011, the dollars-per-device was much richer at Apple than at any other OEM.

Apple, 78.2

SNE, 3.5

Minor OEMs,

0.3NOK, 1.4

SAMS, 0.4

RIM, 7.1

LGE, 0.7

HTC, 3.2

MMI, 1.4

Value Density of OEMs(2011, ¢ / unit models)

No better customer than

Apple on a dollars-per-

model basis

By contrast, Samsung spent $715M, but spread it over a whopping 482 different models, making it the single least valuable OEM. Nokia laid out $1.1B on 182 different phones putting it above Samsung, but well below Apple. This is why Apple’s success with just a few models makes it the most lucrative customer for component suppliers. Ebbs and flows in content notwithstanding, focusing resources on Apple and HTC paid off handsomely in 2011 while legacy powerhouses like Nokia and RIM were more of a disappointment. This is clear from reported results as well as from the details of our analysis.

Appendix 1



Appendix 2

EDGE is Everywhere

In 2011, the vast majority of 2G phones were GSM-only models, 45% of which had four bands of EDGE25. The second most common type, dual-band GSM, accounted for 33% of 2G phones manufactured.

33%

45%

22%

2 bands

3 bands

4 bands

GSM Models(band/mode)

In 2011, most GSM

only phones used

quad-band EDGE

As the name implies, quad-band EDGE consists of four amplifiers, each on a different frequency band. To select between amplifiers and to comply with the EDGE standard, an RF switch26 is required which increase the cost of the average four band phone to about $1.20. Quad band EDGE is far and away the most common RF configuration in handsets and is usually implemented in a single part called a Transmit Module (TXM27). Occasionally OEMs will use a two-part solution consisting of a quad-band EDGE PAM28 ($0.80) and a switch ($0.30), but this configuration only finds use in a small number of models. On the low-end, 2G phones support two bands of GSM using a dual-band amplifier and a switch for a total of about $0.50 in RF content. Like quad-band EDGE phones, most dual-band GSM handsets use a transmit module, but one that supports two bands instead of four. In 2011 the split between standard and low-content models in 2G was about even. Standard models (greater than $1.00, less than $2.00) accounted for 53%, with low-content phones (less than $1.00) making up the rest.

48%

52%Under $2.00

Under $1.00

GSM Units(distribution by RF content)

All things considered, we estimate the average RF content for 2G phones sold in 2011 to be about $1.38. This is higher than the arithmetic mean of the models offered, because the best selling models (far and away) were higher content phones with quad-band EDGE.

Appendix 2



Appendix 3

What Gets Added To 2G To Make A 3G Phone

The large base of 2G handsets available for conversion to 3G should be a gold mine for RF manufacturers. Unfortunately, the subscribers holding these phones are cost conscious and are therefore less likely to spend more to get a 3G handset. Carriers could get around this by increasing subsidies, but that would be counter-productive if the motive for upgrading to 3G is to increase total return. More likely they will mitigate the impact by holding the line on cost in 3G phones targeted at 2G users. Accomplishing this requires the fewest number of 3G channels possible to ensure coverage.

3G Models(band/mode)

31%

32%

19%

14%

4%

1 band

2 bands

3 bands

4 bands

62% of 3G phones

have less than 3

bands of WCDMA

A snapshot of all the 3G phones offered in 2011 shows that most models had less than three bands of WCDMA. With 33% of 3G models using one band and a similar number using two, the most likely scenario for a low-cost 3G handset would be the addition of 1.5 bands (on average). What this means in terms of new RF content depends on which bands are added and what RF configuration is employed.

WCDMA Requires Filters Which Can Be Expensive

In addition to amplifiers, adding WCDMA to a GSM phone also means adding filters29. Unlike amplifiers, filters cannot be integrated, combined or “stretched” to cover multiple bands which means that every time a new band is added to a phone, a filter is also added. The cost of filters varies by band, from about $0.25 for SAW filters in low frequency bands such as Band 5 or Band 8, to about $0.90 for BAW filters in Band 2. Combined with a standard amplifier, (average cost about $0.4530 in late 2011), a filter increases the cost of adding one band of WCDMA to $0.75 to $1.35. This means that adding WCDMA to a GSM phone raises the total RF content from $1.38 for a 2G only handsets to $2.43 for a single band WCDMA handset and $3.48 for a dual band. Averaging the two yields about $2.95 in total RF content for low-end WCDMA phones compared to the $4.5031 average for all WCDMA handsets in 2011.

Appendix 3



Endnotes 1 RF TAM and RF Content in this report include amplifiers, filters and switches. 2 System On a Chip. A fully integrated chip that includes baseband, application processor and transceiver, the cost and size of which make it ideal for low-end 3G handsets. Recent products from Qualcomm, Broadcom, Mediatek and Spreadtrum have spurred OEMs with large 2G portfolios to begin migrating many of those models to low-cost 3G handsets. 3 “Fourth Quarter Report 2000”, Ericsson, January 26, 2001, page 3. 4 GaAs RF components cannot be integrated like silicon CMOS devices. RF components operate on high frequency analog signals which are not amenable to the processes and techniques used to shrink memory chips and microprocessors. More functionality can be built into a smaller footprint in GaAs, but the methods used are very different and the gains paltry compared to silicon CMOS. We therefore use the term “density” rather than “integration” to avoid confusing the modest gains in GaAs RF with the rapid pace of Moore’s law in silicon CMOS. 5 The analysis that yielded these results details RF content by phone, by OEM for 2011 and is summarized in a companion

piece titled “2011 TAM Analysis, RF Components in Mobile Devices”. It provides a snap-shot of RF content for all

phones offered by all tier one and tier two OEMs in 2011. Coupled with pricing information culled thorough extension interviews of RF semiconductor manufacturers, this bottoms-up analysis provides the sharpest view of RF components in mobile devices. The results of this analysis for 2011 are then applied to a top-down model of handset growth by air interface, functionality and generation to identify trends and forecast the TAM for RF components through 2014. The product of this endeavor is the identification of factors impacting spending and a forecast of that spending as presented in this note. 6 Qualcomm Reference Design. A low-cost WCDMA reference design that is essentially a white label phone targeted at Mediatek’s low-cost 2G customers in China. 7 The one exception is Linko which Nokia first proposed in 2005. The Linko architecture was designed to cover all bands using a two-die (high band + low band), single-package, RF GaAs power amplifier and to cover all modes by coupling that amplifier to a sophisticated silicon power control chip. Much delayed, Linko finally saw production in 2011 in Symbian phones using an amplifier from Skyworks’ and a power control chip built into ST-Ericsson’s transceiver. Released later that same year, Samsung’s Galaxy phone used a converged solution from RF Micro Devices’ called PowerSmart, which unlike Skyworks’ amplifier for Linko, included both the GaAs amplifier and the silicon power control chip. Finally, Apple employed a hybrid solution in iPhone 4S that uses multiple amplifiers in a single package without power control. iPhone 4S uses the Avago’s ACPM-7081 which is pin-for-pin compatible with Triquint’s TQM7M9023 and Skyworks’ SKY77606. All were targeting Qualcomm’s WRT1605 reference design which is the largest step Qualcomm has made towards a converged architecture so far. 8 LTE is often cited as a factor propelling growth in spending on RF components but volumes are too small to have any material impact until 2013. Even then, LTE will only account for about 20% of the TAM while the 2G to 3G conversion and continued growth in Smartphone sales will push WCDMA to almost 55% of total spending.

RF TAM (by Air Interface)

0

2

4

6

8

'08 '09 '10 '11 '12 '13 '14

($B

)

LTE

WCDMA

CDMA

GSM

RF TAM(by Air Interface)

e e e

LTE won’t be material until 2013

By 2014 LTE volumes will be significant but widespread use of converged and hybrid amplifiers as well as dual band PADs will pressure content per phone, especially in LTE models where concerns over efficiency and space are particularly acute. We expect this to lower year-over-year growth in RF TAM to 17% in 2013 and 13% in 2014. 9 Quantifying the impact of Smartphones on anything is difficult primarily because there is no standard definition for a Smartphone. The term is used to describe a general class of handset capable of running an operating system and/or applications but it does not specific even a minimum hardware or software configuration. Not surprisingly, different OEMs use different criteria to define a Smartphone to the point where it is no longer obvious from features and performance what is and what is not considered smart. A good example of this is Nokia, which defines any model with a Symbian, Windows or Meego operating system as a Smartphone, and any model with Series 30 or Series 40 software as a feature phone. This means the quarterly data Nokia provides on unit sales and ASP for its Smartphone business does not include the Asha 300 because it runs Series 40 and is therefore considered a feature phone, even though it has a QWERTY keyboard, touch screen, 1GHz application processor, four bands of EDGE, four bands of WCDMA and can run the Angry Birds application.

Endnotes



Phone Asha 300 5230

QWERTY

Touch

Apps

1 GHz AP

3G Only

Smartphone

Phone Asha 300 5230

QWERTY

Touch

Apps

1 GHz AP

3G Only

Smartphone

“Who you calling dumb?”

Smart

5230

Feature

Asha 300

Meanwhile the 5230, which has none of these capabilities, sells for much less and is available in a 2G only model, is considered a Smartphone phone because it runs Symbian. This causes confusion and makes it difficult to accurately measure the impact of Smartphones on RF TAM. Even more problematic are the plethora of published forecasts which, given the arbitrary and sometimes conflicting definition for Smartphones, are not directly comparable. To overcome these difficulties we segregate models by the OEMs’ own definition of Smartphone, analyze the RF configuration of those handsets, multiply them by total Smartphone sales for that OEM and sum that across all manufacturers to derive Smartphones’ total contribution to RF TAM. To project growth, we use the most common RF configuration for the Smartphones of each OEM rather than blend the different definitions into some mutant hybrid that has no direct corollary to specific RF content. 10 Perhaps the best example is iPhone 4S which at $6.50 in content and 34M in first quarter sales, single handedly accounted for about 5% ($221M) of the RF TAM in 2011. 11 Even without a model-to-model increase in content, Apple’s move to LTE will cause significant growth in both average content and unit sales in 4G while undercutting WCDMA.

RF Content (by

Air Interface)

$0

$2

$4

$6

$8

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($B

)

LTE

WCDMA

CDMA

GSM

e e e

RF Content(by Air Interface)

4G iPhone 5 boosts LTE, undercuts WCDMA

By adding LTE to iPhone 5, Apple’s new phone will be classified as a 4G handset. This means the phone is no longer counted in the tally for WCDMA which will cause growth to slow significantly in 3G in 2012. The opposite is true for LTE but to a much larger extent because iPhone 5 will probably account for a vastly larger share of LTE sales than iPhone 4S did of WCDMA. Combined with industry high content, this will yield a steep increase all metrics for LTE in 2012. 12 2G only phones that are not migrated to 3G are destined to undergo further content reduction as the industry moves from quad-band EDGE to tri-band and asymmetrical EDGE architectures. Because most users download vastly more data than they upload, data use in mobile phones is heavily asymmetrical. Carriers can exploit this to lower phone costs by moving to an RF architecture that uses GPRS for the uplink and EDGE for the downlink. Because the most expensive component in the radio section is usually the power amplifier, relaxing the data rate from EDGE to GPRS reduces cost with little or no impact to the user experience. A similar approach can be used with WCDMA for very low cost 3G phones. Referred to as WGRPS, this version of the asymmetrical architecture receives WCMDA but transmits GRPS. 13 Statista. “GSM technology holds a 76 percent share of the global mobile market in the second (half) of 2011.” Statistics. Mar. 2012 <http://www.statista.com/statistics/206604/global-wireless-subscription-growth-by-technology-since-2010/ > 14 Ericsson’s Fourth Quarter and Full Year Report, January 25, 2012, page 9 states, “The number of subscribers/users is likely

around 4.1 billion, representing 60% of the world’s population. Around 75% of the subscriptions, or 4.5 billion, are GSM while



only 15% are WCDMA/HSPA subscriptions.” With many subscribers using multiple SIM cards for the same phone to reduce roaming charges, there are more subscribers than handsets. To estimate the total number of GSM only handsets in use, we apply the 75% rate of GSM subscriptions to the 4.1B uses to get 3.1B GSM phones. 15 We are forecasting an average of 1.5 bands of WCDMA in low-end 3G phones. Given 3G filter and amplifier costs for one band of WCDMA run $0.75 - $1.35, and average 2G content is $1.38, content for these low-end 3G phones (which include 2G and 3G components) will be $2.95 = ($3.48 + $2.43)/2 multiplied by 3.1B users of GSM only phones in 2011. 16 Growth in WCDMA would be even stronger were it not for LTE pulling users out of 3G to 4G. 17 LTE will reduce the number of WCDMA Smartphones added each year beginning in 2012 because adding LTE reclassifies these phones as 4G. This will occur en masse in 2013, but won’t completely offset growth in WCDMA because Nokia, Samsung and RIM will be converting many of their 2G models to low-end 3G Smartphones. That will prevent a complete collapse in 3G Smartphone growth as LTE takes over. Understanding this dynamic is important because several early reports on RF TAM erroneously list Smartphone and LTE as separate trends when in fact, every LTE phone offered last year was also a Smartphone. Because the categories are not mutually exclusive, counting them separately is counting them twice. This is best illustrates by iPhone. RF TAM forecasts using the Smartphone/LTE approach count iPhone as a Smartphone as they should. But when LTE enabled iPhone 5 is released in 2012 it will have to be moved from the Smartphone category to LTE. Not doing so will significantly undercount LTE phones given iPhone 5 will probably out sell all other LTE models combined. But moving iPhone 5 to the LTE bucket will yield a big decline in Smartphone growth in 2012 given Apple accounts for than 25% of that market. Because Smartphone and LTE are not mutually exclusive, they don’t work as separate categories. To accurately characterize trends with multiple sources of growth, the variables used must be mutual exclusive. Smartphones and LTE are not, neither are feature phones and WCDMA because there are many feature phones that operate on WCDMA. In general the categories used to describe RF TAM should share a common technical factor which is why our forecasts use three different sets of categories;

1) Air Interface (GSM, CDMA, WCDMA, LTE) 2) Cellular Generation (2G, 3G, 4G) 3) Model type (Smartphone, Feature phone)

Because each of these groups uses mutually exclusive criteria, the same results for RF TAM can be illustrated using each set without redundancies of discrepancies. 18 To be consistent we count quad-band EDGE as four bands. This makes a common 3G phone seven bands: three WCDMA and quad-band EDGE. Because it is a commoditized, single-packaged part, most suppliers count quad-band EDGE as a single band even though it actually supports four. This is why RF Micro Devices’ description of the target market for its converged amplifier (Power Smart) is four bands: 3 WCDMA + 1 quad-band EDGE. Using our methodology, this would be seven bands. 19 There are three flavors of high-density RF amplifiers: converged, hybrid and dual-band PAD. Hybrids and dual-band PADs combined multiple amplifiers in a single package. Like buying in bulk, they are more expensive than individual PAs but yield a lower cost per amplifier. They are also larger than a single amplifier but smaller on a per part basis and once installed cannot be altered or expanded. Dual-band PADs can be used in phones with as few as two bands giving them the lowest break-even against discrete architectures. They are also priced just below the cost of two single band-PADs so content compression is relatively benign. Because they include filters, PADs are the least flexible of the high-density devices. Converged amplifiers are different because they can be reprogrammed after installation to change or add bands. They are also more complex and expensive than the other solutions so the break even against a discrete architecture is greater. The big advantage of converged solutions is their flexibility. Because they can support a higher number and variety of bands, size and cost per band is much lower. This makes them particularly attractive in high-content Smartphones but leads to significant content compression. Hybrids are a compromise between dual-band PADs and converged. 20 Spending on filters will continue to increase because neither SAW nor BAW can be “integrated” like RF amplifiers. Every band will require a discrete filter irrespective of the amplifier configuration employed. 21 Apple employed a six band hybrid from Avago in the iPhone 4S but appears to be moving back to PADs, albeit dual-band devices, in the iPhone 5. We believe this will reverse some of the RF content compression we saw going from the iPhone 4 (~$9.00 in RF content) to the iPhone 4S (~$6.50 in RF content) because the compression with dual-band PADs isn’t as severe as with hybrid or converged amplifiers. 22 Content compression from a converged architectures like RF Micro Device’s Power Smart is more acute than from hybrid amplifiers such as Avago’s ACPM-7081. The latest version of Power Smart announced at MWC ’12, can handle 12 bands for about $3.00 and displaces $4 - $5 in GaAs amplifiers. Avago’s ACPM-7081, the hybrid amplifier used in the iPhone 4S, costs about $1.80 and displaces three amplifiers worth about $2.00. Dual-band PADs, which have yet to reach production will be priced slightly lower than two individual PADs which puts them in the $1.25 - $2.00 range. 23 An industry term used to refer to a standardized 3mm x 3mm package used for 3G power amplifiers by every RF semiconductor manufacturer. It is currently the smallest standard package used by OEMs and a staple of most suppliers catalogue parts. 24 Includes all iPad and iPhone models available in 2011. 25 Commonly referred to as quad-band EDGE, this was the most common RF amplifier used in phones in 2011. It not only powered 2G phones, it was also included for voice operation in virtually every WCDMA and LTE handset. It is used so often that semi manufacturers consolidated all four amplifiers into a single GaAs die and often refer to it as a single band or “the



voice channels” even though technically it is four separate bands. The GSM standard requires all GSM/EDGE amplifiers to provide a feedback signal to the baseband in order to control the output signal. Accomplishing this requires an additional chip mounted on the same substrate as the GaAs power amplifier. This is usually a silicon device that RF semiconductor manufacturers source from a third party which increases the cost of what normally would be a $0.45 power amplifier to about $0.80. Adding the requisite transmit/receive switch to form a transmit module adds another $0.40 for a total of about $1.20. 26 Because it is a half-duplex system, GSM requires a ‘talk/listen” switch rather than a duplex filter of the type required in all CDMA systems. 27 Transmit Module. A GaAs amplifier die mounted on a substrate with discrete matching components and an RF switch. 28 Power Amplifier Module. A GaAs amplifier die mounted on a small substrate with discrete matching components. 29 The CDMA, WCDMA, EVDO and LTE standards operate in full-duplex mode which, like a normal land-line phone, enables the user to talk and listen at the same time. Accomplishing this requires the transmitter to broadcast while the receiver is listening which can only be done if filters are used to prevent the relatively high powered transmit signal from interfering with the relatively weak signal coming into the receiver. The typical WCDMA architecture employs a PAM ($0.45) plus a discrete SAW or BAW filter which can cost anywhere from $0.25 to $0.90 depending on the band. An alternative approach is to use a PAD, the typical cost of which is about $0.80 for anything but a band 2 model which is closer to $1.40. 30 Power amplifier modules used for WCDMA are not as expensive as those for EDGE because the WCDMA standard does not require the complex feedback system used in EDGE. EDGE PAMs require an extra chip (usually silicon) in addition the GaAs amplifier, to handle the feedback signal. This increases the size and cost of EDGE PAMs over those for WCDMA. 31 Includes models like iPhone 4 ($9.00) and iPhone 4S ($6.50) ------------------------------------------------------------------------------------------------------------------------------------------------------------------

Analyst Certification The analyst who is primarily responsible for this research and whose name is listed first on the front cover certifies that: (1) all of the views expressed in this research accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or view expressed by the research analyst in this research.. Analyst Stock Ratings

Strong Buy – Expected to outperform the market by 15 or more percentage points. Buy – Expected to outperform the market by 5-15 percentage points. Market Perform – Expected to perform in line with the market, plus or minus 5 percentage points. Market Underperform – Expected to under perform the market by 5-15 percentage points.

Rating Count Percent

Strong Buy 1 8%

Buy 2 17%

Market Perform 7 58%

Market Underperform 2 17%

Distribution of Ratings: Charter Equity Research, Inc.

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 Charter Equity Research to be reliable, but Charter Equity Research does not represent that this information is accurate or complete. Any opinions or estimates contained in this report represent the judgment of Charter Equity Research at this time and are subject to change without notice. Charter Equity Research or its affiliates may from time to time provide advice with respect to, acquire, hold or sell a position in, the securities or instruments named or described in this report. Copyright 2012 Charter Equity Research, Inc. All rights reserved. This report is a publication of Charter Equity Research located at 1433 Jefferson Street, San Francisco, CA 94123. Charter Equity Research does not have investment banking relationships with any of the companies mentioned in this report and does not conduct investment banking business, in general. Charter Equity Research and its employees do not receive compensation of any kind from any of the companies in this report. Charter Equity Research and its employees maintain a financial position in the securities mentioned in this report. The information contained herein was prepared by Charter Equity Research, which is solely responsible for the contents of this report. Although Edward Snyder, Julie Fleischer are registered representatives of Lamon & Stern, Inc. (“L & S”), neither L & S nor any of its principals, officers, affiliates, agents or employees is in any way responsible for the contents of this message. Lamon & Stern has trading relationships with Knight, Pershing and Sanders, Morris & Harris. For further information, please contact Mike Stern at (770) 951-8411.

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