semiconductors beneficiaries outperforming … semis flat on 6% cuts - moore stress beneficiaries...
TRANSCRIPT
INDUSTRY NOTE
USA | Technology
Semiconductors October 29, 2012
SemiconductorsWeekly: Semis Flat on 6% Cuts - Moore StressBeneficiaries Outperforming
EQU
ITY R
ESEARC
H A
MERIC
AS
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 TakeawayData from 37 semiconductor earnings reports shows that at the median, semislowered 4Q revenue expectations by 6%, but stock prices remained flat theday after reporting, and also since reporting. Stocks we identified as MooreStress beneficiaries appreciated since reporting (MXIM, TXN, NXPI), LSCC, whilestocks we think challenged by Moore Stress declined (ALTR, XLNX).
Semis Staying Flat on Cuts: Of the 37 semiconductor companies that have reported sofar, 31 have lowered 4Q revenue expectations. At the median, 4Q revenue expectationshave been cut by 6%, but semi stocks remained flat the day after reporting, as well as sincereporting. We think this means bad news is baked in, but there is little optimism for animminent turnaround.
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.
Moore Stress Beneficiaries Outperforming: Stocks we identified as Moore Stressbeneficiaries appreciated since reporting 3Q12 results - MXIM, TXN, NXPI and LSCCappreciated by 5%, 4%, 15% and 8%. Conversely, stocks we identified as being challengedby Moore Stress declined - ALTR and XLNX have declined by 3% and 7%. We remain buyersof Moore Stress beneficiaries MXIM, TXN, NXPI, LSCC, and AVGO.
Moore Stress Related Notes:10/24/2012: Takeaways from "Moore Stress" Conf Call w/ Dr. Handel Jones10/11/2012: 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 11 to 14 of this report.
Semis Flat On Cuts Chart 1 shows a list of 37 semiconductor companies that have reported 3Q earnings, as
well as how much they lowered 4Q revenue expectations, and how the stocks performed
one day after reporting, and since reporting as of last Friday. At the median,
semiconductor stocks lowered 4Q revenue expectations by 600 bps, and stayed flat the
day after reporting, and also flat as of last Friday (10/26/2012).
Chart 1: 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
RFMD 10/23/12 12% 11% 11%
SLAB 10/24/12 4% -2% -1%
TQNT 10/24/12 1% -13% -13%
AMCC 10/25/12 1% 25% 26%
EXAR 10/24/12 1% 8% 9%
SNDK 10/18/12 0% 3% -1%
HITT 10/25/12 -1% 1% 0%
CREE 10/17/12 -1% 0% 3%
INTC 10/16/12 -1% -3% -2%
ENTR 10/24/12 -1% -12% -20%
MXIM 10/25/12 -2% 5% 5%
POWI 10/25/12 -2% 6% 5%
STM 10/23/12 -3% 4% 0%
FSL 10/25/12 -3% 2% 3%
LSCC 10/18/12 -4% 5% 8%
BRCM 10/23/12 -4% -3% -5%
CY 10/18/12 -6% -4% -2%
MLNX 10/17/12 -6% -21% -25%
NXPI 10/25/12 -6% 15% 15%
XLNX 10/17/12 -6% -1% -3%
AMKR 10/25/12 -6% -2% -2%
MCRL 10/25/12 -8% 2% 1%
ALTR 10/23/12 -8% -8% -7%
TXN 10/22/12 -8% 0% 4%
LRCX 10/17/12 -8% 7% 5%
LLTC 10/16/12 -8% -1% -3%
CODE 10/25/12 -10% 1% 2%
ISIL 10/24/12 -10% 8% 8%
INVN 10/23/12 -10% -7% -11%
FCS 10/18/12 -11% -5% -4%
GSIT 10/25/12 -11% -5% -5%
AMD 10/18/12 -12% -17% -21%
ASML 10/17/12 -13% 1% 8%
VLTR 10/22/12 -14% 2% 2%
MKSI 10/24/12 -15% -3% -1%
KLAC 10/25/12 -16% 0% -1%
TER 10/24/12 -28% 8% 6%
Median -6% 0% 0%
Chart 1 shows 37 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.
page 2 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Chart 5: Semis NTM Earnings Forecast vs. Relative Performance
Source: Jefferies and Capital IQ
Chart 6: SOX vs. NDX/SOX
Source: Jefferies and Capital IQ
-7
-2
3
8
13
18
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
Oct
-01
Oct
-02
Oct
-03
Oct
-04
Oct
-05
Oct
-06
Oct
-07
Oct
-08
Oct
-09
Oct
-10
Oct
-11
Oct
-12
Se
mis
NT
M E
arn
ing
s F
ore
ca
st E
x-I
NT
C (
$,b
n)
SO
X/
SP
X (
Re
lati
ve
Pe
rfo
rma
nce
)
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
Cuts started
May '12
-800
-300
200
700
1200
2
4
6
8
10
12
14
Oct-
99
Oct-
00
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
Oct-
11
Oct-
12
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
The SOX underperformed the SPX by
210bps over the past week, and
underperformed by 340 bps over the
past four weeks.
Semis outperforming once estimate
cuts start is consistent with historical
stock behavior. Semiconductor
stocks typically underperform 3-4
months in front of estimate cuts, and
outperform shortly after consensus
starts cutting estimates.
Semis have underperformed
materially over the past 4 months,
we think in anticipation of the cuts
that are happening now.
page 3 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Chart 7: Relative SOX/SPX Values in 2004 and 2012
Source: Capital IQ, Jefferies
Chart 8: Relative SOX/SPX Values in 2008 and 2012
Source: Capital IQ, Jefferies
Chart 9: Relative SOX/SPX Values in 2006 and 2012
Source: Capital IQ , Jefferies
Chart 10: Relative SOX/SPX Values in 2010 and 2012
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
-Fe
b-1
2
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
-Se
p-1
2
25
-Oct
-12
25
-No
v-1
2
25
-De
c-1
2
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
-Se
p-0
8
17
-Oct
-08
17
-No
v-0
8
17
-De
c-0
8
17
-Ja
n-0
9
17
-Fe
b-0
9
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
Ind
exe
d o
n 7
/17/
12
SOX
/SP
X V
alu
es
Ind
exe
d o
n 1
2/8
/08
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
-Mar
-12
26
-Ap
r-1
2
26
-May
-12
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
-May
-10
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)
page 4 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Semis Discounting a Worse than Average Trough – But Not an ’08-Style Financial Crisis 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 50% of our coverage universe is discounting
something worse that the average trough over the past decade.
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 ONNN, 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 11: EV/Sales (trailing) Current vs. Avg at Past Decade Troughs
Source: Capital IQ, Jefferies
Chart 12: EV/Sales (trailing) Current vs. ‘08 Financial Crisis Trough
Source: Capital IQ , Jefferies
NM
NM
45
%
42
%
40
%
40
%
34
%
33
%
32
%
28
%
26
%
3%
-4%
-4%
-5%
-10
%
-11
%
-20
%
-22
%
-24
%
-30
%
-58
%
-64
%
-75
%
-100%
-50%
0%
50%
100%
BC
DS
MTS
I
AD
I
NX
PI
SND
K
AV
GO
XLN
X
TXN
ALT
R
CA
VM
MX
IM
LLTC
INTC
LSC
C
BR
CM
NV
DA
PM
CS
MC
HP
EZC
H
MU
ON
NN
AM
D
IPH
I
MR
VL
EV/S
vs.
Avg
EV
/S a
t C
ycle
Tro
ugh
s
50% 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
18
7%
17
1%
12
7%
11
5%
11
4%
10
8%
85
%
76
%
58
%
36
%
35
%
22
%
13
%
-2%
-7%
-10
%
-17
%
-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
MU
EZC
H
MR
VL
AM
D
EV/S
, C
urr
en
t vs
@ 2
00
8 T
rou
gh
21% near or below EV/S at the financial crisis('08) trough including ONNN, AMD, MU, MRVL and EZCH
page 5 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Chart 13: 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 18.1 16.2 3.1 3.2 3.2 3.9 2.8 1.4 2.4 1.4 2.2 127% 127% 45%
ALTR 16.9 16.7 3.0 4.0 3.3 4.8 3.4 2.5 3.1 2.5 3.0 58% 58% 32%
AMD NM NM 4.6 0.4 0.5 1.2 1.2 0.8 0.7 0.5 0.9 -25% -53% -58%
AVGO 15.1 11.5 5.0 3.1 2.2 2.2 2.2 40% NM 40%
BCDS NM 7.8 0.6 0.2 NM NM NM NM NM
BRCM 24.8 11.1 9.5 2.3 2.4 3.2 3.5 1.1 2.6 1.1 2.4 108% 108% -5%
CAVM NM 46.5 11.4 6.5 3.5 6.6 3.5 5.1 85% 85% 28%
EZCH NM NA 5.5 11.8 11.2 21.8 27.6 13.1 5.0 5.0 15.2 136% -10% -22%
INTC 9.5 10.9 3.3 2.0 3.1 3.4 2.4 1.6 2.1 1.6 2.0 22% 22% -4%
IPHI NM NM 1.6 1.5 4.3 4.3 4.3 -64% NM -64%
LLTC 18.7 17.8 9.2 5.4 9.5 10.7 6.3 4.0 5.4 4.0 5.2 35% 35% 3%
LSCC 23.3 19.1 1.4 0.9 1.9 1.4 1.8 0.3 0.6 0.3 0.9 187% 187% -4%
MCHP 20.3 15.6 3.4 3.5 5.3 6.0 6.2 3.1 3.9 3.1 4.4 13% 13% -20%
MRVL 9.9 10.1 1.7 0.7 3.8 5.3 4.9 0.8 2.3 0.8 2.7 -17% -17% -75%
MTSI 5.1 12.8 3.6 1.5 3.4 NM NM NM NM
MU NM NM 0.7 0.9 2.0 1.5 1.6 0.9 1.0 0.9 1.2 -7% -7% -24%
MXIM 22.7 14.4 4.2 3.0 6.2 7.8 3.9 1.1 2.1 1.1 2.4 171% 171% 26%
NVDA 16.0 9.2 2.2 1.1 0.4 0.5 2.1 0.5 1.0 0.4 1.2 169% 115% -10%
NXPI NM 9.7 NM 2.1 1.5 1.5 1.5 42% NM 42%
ONNN NM 10.0 2.8 1.0 1.2 1.5 1.8 1.0 1.4 1.0 1.4 -2% -2% -30%
PMCS NM 11.8 4.1 1.5 1.6 3.6 1.8 1.1 2.1 1.1 1.7 36% 36% -11%
SNDK 21.5 13.9 1.5 1.8 1.1 1.2 2.2 0.3 1.4 0.3 1.3 510% 510% 40%
TXN 18.5 17.7 7.7 2.6 3.1 2.5 2.5 1.2 2.1 1.2 1.9 114% 114% 33%
XLNX 17.6 17.9 3.1 3.5 4.5 5.5 3.2 2.0 2.7 2.0 2.6 76% 76% 34%
Median 18.1 13.4 3.3 2.0 3.1 3.5 2.7 1.1 2.2 1.4 2.2 50% 58% -4%
Average 17.2 15.0 4.0 2.7 3.6 4.8 4.4 2.1 2.6 1.9 3.0 82% 26% -10%
EV/S at Stock Trough
Min
EV/S
page 6 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Chart 14: WTD Stock Performance
Source: Capital IQ, Jefferies
Chart 15: QTD Stock Performance
Source: Capital IQ, Jefferies
Chart 16: YTD Stock Performance
Source: Capital IQ, Jefferies
Chart 17: 2011-12 Stock Performance
Source: Capital IQ, Jefferies
8%6%
5%3%
3% 2%2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1%
0%0%
-1%
-1%
-4%
-5%
-5%
-5%
-6%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%N
XP
IM
TSI
MX
IMIN
TCTX
NLS
CC
MR
VL
AV
GO
EZC
HIP
HI
AD
IM
CH
PO
NN
NLL
TC MU
PM
CS
BC
DS
^so
xN
VD
AX
LNX
^sp
xSN
DK
BR
CM
AM
DC
AV
MA
LTR
WTD
Sto
ck P
erfo
rman
ce
16%
9% 7%4% 4% 3%
1% 1%0%
-2%
-4%
-5%
-6%
-6%
-8%
-8%
-10%
-13%
-13%
-14%
-17%
-20%
-20%
-32%
-33%
-64%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
SND
KM
XIM
CAV
M^s
px AD
IN
XPI
LSCC
LLTC
TXN
XLN
XM
CHP
^sox
AV
GO
BR
CM IPH
IB
CDS
ALT
RN
VD
AM
UO
NN
NIN
TCPM
CSEZ
CHM
RV
LM
TSI
AM
D
QTD
Sto
ck P
erfo
rman
ce
56%
17%
13%
13%
9% 8% 7% 5% 5% 2% 0%0% -2%
-9%
-11%
-13%
-13%
-13%
-14%
-18%
-21%
-27%
-35%
-36%
-44%
-62%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
NX
PI
AV
GO
EZCH
^sp
x
AD
I
BR
CM
MX
IM
CAV
M
LLTC
XLN
X
^so
x
BCD
S
TXN
INTC
PM
CS MU
NV
DA
MCH
P
SND
K
ALT
R
ON
NN
IPH
I
MTS
I
LSCC
MR
VL
AM
D
YTD
Sto
ck P
erfo
rman
ce
71%
19%
18%
14%
13%
13%
5% 4%-7
%-9
%-1
1%-1
2%-1
5%-1
5%-2
0%-2
2%-2
7%-2
7%-3
1%-3
5%-3
8%-3
8%-4
3%-5
8%-6
2%-7
5%
-100%
-50%
0%
50%
100%
NXP
I
AV
GO
MXI
M
EZCH
XLN
X
^spx
INTC AD
I
MCH
P
LLTC
^sox
TXN
ALT
R
SND
K
CAV
M
NV
DA
IPH
I
BRCM M
U
MTS
I
LSCC
ON
NN
PMCS
MRV
L
BCD
S
AM
D
2011
-201
2 St
ock
Perf
orm
ance
page 7 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Chart 18: P/E TTM
Source: Capital IQ, Jefferies
Chart 19: P/E NTM
Source: Capital IQ , Jefferies
Chart 20: P/Tangible BV
Source: Capital IQ, Jefferies
Chart 21: EV/Sales TTM
Source: Capital IQ, Jefferies
NM
NM
NM
NM
NM
NM
NM
NM
NM
25
23
23
21
20
19
18
18
18
17
16
15
10
9
5
0
5
10
15
20
25
30
AM
D
BC
DS
CA
VM
EZC
H
IPH
I
MU
NX
PI
ON
NN
PM
CS
BR
CM
LSC
C
MX
IM
SND
K
MC
HP
LLTC
TXN
AD
I
XLN
X
ALT
R
NV
DA
AV
GO
MR
VL
INTC
MTS
I
P/E
TTM
NM
NM
0 0
46
19
18
18
18
17
16
16
14
14
13
12
11
11
11
10
10
10
9
8
0
5
10
15
20
25
30
35
40
45
50
AM
D
IPH
I
MU
EZC
H
CA
VM
LSC
C
XLN
X
LLTC
TXN
ALT
R
AD
I
MC
HP
MX
IM
SND
K
MTS
I
PM
CS
AV
GO
BR
CM
INTC
MR
VL
ON
NN
NX
PI
NV
DA
BC
DS
P/E
NTM
NM
11
.4
9.5
9.2
7.7
5.5
5.0
4.6
4.2
4.1
3.6
3.4
3.3
3.1
3.1
3.0
2.8
2.2
1.7
1.6
1.5
1.4
0.7
0.6
0
2
4
6
8
10
12
14
NX
PI
CA
VM
BR
CM
LLTC
TXN
EZC
H
AV
GO
AM
D
MX
IM
PM
CS
MTS
I
MC
HP
INTC AD
I
XLN
X
ALT
R
ON
NN
NV
DA
MR
VL
IPH
I
SND
K
LSC
C
MU
BC
DS
P/Ta
ngi
ble
BV
11.8
6.5
5.4
4.2
3.5
3.5
3.2
3.1
3.0
2.6
2.3
2.1
2.0
1.8
1.5
1.5
1.5
1.1
1.0
0.9
0.9
0.7
0.4
0.2
0
2
4
6
8
10
12
14
EZCH
CAV
M
LLTC
ALT
R
XLN
X
MCH
P
AD
I
AV
GO
MX
IM
TXN
BR
CM
NX
PI
INTC
SND
K
MTS
I
IPH
I
PMCS
NV
DA
ON
NN
MU
LSCC
MR
VL
AM
D
BCD
S
EV/S
ales
TTM
page 8 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Chart 22: EV/FCF (2012)
Source: Capital IQ, Jefferies
Chart 23: Dividend Yield (%)
Source: Capital IQ Jefferies
Chart 24: 2012 FCF Yield (%)
Source: Capital IQ Jefferies
Chart 25: Net Cash/Share
Source: Capital IQ Jefferies
NM
NM
NM
NM
NM
NM
36
34
16
16
16
14
14
14
12
12
12
11
11
11
10
10
9
4
0
5
10
15
20
25
30
35
40
BC
DS
CA
VM
EZ
CH
LS
CC
PM
CS
SN
DK
IPH
I
AM
D
NX
PI
INT
C
AV
GO
AD
I
MX
IM
LL
TC
TX
N
XL
NX
AL
TR
ON
NN
MT
SI
MU
BR
CM
MC
HP
NV
DA
MR
VL
EV
/FC
F 2
012
4.4
%
4.1
%
3.5
%
3.2
%
3.1
%
3.1
%
2.7
%
2.4
%
1.8
%
1.3
%
1.3
%
0%
1%
2%
3%
4%
5%
MC
HP
INT
C
MX
IM
LL
TC
MR
VL
AD
I
XL
NX
TX
N
MU
AL
TR
BR
CM
Div
iden
d Y
ield
(%
)
13%
11
%
10
%
9%
9%
9%
8%
8%
8%
7%
7%
6%
6%
6%
6%
5%
4%
2%
1%
1%
0%
0%
5%
10%
15%
MR
VL
MU
ON
NN
BR
CM
NX
PI
TX
N
MC
HP
MT
SI
XL
NX
LL
TC
MX
IM
AL
TR
NV
DA
INT
C
AV
GO
AD
I
AM
D
CA
VM
IPH
I
EZ
CH
BC
DS
SN
DK
PM
CS
LS
CC
2012 F
CF
Yie
ld (
%)
$9.5
$7.9
$6.4
$5.2$5.2$4.4
$3.9$3.8$3.7$2.9
$2.2$2.1$2.1$1.6$1.6$0.8$0.6$0.6$0.5
-$0.7-$0.7-$1.0-$1.8
-$11.4
-$15
-$10
-$5
$0
$5
$10
AD
I
AL
TR
MC
HP
NV
DA
EZ
CH
IPH
I
AV
GO
SN
DK
MR
VL
XL
NX
LL
TC
BC
DS
MX
IM
MT
SI
LS
CC
BR
CM
INT
C
CA
VM
PM
CS
ON
NN
MU
AM
D
TX
N
NX
PI
Net
Cash
Per
Sh
are
($)
page 9 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
Chart 26: Semi Valuation Table
Source: Jefferies, company data, Capital IQ
Price Market EV/S EV/FCF
26-Oct-12 Cap 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E 2012
Large Cap*
ADI 39.04 $11,921 Hold $44.0 $1.24 $2.59 $2.22 $2.59 $2,141 $2,887 $2,751 $2,992 31 15 3.2 5% 7% 14
ALTR 30.40 $9,836 Hold $36.0 $1.74 $1.82 $1.74 $1.92 $1,799 $1,969 $1,799 $2,013 17 17 4.0 6% 16% 12
AMD 2.07 $1,542 Buy $5.0 -$0.04 -$0.02 -$0.21 -$0.24 $5,409 $4,813 $5,422 $4,868 -47 -101 0.4 4% -12% 34
AVGO 33.83 $8,458 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 31.76 $18,389 Buy $40.0 $2.89 $2.93 $2.88 $2.96 $7,992 $8,861 $7,975 $8,705 11 11 2.3 9% 11% 10
INTC 21.95 $113,108 Hold $24.0 $2.20 $2.17 $2.21 $2.14 $53,464 $54,647 $53,443 $54,704 10 10 2.0 6% 9% 16
LLTC 31.58 $7,453 Hold $35.0 $1.79 $1.93 $1.75 $1.85 $1,288 $1,357 $1,288 $1,358 18 16 5.4 7% 7% 14
MCHP 31.73 $6,463 Buy $38.0 $1.89 $2.27 $1.91 $2.17 $1,519 $1,809 $1,528 $1,823 17 14 3.5 8% 8% 10
MRVL 7.76 $4,423 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 12.30 $581 Buy $21.0 $0.14 $0.18 $0.96 $1.16 $302 $322 $304 $326 86 70 1.5 8% 8% 11
MXIM 27.77 $8,297 Buy $33.0 $1.66 $1.99 $1.68 $1.92 $2,409 $2,593 $2,421 $2,631 17 14 3.0 7% 8% 14
NVDA 12.05 $7,509 Hold $16.0 $1.15 $1.28 $1.13 $1.28 $4,415 $4,594 $4,368 $4,740 10 9 1.1 6% 10% 9
NXPI 24.02 $6,079 Buy $28.0 $1.62 $2.44 $1.71 $2.58 $4,334 $4,602 $4,336 $4,731 15 10 2.1 9% 13% 16
ONNN 6.15 $2,814 Buy $9.0 $0.57 $0.87 $0.55 $0.76 $2,979 $3,186 $2,979 $3,128 11 7 1.0 10% 15% 11
TXN 28.92 $32,998 Buy $33.0 $1.84 $2.05 $1.64 $1.74 $12,796 $13,103 $12,780 $12,762 16 14 2.6 9% 8% 12
XLNX 32.83 $8,873 Hold $36.0 $1.79 $1.96 $1.79 $1.96 $2,213 $2,266 $2,213 $2,302 18 17 3.5 8% 7% 12
Small-Mid Cap & Memory **
BCDS 3.97 $73 Buy $8.0 $0.32 $0.42 $0.45 $0.63 $144 $168 $143 $157 12 9 0.2 0% 21% NM
CAVM 29.90 $1,485 Buy $37.0 $0.34 $1.00 $0.35 $0.99 $233 $314 $234 $309 88 30 6.5 2% 2% NM
EZCH 32.12 $926 Hold $33.0 $0.77 $0.86 $0.78 $1.27 $51 $61 $51 $75 42 37 11.8 1% 2% NM
IPHI 8.78 $249 Buy $16.0 $0.24 $0.59 $0.23 $0.53 $96 $131 $96 $123 36 15 1.5 1% 6% 36
LSCC 3.79 $443 Buy $5.0 -$0.01 $0.30 -$0.04 $0.24 $284 $308 $284 $308 -720 12 0.9 -7% 7% NM
MU 5.47 $5,542 Buy $10.0 -$1.11 $0.11 -$0.24 $0.55 $8,056 $9,410 $8,212 $9,052 NM 50 0.9 11% 3% 11
PMCS 4.89 $1,098 Hold $6.5 $0.37 $0.50 $0.35 $0.48 $553 $602 $547 $595 13 10 1.5 0% 0% NM
SNDK 42.23 $10,313 Buy $51.0 $2.02 $3.38 $2.02 $3.40 $5,011 $6,290 $5,042 $5,983 21 13 1.8 0% 8% NM
Median 16 13 2.0 6% 8% 12 Average -11 13 2.7 5% 8% 14 Total $122,331 $129,223 $123,770 $129,606* Mark Lipacis
** Sundeep Bajikar
Street Revenues P/E FCF YieldTicker Rating PT
JEF EPS JEF RevenuesStreet EPS
page 10 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 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 11 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
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: $2.07, BUY)• Altera Corp (ALTR: $30.40, HOLD)• Audika (ADI FP: €9.25, BUY)• Avago Technologies (AVGO: $33.83, BUY)• BCD Semiconductor Manufacturing Ltd. (BCDS: $3.98, BUY)• Broadcom Corporation (BRCM: $31.76, BUY)• Cavium Inc. (CAVM: $29.90, BUY)• EZchip Semiconductor Ltd. (EZCH: $32.12, HOLD)• Inphi Corporation (IPHI: $8.78, BUY)• Intel Corporation (INTC: $21.95, HOLD)• Lattice Semiconductor Corporation (LSCC: $3.79, BUY)• Linear Technology (LLTC: $31.58, HOLD)• M/A-COM Technology Solutions Holdings, Inc. (MTSI: $12.30, BUY)• Marvell Technology Group Ltd. (MRVL: $7.76, HOLD)• Maxim Integrated Products, Inc. (MXIM: $27.77, BUY)• Microchip Technology Inc. (MCHP: $31.73, BUY)• Micron Technology, Inc. (MU: $5.47, BUY)• NVIDIA Corporation (NVDA: $12.05, HOLD)• NXP Semiconductors NV (NXPI: $24.02, BUY)• ON Semiconductor Corporation (ONNN: $6.15, BUY)• PMC-Sierra, Inc. (PMCS: $4.89, HOLD)• SanDisk Corporation (SNDK: $42.23, BUY)• Texas Instruments Incorporated (TXN: $28.92, BUY)• Xilinx Corp (XLNX: $32.83, HOLD)
Distribution of RatingsIB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY 750 47.65% 113 15.07%HOLD 705 44.79% 81 11.49%UNDERPERFORM 119 7.56% 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.
page 12 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
India: Jefferies India Private Limited, which is licensed by the Securities and Exchange Board of India as a Merchant Banker (INM000011443) and a StockBroker with Bombay Stock Exchange Limited (INB011438539) and National Stock Exchange of India Limited (INB231438533) in the Capital MarketSegment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-Kurla Complex, Bandra (East) Mumbai 400 051, India; Tel +91 22 4356 6000.
This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. The information setforth herein was obtained from sources believed to be reliable, but has not been independently verified by Jefferies. Therefore, except for any obligationunder applicable rules we do not guarantee its accuracy. Additional and supporting information is available upon request. Unless prohibited by theprovisions of Regulation S of the U.S. Securities Act of 1933, this material is distributed in the United States ("US"), by Jefferies & Company, Inc.,a US-registered broker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US SecuritiesExchange Act of 1934. Transactions by or on behalf of any US person may only be effected through Jefferies & Company, Inc. In the United Kingdomand European Economic Area this report is issued and/or approved for distribution by Jefferies International Limited and is intended for use onlyby persons who have, or have been assessed as having, suitable professional experience and expertise, or by persons to whom it can be otherwiselawfully distributed. Jefferies International Limited has adopted a conflicts management policy in connection with the preparation and publicationof research, the details of which are available upon request in writing to the Compliance Officer. Jefferies International Limited may allow its analyststo undertake private consultancy work. Jefferies International Limited’s conflicts management policy sets out the arrangements Jefferies InternationalLimited employs to manage any potential conflicts of interest that may arise as a result of such consultancy work. For Canadian investors, this materialis intended for use only by professional or institutional investors. None of the investments or investment services mentioned or described herein isavailable to other persons or to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario). For investors inthe Republic of Singapore, this material is provided by Jefferies Singapore Limited pursuant to Regulation 32C of the Financial Advisers Regulations.The material contained in this document is intended solely for accredited, expert or institutional investors, as defined under the Securities and FuturesAct (Cap. 289 of Singapore). If there are any matters arising from, or in connection with this material, please contact Jefferies Singapore Limited. InJapan this material is issued and distributed by Jefferies (Japan) Limited to institutional investors only. In Hong Kong, this report is issued and approvedby Jefferies Hong Kong Limited and is intended for use only by professional investors as defined in the Hong Kong Securities and Futures Ordinanceand its subsidiary legislation. In the Republic of China (Taiwan), this report should not be distributed. In India this report is made available by JefferiesIndia Private Limited. In Australia this information is issued solely by Jefferies International Limited and is directed solely at wholesale clients withinthe meaning of the Corporations Act 2001 of Australia (the "Act") in connection with their consideration of any investment or investment servicethat is the subject of this document. Any offer or issue that is the subject of this document does not require, and this document is not, a disclosuredocument or product disclosure statement within the meaning of the Act. Jefferies International Limited is authorised and regulated by the FinancialServices Authority under the laws of the United Kingdom, which differ from Australian laws. Jefferies International Limited has obtained relief underAustralian Securities and Investments Commission Class Order 03/1099, which conditionally exempts it from holding an Australian financial serviceslicence under the Act in respect of the provision of certain financial services to wholesale clients. Recipients of this document in any other jurisdictionsshould inform themselves about and observe any applicable legal requirements in relation to the receipt of this document.
This report is not an offer or solicitation of an offer to buy or sell any security or derivative instrument, or to make any investment. Any opinion orestimate constitutes the preparer's best judgment as of the date of preparation, and is subject to change without notice. Jefferies assumes no obligationto maintain or update this report based on subsequent information and events. Jefferies, its associates or affiliates, and its respective officers, directors,and employees may have long or short positions in, or may buy or sell any of the securities, derivative instruments or other investments mentioned ordescribed herein, either as agent or as principal for their own account. Upon request Jefferies may provide specialized research products or servicesto certain customers focusing on the prospects for individual covered stocks as compared to other covered stocks over varying time horizons orunder differing market conditions. While the views expressed in these situations may not always be directionally consistent with the long-term viewsexpressed in the analyst's published research, the analyst has a reasonable basis and any inconsistencies can be reasonably explained. This materialdoes not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individualclients. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate,seek professional advice, including tax advice. The price and value of the investments referred to herein and the income from them may fluctuate. Pastperformance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchangerates could have adverse effects on the value or price of, or income derived from, certain investments. This report has been prepared independently ofany issuer of securities mentioned herein and not in connection with any proposed offering of securities or as agent of any issuer of securities. Noneof Jefferies, any of its affiliates or its research analysts has any authority whatsoever to make any representations or warranty on behalf of the issuer(s).Jefferies policy prohibits research personnel from disclosing a recommendation, investment rating, or investment thesis for review by an issuer priorto the publication of a research report containing such rating, recommendation or investment thesis. Any comments or statements made herein arethose of the author(s) and may differ from the views of Jefferies.
This report may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproductionand distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party contentproviders do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible forany errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party contentproviders give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose oruse. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequentialdamages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs) in connection with any use of their content,including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. Theydo not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice.
Jefferies research reports are disseminated and available primarily electronically, and, in some cases, in printed form. Electronic research issimultaneously available to all clients. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent ofJefferies. Neither Jefferies nor any officer nor employee of Jefferies accepts any liability whatsoever for any direct, indirect or consequential damagesor losses arising from any use of this report or its contents.
For Important Disclosure information, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 1.888.JEFFERIES
page 13 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012
© 2012 Jefferies Group, Inc.
page 14 of 14 , Equity Analyst, (415) 229-1438, [email protected] Lipacis
Please see important disclosure information on pages 11 - 14 of this report.
Technology
Semiconductors
October 29, 2012