Please refer to the important disclosures and analyst certification beginning on page 12 of this document, or on our

website www.macquarie.com.au/disclosures.

GLOBAL

Risk from China protectionism to Macquarie US Semiconductor universe

Source: Company data, Macquarie Capital (USA), December 2013. Stocks ranked in terms of most at risk to least at risk.

Analyst(s) Macquarie Capital (USA) Inc. Deepon Nag +1 212 231 8014 deepon.nag@macquarie.com Macquarie Capital Securities Limited, Taiwan Branch Jeff Su +886 2 2734 7512 jeff.su@macquarie.com Macquarie Capital Securities Limited Danny Chu, CFA +852 3922 4762 danny.chu@macquarie.com

17 December 2013

Semiconductors Rising US/China trade tensions playing out at China Mobile Amid rising signs of US/China regulatory and technological competition, we analyse

which US semiconductor companies are best and worst positioned in China, and the

impact of recent moves at China Mobile, which we view as the first front of a potential

“Technology Trade War”.

Who wins and loses if there’s a US/China “tech trade war”? There are signs of

rising Chinese-US government interventions in the technology space (Cisco/Huawei

difficulties winning bids in China/US, Chinese antitrust investigation against QCOM,

Chinese investment in homegrown tech companies). If a full blown US/China

“Technology Trade War” breaks out, we see the most direct risk to QCOM and BRCM,

although we believe this would impact their long term growth rates more than existing

revenues. We believe that MU and SNDK are the least exposed due to the high

barriers of entry in the memory industry and the lack of Chinese memory suppliers.

While the PLD and analog companies generate significant revenues from China and

US/European infrastructure OEMs, we believe they are well diversified in Chinese

OEMs as well and think local semiconductor competition for those sockets is limited.

Competition heating up in China. Our Asian telecommunications analyst Danny Chu

notes that China Mobile may lower its required cellular modem standards for 4G from

“5 modes+10 frequency bands” to “3 modes+7 frequency bands”. We believe this was

done to allow local manufacturers access to the 4G smartphone market where QCOM

has dominant market share in LTE baseband chips. We do not expect much

competition for the high end of the cellular or connectivity markets from local chip

companies due to their lagging technology, but we do believe it may be more difficult

for QCOM or BRCM to penetrate the low or mid tier of the market.

China Mobile/iPhone deal could be accretive to BRCM/QCOM but not by much. A

number of news sources have indicated that Apple and China Mobile are planning to

announce a partnership on December 18. While we believe a deal would be

incremental to shipments of total iPhones in China, our Asian telco team believes the

volume commitments China Mobile agreed to could be much lower than many

investors expect. We also believe that due to the iPhone’s high price in China (~$850),

demand will be limited and may cannibalize sales of other high end smartphones

where QCOM and BRCM have higher content. As such, we expect little incremental

impact to QCOM or BRCM’s financials from an Apple/China Mobile partnership.

LTE deployment at China Mobile should finally happen in 2014, although we

think it will be gradual. While several semiconductor companies have commented on

rising orders from China Mobile, we believe deployments will be gradual and orders

will be partially offset by slowing 2G/3G investment. Our recent supply chain analysis

indicates lean inventories in the comms food chain, which suggests some restocking if

orders from China Mobile increase. We estimate that the communications businesses

of our most exposed semiconductor companies will have a median growth rate of

roughly 14% YoY in 2014 due to increased carrier spending and inventory restocking.

Still follow the “Silver Linings Playbook” despite China risk. Despite risk of

regulatory and competitive challenges in China, we would follow the “Silver Linings

Playbook” and invest in cloud and connectivity semis over client exposed semis.

Name

QCOM

BRCM

NVDA

XLNX

ALTR

AMD

INTC

MXIM

ADI

LLTC

TXN

MU

SNDK

Macquarie Research Semiconductors

17 December 2013 2

Rising US/China trade tensions playing out at China Mobile

Amid rising signs of US/China regulatory and technological competition, we analyse which US

semiconductor companies are best and worst positioned in China, and the impact of recent moves at

China Mobile, which we view as the first front of a potential “Technology Trade War”.

Who wins and loses if there’s a US/China “tech trade war”?

Cisco recently commented that Chinese service providers were reluctant to use US designed network

equipment due to security concerns in the wake of the NSA surveillance scandal. We note the US has

had similar concerns about Chinese designed network equipment, blocking Huawei from supplying US

networks in 2011. China’s National Development and Reform Commission also recently launched an

investigation into anti-trust behaviour by Qualcomm. Chinese regulators have stated they will focus on

“price-fixing” which could lead to “unreasonably” high consumer prices in six major sectors, including

telecommunications. We note that QCOM’s chipsets and royalties to handsets at both China Unicom and

China Telecom are likely targets.

While US semiconductor companies derive a large portion of their revenues from direct Chinese

customers, we note that systems manufactured in China are often intended for other end markets. As a

result, we don’t believe that direct sales to China is a good gauge of Chinese exposure. We also

estimated the exposure of our companies to China through manufacturing, design, sales and

administrative operations. Most of our companies have less than 10% of their facilities and headcount

located in China. While SNDK has ~27% of its reported PP&E located in China (mostly back end and

testing facilities), we believe this is overstated due to its off balance sheet assets located in Japan as part

of its joint venture with Toshiba.

Fig 1 Risk from China protectionism to Macquarie US Semiconductor universe

Source: Company data, Macquarie Capital (USA), December 2013. Risk ranked from highest on top to lowest on bottom. Data from last reported fiscal year.

We see the most direct risk to QCOM and BRCM from rising protectionism in China, although we believe

this would impact their long term growth rates more than existing revenues. We believe that MU and

SNDK are the least exposed due to the high barriers of entry in the memory industry and the lack of

Chinese memory suppliers. While the PLD and analog companies generate significant revenues from

China and US/European infrastructure OEMs, we believe they are well diversified in Chinese OEMs as

well and believe local semiconductor competition for those sockets is limited.

Competition heating up in China

Our Asian telecommunications analyst Danny Chu notes that China Mobile may lower its required

cellular modem standards for 4G from “5 modes+10 frequency bands” to “3 modes+7 frequency bands”.

He offers the following chart to show a “3 mode + 7 frequency band” scenario.

Name

% of sales

from China

% of operations in

China Comments

QCOM 49.0% 4% Risk of royalty stream and low end baseband displacing sockets in low and mid-tier handsets.

BRCM 31.2% <5% Some risk of low end WiFi displacing sockets in low and mid-tier handsets/tablets

NVDA 18.2% 5% Unlikely to displace discrete graphics, although risk for smartphone/tablet business

XLNX 19.8% <5% Exposure to Huaw ei should offset Cisco exposure; some threat of homegrow n ASICs/ASSPs displacing PLDs.

ALTR 32.7% <5% Exposure to Huaw ei should offset Cisco exposure; some threat of homegrow n ASICs/ASSPs displacing PLDs.

AMD 57.7% 9% Unlikely to displace microprocessors in servers or PCs, although risk to tablet business

INTC 15.6% 5-10% Unlikely to displace microprocessors in servers or PCs, although risk to tablet business

MXIM 40.8% <5% Large pow er management exposure leaves them somew hat vulnerable to homegrow n alternatives, but Samsung exposure helps.

ADI 13.0% 2% Diverse customer base and long life of sockets make displacement unlikely in near term

LLTC 38.0% <5% Diverse customer base and long life of sockets make displacement unlikely in near term

TXN 41.9% <5% Diverse customer base and long life of sockets make displacement unlikely in near term

MU 41.7% 5% No alternative Chinese manufacturers that can produce in volume and high barriers to entry.

SNDK 42.3% 27% No alternative Chinese manufacturers that can produce in volume and high barriers to entry. Large back end and testing facilities in China

Macquarie Research Semiconductors

17 December 2013 3

Fig 2 Frequency bands and most often corresponding mobile technology standard

Source: Company data, Macquarie Research, December 2013. Chart courtesy of Danny Chu. In the above diagram, grey shaded areas represent frequency bands under the scenario of “3 modes + 7 frequency bands”.

We believe this was done to allow local baseband manufacturers access to the 4G smartphone market

where QCOM’s large technological advantage has given them dominant global share in LTE baseband

chips. The Tsinghua Unigroup (which we believe is a proxy for the Chinese government) recently

acquired wireless semiconductor companies Spreadtrum and RDA Microelectronics. While the combined

IP of the two companies should allow them to produce cellular modems and connectivity chips for low

end smartphones at China Mobile, we note that neither company has announced an FDD LTE capable

chipset, or an 802.11ac WLAN connectivity chip, which makes design wins in high end globally based

handsets unlikely in our view.

Fig 3 Wireless IP portfolios of leading semiconductor companies

Source: Company data, Macquarie Capital (USA), December 2013. 802.11ac technology used with PC. ** Licensed technology from Inside Secure SA. *** Disinvesting in processor and connectivity businesses for consumer applications. **** Signed licensing agreement with Quantenna for 802.11ac technology. *****SPRD 40nm TD-LTE chip currently sampling; 28nm chip in development

1 1920 1980 2110 2170 WCDMA CT (CDMA)/CU (WCDMA)

2 1850 1910 1930 1990 WCDMA/GSM CM (TD-SCDMA)/ CU (WCDMA)/PAS

3 1710 1785 1805 1880 FDD LTE / GSM CM / CU (GSM)

5 824 849 869 894 WCDMA CT (CDMA)

7 2500 2570 2620 2690 FDD LTE TD-LTE

8 880 915 925 960 GSM CM / CU (GSM)

34 2010 2025 CM (TD-SCDMA)

38 2570 2620 CM (TD-LTE)

39 1880 1920 CM (TD-SCDMA)/PAS

40 2300 2400 CM (TD-SCDMA)

Technology standards

deployed outside of China

Technology standards deployed

within ChinaUplink (MHz) Downlink (MHz)

Paired Spectrum Unpaired Spectrum

(MHz)

Frequency

band

Cellular Baseband

(WCDMA/HSPA+)

Cellular Baseband

(TD-SCDMA)

Cellular

Baseband

(LTE)

WLAN

(802.11n)

WLAN

(802.11ac) Bluetooth GPS NFC

Qualcomm X X X X X X X X

Broadcom X 2H14 1H14 X X X X X

Marvell X X 2H13/1H14 X 2H13 X X X

Intel X 2H14 X X X* X X X**

Mediatek X X 2H13/1H14 X 2H13 X X X

Spreadtrum/RDA 2H13/1H14 X 1H14***** X X X

Texas Instruments*** X X X X X

Nvidia 2H13/1H14 1H14 1H14

AMD

Ericsson X X

STMicroelectronics X 2014**** X X X

Macquarie Research Semiconductors

17 December 2013 4

We do not expect much penetration of the high end of the cellular or connectivity markets from local chip

companies such as Tsinghua Unigroup due to their lagging technology, but we do believe it may be more

difficult for QCOM or BRCM to penetrate the low or mid tier of the market. Our Taiwan semiconductor

analyst Jeff Su also believes that while a large technology gap still exists, recent government actions by

the Chinese government may have some impact on Mediatek in the coming years. While we note that

QCOM has very little revenue contribution from China Mobile based handsets currently, and thus expect

little financial impact to the company if the relaxed standards are passed, we believe it could impair the

company’s ability to fulfil its 5 year target of double digit annual sales growth.

Fig 4 QCOM has >$1bn in China, but we believe very little comes from China Mobile currently

Source: Qualcomm 2013 analyst day, presented on 11/20/13, November 2013

Fig 5 QCOM has guided for double digit sales and EPS growth over the next 5 years

Source: Qualcomm 2013 analyst day, presented on 11/20/13, November 2013

Macquarie Research Semiconductors

17 December 2013 5

QCOM has significant exposure to the other large Chinese carriers, China Unicom and China Telecom,

which is potentially at risk if the Chinese government aggressively targets QCOM’s licensing revenues.

China Unicom currently uses the WCDMA technology in its network, while China Telecom uses

CDMA2000 1xEV-DO. All handsets that use those technologies pay royalties to QCOM. We estimate

that the contribution of royalties from China Telecom and China Unicom increased from roughly 9% of

QTL in 2012 to roughly 13% in 2013E. We estimate that the combined royalties will account for roughly

10% of overall QCOM earnings before tax (EBT) in FY13E.

Fig 6 QCOM royalty contribution from China Unicom and China Telecom (US$ millions and %)

Source: Company data, Macquarie Capital (USA), December 2013.

China Mobile/iPhone deal could be accretive to BRCM/QCOM but not by much

A number of news sources have indicated that Apple and China Mobile may be planning to announce a

partnership on December 18. While we believe a deal would be incremental to shipments of total

iPhones in China, our Asian telecommunications team believes the volume commitments China Mobile

agreed to could be much lower than many investors expect. Danny believes the commitment could be 5-

10 million units/year versus market expectations of roughly 15-20 million units/year. We estimate QCOM

derived roughly 22% of its 4Q FY13 (October quarter) sales, BRCM derived roughly 15% of its 3Q13

sales, and SNDK derived roughly 23% of its 3Q13 sales from Apple. We estimate that QCOM collects

roughly $35-40 for every iPhone built.

We note that sales of iPhones in China may cannibalize sales of alternative high end smartphones such

as the Samsung Galaxy S4, where QCOM and BRCM have higher content. Thus, the benefits of more

iPhone shipments could be partially offset by lower average content in high end phones at China Mobile.

9%

13%

0%

2%

4%

6%

8%

10%

12%

14%

$0

$200

$400

$600

$800

$1,000

$1,200

2012 2013

China Unicom royalties China Telecom royalties % of QTL sales

Macquarie Research Semiconductors

17 December 2013 6

Fig 7 Content in LTE version of Samsung Galaxy S4 vs. Apple iPhone 5S

Source: iSuppli, iFixit, Company data, Macquarie Capital (USA), December 2013. * SNDK is one of multiple suppliers to Apple so content/device is an estimated average. SNDK ships negligible volumes to Samsung.** QCOM collects royalties from Apple and Samsung. SNDK collects royalties on much of the NAND it does not ship into Apple or Samsung.

We note volumes may be lower than investors recognize as there are already a large number of

unlocked iPhones on China Mobile’s network, and the iPhone has a very high price in China (~$850),

which may limit demand.

Fig 8 Pricing of unlocked 16Gb iPhone 5S and iPhone 5C by region (US$)

Source: Company data, Macquarie Capital (USA), December 2013. Prices converted from local currency to US$.

As such, we expect little incremental impact on QCOM or BRCM’s market share in China. Every 1.2

million incremental iPhones sold into China Mobile that don’t cannibalize an existing QCOM based

handset adds roughly $0.01 to our FY14E EPS estimates.

Samsung Galaxy S4 ASP Apple iPhone 5s ASP

Application processor QCOM Snapdragon 600 $20.00 Apple A7 $15.00

Baseband/RF/PA MDM9215+WTR1605L $25.00 MDM9615M+WTR1605 $32.00

WLAN/BT/FM/GPS BRCM BCM4335 $9.00 BRCM BCM4334 $4.20

Touchscreen Controller SYNA S5000B $1.00 BRCM BCM5976 $1.00

NFC Chip BRCM 20794S1A NA

Pow er Management QCOM PM8917/PM8821 $9.50 QCOM PM8018 $4.50

NAND content 16GB $12.80 16GB $12.80

QCOM content $54.50 $36.50

BRCM content $9.00 $5.20

SNDK content* $0.00 $4.60

$649$697

$867

$930

$735

$864

$549$581

$741

$797

$625

$733

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

US Canada UK Germany/ France/ Netherlands

Australia China

iPhone 5s (16GB) iPhone 5c (16GB)

Macquarie Research Semiconductors

17 December 2013 7

Fig 9 Δ QCOM FY14E EPS from incremental iPhones and iPads shipped into China Mobile (US$)

Source: Company data, Macquarie Capital (USA), December 2013. X-axis: incremental iPhones to our FY14E estimate. Y-axis: incremental iPads to our FY14E estimate.

For BRCM, we estimate every incremental 3.3 million iPhones adds roughly $0.01 to our CY14E EPS

estimate.

Fig 10 Δ BRCM CY14E EPS from incremental iPhones and iPads shipped into China Mobile (US$)

Source: Company data, Macquarie Capital (USA), December 2013. X-axis: incremental iPhones to our CY14E estimate. Y-axis: incremental iPads to our CY14E estimate.

LTE deployment at China Mobile should finally happen in 2014, although we think it will be gradual

China Mobile announced it would build over 200 thousand TD-LTE basestations in 2013, and guided

capital expenditures to grow over 50% YoY. We note that we believe the magnitude of the increase is

misleading due to the shift of capital investment from China Mobile’s parent company to the China Mobile

entity. However, guidance still implies over $31 billion in capex, almost as high as the roughly $36 billion

AT&T and Verizon are expected to spend in 2013, according to Consensus estimates.

iPhone shipments

-25 -20 -15 -10 -5 0 5 10 15 20 25 30

-25 ($0.40) ($0.33) ($0.26) ($0.19) ($0.11) ($0.04) $0.03 $0.10 $0.18 $0.24 $0.31 $0.38

-20 ($0.39) ($0.32) ($0.25) ($0.18) ($0.11) ($0.04) $0.04 $0.11 $0.19 $0.25 $0.32 $0.39

-15 ($0.38) ($0.31) ($0.24) ($0.17) ($0.10) ($0.03) $0.04 $0.12 $0.20 $0.26 $0.33 $0.40

-10 ($0.37) ($0.30) ($0.23) ($0.16) ($0.09) ($0.02) $0.05 $0.12 $0.21 $0.27 $0.34 $0.41

-5 ($0.36) ($0.29) ($0.22) ($0.15) ($0.08) ($0.01) $0.06 $0.13 $0.22 $0.28 $0.35 $0.42

0 ($0.36) ($0.28) ($0.21) ($0.14) ($0.07) $0.00 $0.07 $0.14 $0.23 $0.28 $0.36 $0.43

5 ($0.35) ($0.28) ($0.20) ($0.13) ($0.06) $0.01 $0.08 $0.15 $0.24 $0.29 $0.36 $0.43

10 ($0.34) ($0.27) ($0.20) ($0.12) ($0.05) $0.02 $0.09 $0.16 $0.24 $0.30 $0.37 $0.44

15 ($0.33) ($0.26) ($0.19) ($0.12) ($0.04) $0.03 $0.10 $0.17 $0.25 $0.31 $0.38 $0.45

20 ($0.32) ($0.25) ($0.18) ($0.11) ($0.04) $0.04 $0.11 $0.18 $0.26 $0.32 $0.39 $0.46

25 ($0.31) ($0.24) ($0.17) ($0.10) ($0.03) $0.04 $0.11 $0.19 $0.27 $0.33 $0.40 $0.47

30 ($0.30) ($0.23) ($0.16) ($0.09) ($0.02) $0.05 $0.12 $0.19 $0.28 $0.34 $0.41 $0.48

iP

ad

sh

ipm

en

ts

iPhone Shipments

-25 -20 -15 -10 -5 0 5 10 15 20 25

-25 ($0.17) ($0.15) ($0.14) ($0.12) ($0.11) ($0.09) ($0.08) ($0.06) ($0.05) ($0.03) ($0.02)

-20 ($0.15) ($0.13) ($0.12) ($0.10) ($0.09) ($0.07) ($0.06) ($0.04) ($0.03) ($0.01) $0.00

-15 ($0.13) ($0.11) ($0.10) ($0.08) ($0.07) ($0.05) ($0.04) ($0.02) ($0.01) $0.01 $0.02

-10 ($0.11) ($0.10) ($0.08) ($0.07) ($0.05) ($0.04) ($0.02) ($0.01) $0.01 $0.02 $0.04

-5 ($0.09) ($0.08) ($0.06) ($0.05) ($0.03) ($0.02) ($0.00) $0.01 $0.03 $0.04 $0.06

0 ($0.08) ($0.06) ($0.05) ($0.03) ($0.02) $0.00 $0.02 $0.03 $0.05 $0.06 $0.08

5 ($0.06) ($0.04) ($0.03) ($0.01) $0.00 $0.02 $0.03 $0.05 $0.06 $0.08 $0.09

10 ($0.04) ($0.02) ($0.01) $0.01 $0.02 $0.04 $0.05 $0.07 $0.08 $0.10 $0.11

15 ($0.02) ($0.01) $0.01 $0.02 $0.04 $0.05 $0.07 $0.08 $0.10 $0.11 $0.13

20 ($0.00) $0.01 $0.03 $0.04 $0.06 $0.07 $0.09 $0.10 $0.12 $0.13 $0.15

25 $0.02 $0.03 $0.05 $0.06 $0.08 $0.09 $0.11 $0.12 $0.14 $0.15 $0.17

i

Pad

Sh

ipm

en

ts

Macquarie Research Semiconductors

17 December 2013 8

Fig 11 2013E Capex of China Mobile vs AT&T+Verizon

Source: FactSet, Company data, Macquarie Capital (USA), December 2013.

And China Mobile hadn’t spent much of its capex guidance as of August 15th, 2013.

Fig 12 China Mobile 2013 capex budget versus 1H13 actual capital expenditures (RMB)

Source: Company data, Macquarie Capital (USA), December 2013.

While several semiconductor companies have commented on rising orders from China Mobile, we

believe the pace of orders may be gradual. We note Consensus expects roughly flat capex from China

Mobile in 2014E.

$16,057

$31,329

$36,925

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Verizon+AT&T capex China Mobile capex

190.2

57

0

20

40

60

80

100

120

140

160

180

200

2013 Budget 1H 2013 actual

Macquarie Research Semiconductors

17 December 2013 9

Fig 13 China Mobile capex (US$ millions) and YoY (%)

Source: FactSet, Company data, Macquarie Capital (USA), December 2013.

We also note that China Mobile’s 2G and 3G networks remain underutilized, which may cause a decline

in investment in those technologies.

Fig 14 China Mobile basestations (thousands) and utilization rates (%)

Source: Company data, Macquarie Capital (USA), December 2013. Basestations count as of 8/15/13.

Our recent analysis of the semiconductor supply chain indicates that inventories at communications

OEMs and distributors are lean, which may suggest potential restocking for communications exposed

semi companies such as XLNX, ALTR, TXN, ADI and LLTC if orders from China Mobile increase.

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

China Mobile Capex YoY%

Increase partially due to capex being moved from parent company's financial statement to China Mobile's.

Current

Basestations Utilization

GSM 840 71.90%

TD-SCDMA 361 25%

TD-LTE 0 0%

Total 1201 57.80%

Macquarie Research Semiconductors

17 December 2013 10

Fig 15 Supply chain inventories by segment (days)

Source: FactSet, Bloomberg, Company data, Macquarie Capital (USA), December 2013.

We estimate that the communications businesses of our most exposed semiconductor companies will

have a median growth rate of roughly 14% YoY in 2014 due to increased carrier spending and inventory

restocking.

Fig 16 YoY growth rates for communications businesses of US semi companies (%)

Source: Company data, Macquarie Capital (USA), December 2013.

Brief history of semiconductor trade wars

Government intervention in the technology market is nothing new, with the interplay between the US and

Japan in the DRAM market in the 1980s serving as an instructive example. Between the period of 1978

and 1986, market share of DRAM chips from Japanese producers grew from under 30% to roughly 75%,

while US market share fell from roughly 70% to roughly 20%. This rapid shift in market share was

blamed in part on restrictions of US imports into Japan; in 1984 the market share of DRAM produced by

US companies was roughly 84% in the US, 55% in Europe, 47% in the rest of the world, and only 11% in

Japan. In 1985, after a severe downturn in the DRAM market led to widespread industry losses and the

exit of several US memory manufacturers, the US pursued “anti-dumping” complaints against the

Japanese semiconductor industry. This eventually led to the Semiconductor Trade Agreement of 1986,

which held that the US semiconductor industry would eventually realize over 20% market share in Japan.

Initial enforcement was very difficult for Japanese regulators, which led the US to impose 100% tariffs on

$300 million worth of Japanese imports in April 1987. This led Japanese firms to scale back production in

order to decrease their market share. The production cutbacks led to windfall profits for the entire DRAM

industry for the next few years. However, it also led to very high input costs for a number of end market

OEMs, particularly PC companies. As a result, a lobbying group was created to amend the agreement,

which ultimately happened in 1991. While the long term economic value of the trade war is unclear to

either country’s technology industry, both sides declared the actions to be a success.

1Q13 2Q13 3Q13 5 Year Q3 Average H/(L) than Average %

Semis 88 88 88 77 10 12%

Distributor 52 48 49 48 0 0%

Contract manufacturer 60 56 58 57 0 1%

IT Distributor 30 30 29 26 3 11%

PC OEM 32 38 32 26 6 20%

Storage 33 33 35 31 4 12%

Comm OEM 60 57 59 66 (7) -12%

Handsets 46 38 43 30 13 31%

Carriers 17 12 12 14 (2) -19%

Electronic retail 86 87 85 92 (7) -9%

Cable and Satellite 15 13 12 13 (0) -4%

Average 47 46 46 44 2 4%

Note: 1Q13 2Q13 3Q13 5 Year Q3 Average

ODM 46 47 45 44 1 3%

Foundry 50 49 46 44 2 5%

2007 2008 2009 2010 2011 2012 2013E 2014E

XLNX -9.2% 3.0% -2.1% 35.6% -5.9% -0.8% 1.7% 16.0%

ALTR -10.5% 4.0% 3.5% 64.7% 4.3% -12.4% -8.9% 17.1%

ADI -5.1% -9.9% -13.7% 24.7% 2.0% -6.9% 0.3% 11.5%

LLTC -9.8% -0.4% -27.7% 34.7% -11.3% -8.9% -2.6% 9.4%

Median -9.5% 1.3% -7.9% 35.2% -1.9% -7.9% -1.1% 13.7%

Macquarie Research Semiconductors

17 December 2013 11

While the DRAM market’s commodity nature is different than the network equipment market, we note

risks of similar anti-dumping actions or tariffs exist today. If the US or China were to artificially restrict

access to their home markets or ask for production cutbacks in response to claims of predatory pricing,

we believe it would be a negative for component companies as they would see lower volumes, which

could impair gross margins.

Still follow the “Silver Linings Playbook” despite China risk

Despite risk of regulatory and competitive challenges in China, we would follow the “Silver Linings

Playbook” and invest in cloud and connectivity semis over client exposed semis.

Fig 17 Macquarie US semiconductor comparison sheet

Source: FactSet, Company data, Macquarie Capital (USA), December 2013. Price data as of 12/16/13.

Rating Price

YTD

Return

Target

price

C14E

Div

Yield Shares Mkt cap

CY12

EPS

CY13E

EPS

CY14E

EPS

CY13E

P/E

CY14E

P/E

CY13E

Rel P/E

CY14E

Rel P/E

CY12

revenue

CY13E

revenue

CY14E

revenue

CY12

EV/Sales

CY13E

EV/Sales

Price to

book

Price to

net cash

INTC N $24.45 19% $22.00 3.7% 5,106 124,842 $2.13 $1.83 $1.83 13x 13x 0.8 0.9 53,341 52,574 52,913 2.3 2.3 2.7 32.5

AMD N $3.59 50% $4.00 752 2,700 ($0.69) ($0.15) $0.07 NM NM NM NM 5,422 5,240 6,205 0.7 0.7 5.0 (2.6)

NVDA UP $15.04 23% $14.00 2.3% 589 8,855 $0.90 $0.67 $0.76 23x 20x 1.4 1.3 4,280 4,036 4,339 1.2 1.3 2.0 2.4

QCOM OP $72.79 18% $85.00 1.9% 1,765 128,474 $4.43 $5.47 $6.18 13x 12x 0.8 0.8 20,458 25,582 28,211 5.6 4.5 3.9 9.5

BRCM OP $28.38 -15% $35.00 1.6% 578 16,404 $2.92 $2.68 $2.37 11x 12x 0.6 0.8 8,006 8,266 8,358 2.0 1.9 2.4 21.2

XLNX N $43.64 22% $48.00 2.3% 280 12,232 $1.80 $2.15 $2.42 20x 18x 1.2 1.2 2,195 2,310 2,565 5.2 5.0 4.1 15.4

ALTR N $31.11 -10% $35.50 1.8% 324 10,065 $1.72 $1.42 $1.82 22x 17x 1.3 1.1 1,783 1,766 2,096 4.2 4.2 3.3 3.8

TXN N $42.29 37% $45.00 2.6% 1,111 46,984 $1.37 $1.74 $2.38 24x 18x 1.5 1.2 12,825 12,156 12,916 3.8 4.0 4.5 (25.8)

LLTC OP $43.95 28% $40.00 2.4% 239 10,518 $1.68 $1.77 $2.07 25x 21x 1.5 1.4 1,283 1,317 1,460 7.7 7.5 11.0 16.6

ADI OP $48.74 16% $55.00 2.8% 313 15,274 $2.09 $2.28 $2.94 21x 17x 1.3 1.1 2,675 2,721 2,972 4.4 4.4 3.6 4.5

MXIM N $27.91 -5% $32.00 3.7% 297 8,282 $1.13 $1.60 $2.04 17x 14x 1.1 0.9 2,405 2,398 2,745 3.1 3.1 3.2 10.8

MU N $22.77 259% $20.00 1,014 23,082 ($1.12) $0.60 $2.84 38x 8x 2.3 0.5 5,693 5,708 5,141 4.3 4.3 3.1 (16.7)

SNDK OP $66.97 54% $75.00 1.3% 244 16,351 $2.38 $5.15 $5.81 13x 12x 0.8 0.8 5,053 6,134 6,996 2.4 1.9 2.2 3.7

AVERAGE 38% 2.4% 20x 15x 1.2 1.0 3.6 3.5 3.9 5.8

MEDIAN 22% 2.3% 21x 15x 1.3 1.0 3.8 4.0 3.3 4.5

Macquarie Research Semiconductors

17 December 2013 12

Required disclosures

Fig 18 Risks to target price and rating

Stock Target Price Methodology Risk to rating

AMD Our target price is based off of a P/B multiple.

Given the company’s high exposure to the computing end market, if PC demand is better/worse it will add upside/risk to our “core” AMD forecast and our assumptions for sequential revenue growth in Q3 and Q4. While our checks indicate the company’s share outlook is improving due to stabilizing execution, the company has a long track record of mis-execution and still is in a secondary market share position in both microprocessors and graphics chips. If AMD experiences roadmap delays or problems with its factory partners (Global Foundries, TSMC) it could add risk to the company’s market share and our outlook. The company has one of the higher debt-to-capital levels in our group (0.83 ratio in 1Q13). Stocks such as AMD„s during various periods of credit concerns in recent years significantly underperformed. If macro risk or global credit concerns increase in the coming year, it could negatively impact AMD stock performance. If game console revenues are better/worse than expected, it could impact our estimates for AMD.

ALTR Our target price is based off of a relative P/E multiple.

We believe the communications end market is the largest market for ALTR. If carrier spending and IT networking spending are higher or lower than expected, or if there is an acceleration or delay in the expected networking build-out in Asia, it could add upside or risk to our estimates and our outlook on ALTR stock could improve or diminish. The CPLD market has been under-growing the broader PLD market in recent years and Altera has relatively higher exposure to this product category than its peers. If CPLDs continue to decline, it could negatively impact revenue growth at Altera and our estimates. Semiconductor companies experience inventory corrections due to over-shipping to customers and we believe we are currently exiting a correction. If the improving business conditions and inventory replenishment are better or worse than our expectations it could add upside or downside risk to our ALTR estimates and outlook. Finally, if PLD companies can exhibit superior growth due to increases in content in systems we could become more positive on ALTR stock.

ADI Our target price is based off of a relative P/E multiple.

ADI has significant exposure to the industrial end market, with a diverse customer base, but which is sensitive to general changes in global demand (GDP). If the current recovery reverses itself or if global GDP growth is lower than expected, it could add risk to our estimates for ADI. In the nearer term, we believe the semiconductor industry should enter an inventory correction within the next 6 months. If the impact on revenue and earnings is more negative than we currently expect, our rating and target price could be at risk. Over 20% of the company’s revenue is generated from amplifiers, a chip category that in recent years has grown slower than the broader analog industry. If amplifier sales are weaker than our estimates, it could add risk to our earnings estimates and target price for ADI.

BRCM Our target price is based off of a relative P/E multiple.

Broadcom products ship into a variety of end markets and as such are exposed to global changes in demand or GDP. If global GDP is better or worse than expected, it could improve or lower our outlook on BRCM stock. The company has relatively higher market share in certain areas such as Ethernet switch chips, set-top box chips, modems, Wifi and Bluetooth. If competition increases, it could limit the attractiveness of the markets and negatively affect our earnings outlook and outlook on BRCM stock. The company is currently receiving royalties from Qualcomm, which should expire in early 2013 and add roughly US$0.30–0.35 per share per year to EPS estimates. If consensus estimates and valuations fail to reflect the temporary nature of the royalty stream, it could cause stock multiples for BRCM to be below our expectation or add risk to Consensus estimates.

INTC Our target price is based off of a relative P/E multiple.

A majority of Intel’s revenue is derived from the PC end market. If PC end demand is worse than expected, it could result in lower than expected earnings and worse than expected stock performance. In addition, the semiconductor market is very competitive and share shifts can happen for a variety of reasons including end market shifts in demand and company execution. If Intel’s market share in microprocessors is lower than expected, our outlook on INTC stock could deteriorate. Tablet PCs are a new PC category which has the potential to significantly displace traditional personal computers and current tablets do not use Intel processors. If tablet displacement of PCs is higher than expected and/or Intel is not able to penetrate the market, it could negatively affect our outlook and estimates for INTC. Finally, the company acquired two large entities (McAfee and Infineon’s wireless business). If Intel’s ability to integrate and extract value from the acquisitions is worse than expected it could increase the dilutive effect of the acquisitions and negatively impact our estimates and outlook.

Macquarie Research Semiconductors

17 December 2013 13

Fig 18 Risks to target price and rating

Stock Target Price Methodology Risk to rating

LLTC Our target price is based off of a relative P/E multiple.

More than half of the company’s revenue comes from the industrial/auto/military end market. If global end demand and orders from industrial equipment manufacturers are lower than expected, this could lower our earnings outlook for LLTC. The analog industry is highly fragmented, with many companies supplying products sometimes in overlapping markets. If competitors become more adept at high performance analog, this could negatively affect Linear’s market share position or corporate margins and our outlook on LLTC could diminish. LLTC stock historically has been among the more defensive semiconductor stocks in our group during a semiconductor stock correction, falling less from peak levels than the group average. However, it has been an underperformer in a rising market. If semiconductor stocks outperform the broader market, this would add risk to our thesis for LLTC stock.

MXIM Our target price is based off of a relative P/E multiple.

Maxim is a broad-based provider of semiconductors and electronics to many end markets. As such, the company’s results are affected by global end demand (GDP). If global GDP deteriorates unexpectedly or accelerates faster than expected, it could add risk or upside to our estimates and our outlook for MXIM stock could deteriorate or improve. We are concerned the company’s exposure to relatively lower-margin segments could limit gross margin expansion at MXIM. However, the company has been focusing its development on higher-margin industrial and communications segments. If the company is more successful than we expect in these markets, it could provide better-than-expected gross margins at Maxim and our outlook on MXIM stock could improve.

MU Our target price is based off of a P/B multiple.

We believe the PC end market is the largest market for Micron. If PC end demand is better than expected, it could result in higher-than-expected earnings and better than expected stock performance. We are concerned that accelerating capacity growth in CY11/12 will result in excess capacity, weak memory pricing and MU stock underperformance. However, if supply growth is less than expected, our outlook on MU could improve. In addition, the semiconductor market is very competitive and share shifts can happen for a variety of reasons including end market shifts in demand and company execution. If Micron’s market share in memory is higher than expected, our outlook on MU stock could improve. Finally, MU has acquired another large, commodity memory business (Numonyx). If the company is able to successfully integrate the acquisition and the NOR flash industry fundamentals are better than expected, our outlook on MU stock could improve.

NVDA Our target price is based off of a relative P/E multiple.

A majority of Nvidia’s revenue is derived from the PC end market. If PC end demand is better or worse than expected, it could result in higher or lower than expected earnings and better or worse than expected stock performance. The company has been trying to diversify its revenue to improve its growth prospects (application processors and high-performance computing chips). If the company is more successful than we are currently expecting, it could improve our outlook for Nvidia’s earnings prospects and NVDA stock. In addition, the semiconductor market is very competitive and market share shifts can happen for a variety of reasons including end market shifts in demand and company execution. If Nvidia’s market share in graphics chips is higher or lower than expected, our outlook on NVDA stock could improve or deteriorate.

TXN Our target price is based off of a relative P/E multiple.

TI is a broad-based provider of semiconductors and electronics to many end markets. As such, the company’s results are affected by global end demand (GDP). If global GDP accelerates or deteriorates unexpectedly, it could add upside or risk to our estimates and our outlook for TXN stock could improve or deteriorate. TI recently acquired NSM for $6.5 billion. If integration of National into TXN is better or worse than expected, it could add upside to estimates or risk of execution issues which could cause our outlook on TXN to improve or deteriorate. The company has invested in significant factory capacity which is currently underutilized. If factory utilization (through end demand or restructuring) is better or worse than expected, it could add upside or downside risk to our estimates and we could become more positive or negative on TXN stock.

XLNX Our target price is based off of a relative P/E multiple.

We believe the communications end market is the largest market for XLNX. If carrier spending and IT networking spending are higher or lower than expected, or if there is an acceleration or delay in the expected networking build-out in Asia, it could add upside or risk to our estimates and our outlook on ALTR stock could improve or diminish. Semiconductor companies experience inventory corrections due to over-shipping to customers and we believe we are currently exiting a correction. If the improving business conditions and inventory replenishment are better or worse than our expectations it could add upside or downside risk to our XLNX estimates and outlook. Finally, if PLD companies can exhibit superior growth due to increases in content in systems we could become more positive on XLNX stock.

Macquarie Research Semiconductors

17 December 2013 14

Fig 18 Risks to target price and rating

Stock Target Price Methodology Risk to rating

QCOM Our target price is based off of a relative P/E multiple.

QCOM products ship in systems which touch many different geographic regions. If global GDP is better or worse than expected, it could lower our outlook on QCOM stock. The company’s chip business (QCT) has relatively high market share in CDMA class phones, but much lower share in WCDMA class phones. If the company’s market share in either category deteriorates, it could negatively affect our outlook on QCOM stock. A significant amount of the company’s earnings power is derived by royalties and fees from handset OEMs which is based on pricing. If handset pricing is worse than expected it could have a significantly negative impact to our earnings forecast and our outlook on QCOM stock. The company appears to have fewer key technologies associated with newer, leading-edge wireless standards such as LTE/Wimax, compared with CDMA technology. We believe the company will receive normal royalty rates on multi-mode phones, but the royalty rate on single mode LTE/Wimax technology appears to be lower than prior generations of QCOM technology.

SNDK Our target price is based off of a P/B multiple.

The NAND market is extremely volatile, and excess supply can lead to aggressive pricing from competitors which can impact SNDK margins and stock underperformance. The company is dependent on die shrinks on leading edge semiconductor technologies; if the pace slows or stops altogether it could hinder SNDK’s competitive advantage. The company has a large retail presence; any reduction in consumer purchasing could lead to large inventories and subsequent writedowns for the company. The company relies on manufacturing facilities in Japan, any interruption in production could hinder the company’s ability to sell products. The company sources its wafers in Yen and prices its products in USD; any changes in those currency levels against other currencies could hurt the company’s competitive position or margins.

Source: Company data, Macquarie Capital (USA), December 2013.

Other stocks mentioned

China Mobile (941 HK, HK$80.30, Neutral, Danny Chu)

Apple (AAPL US, US$557.50, Not rated)

China Telecom (728 HK, HK$3.88, Outperform, Danny Chu)

China Unicom (762 HK, HK$11.58, Outperform, Danny Chu)

MediaTek (2454 TT, NT$417.00, Neutral, Jeff Su)

Huawei Technology (002502 CH, Rmb14.34, Not rated)

Cisco Systems (CSCO US, US$20.68, Not rated)

AT&T (T US, US$34.15, Neutral, Kevin Smithen)

Verizon Communications (VZ US, US$48.26, Outperform, Kevin Smithen)

Macquarie Research Semiconductors

17 December 2013 15

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA

Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected

to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 30 September 2013

AU/NZ Asia RSA USA CA EUR

Outperform 50.56% 56.87% 48.78% 41.00% 61.75% 47.10% (for US coverage by MCUSA, 5.85% of stocks followed are investment banking clients)

Neutral 38.95% 25.18% 42.68% 54.40% 34.43% 30.89% (for US coverage by MCUSA, 3.90% of stocks followed are investment banking clients)

Underperform 10.49% 17.94% 8.54% 4.60% 3.83% 22.01% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)

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Financials – cont’d

Online Brokers, Exchanges & Asset Managers Sameer Murukutla (New York) (1 212) 231 0689

Mortgage & Consumer Finance Sean Dargan (New York) (1 212) 231 0663 Asim Imran (Toronto) (1 416) 848 3521

Property & Casualty Insurance Amit Kumar (New York) (1 212) 231 8013 Asim Imran (Toronto) (1 416) 848 3521

Industrials

Chemicals Cooley May (New York) (1 212) 231 2586

Construction and Engineering/Machinery Sameer Rathod (San Francisco) (1 415) 762 5034

Electrical Equipment & Building Products Mike Wood (New York) (1 212) 231 6590

Transports & Logistics Kelly Dougherty (New York) (1 212) 231 2493

Materials

Paper & Packaging Al Kabili (New York) (1 212) 231 0683

Steel & Metals Aldo Mazzaferro (New York) (1 212) 231 0693

Coal Luke McFarlane (New York) (1 212) 231 2637

Global Metals & Mining Daniel Greenspan (Toronto) (1 416) 848 3541 Pierre Vaillancourt (Toronto) (1 416) 848 3647 Michael Siperco (Toronto) (1 416) 848 3520 Michael Gray (Vancouver) (1 604) 639 6372

Real Estate

REITs Robert Stevenson (Head of US REITs) (1 212) 231 8068 Michael Smith (Toronto) (1 416) 848 3696 Shahzeb Zakaria (New York) (1 212) 231 0647

TMET

Telecommunications Kevin Smithen (New York) (1 212) 231 0695 Greg MacDonald (Toronto) (1 416) 628 3934

Business & Computer Services Kevin McVeigh (New York) (1 212) 231 6191

Cable, Satellite & Entertainment Amy Yong (New York) (1 212) 231 2624

TMET – cont’d

Internet Ben Schachter (Head of TMET) (1 212) 231 0644 Tom White (New York) (1 212) 231 0643

Semiconductors Deepon Nag (New York) (1 212) 231 8014

Software & IT Hardware Brad Zelnick (New York) (1 212) 231 2618

Media & Entertainment Tim Nollen (New York) (1 212) 231 0635

Utilities & Alternative Energy

Angie Storozynski (Head of US Utilities & Alternative Energy) (1 212) 231 2569 Andrew Weisel (New York) (1 212) 231 1159 Rob Catellier (Toronto) (1 416) 848 3512

Commodities & Precious Metals

Colin Hamilton (Global) (44 20) 3037 4061 Jim Lennon (London) (44 20) 3037 4271 Kona Haque (London) (44 20) 3037 4334

Oil & Gas

Vikas Dwivedi (Houston) (1 713) 275 6352

Economics and Strategy

Dane Leone (New York) (1 212) 231 6369 David Doyle (Toronto) (1 416) 848 3663

Quantitative Analysis

Gavin Smith (New York) (1 212) 231 0588

Find our research at

Macquarie: www.macquarie.com.au/research

Thomson: www.thomson.com/financial

Reuters: www.knowledge.reuters.com

Bloomberg: MAC GO

Factset: http://www.factset.com/home.aspx

CapitalIQ www.capitaliq.com

Contact Gareth Warfield for access (612) 8232 3207

Email addresses

FirstName.Surname@macquarie.com

eg. john.oconnell@macquarie.com

Equities Head of Global Cash Equities

Stevan Vrcelj (Sydney) (612) 8232 5999

Head of US Equities

Ken Savio (New York) (1 212) 231 1184

Head of Canadian Equities

Alex Rothwell (Toronto) (1 416) 848 3677

Sales US Sales

Austin Graham (New York) (1 212) 231 2494 Peter Doerr (Chicago) (1 312) 660 9052 Ross Peet (San Francisco) (1 415) 762 5069

Canada Sales

Roy McDowall (Montreal) (1 514) 925 2864

US Quantitative Specialist Sales

Victor Morange (New York) (1 212) 231 2538

Trading US Sales Trading

Austin Graham (New York) (1 212) 231 2494

Canada Trading

Perry Catellier (Toronto) (1 416) 848 3619

International Sales Trading

Chris Reale (New York) (1 212) 231 2555