Asia Semiconductor Sector——China tablet/smartphone chain： 3G exports still healthy, 4G gearing up

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION™ Client-Driven Solutions, Insights, and Access 14 April 2014 Asia Pacific Equity Research Semiconductor Devices Asia Semiconductor Sector SUPPLY CHAIN RESEARCH China tablet/smartphone chain: 3G exports still healthy, 4G gearing up Figure 1: China brands continue to gain share, now growing their exports 05,00010,00015,00020,00025,00030,00035,0001Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q13China Units: KSamsungAppleNokiaHTCBlackberryLGTop 4 ChineseTier 2 Chinese 0%10%20%30%40%50%60%70%80%010,00020,00030,00040,00050,00060,00070,00080,0001Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q13Tier 2 brandsHuawei/ZTE/Lenovo/CoolpadTier one'sMediatek Smartphone UnitsChina brand shareThousand (units)Local brand share (%) Source: Company data, Credit Suisse estimates We met several dozen whitebox tablet and smartphone OEMs, ODMs, design houses and Asian chipset companies in the past few days. The market remains healthy, supported by good unit growth and push to more advanced features. ■ Smartphone/tablet volume moderates, but features advance. China-built smartphones and tablets are moderating from a near double in 2013 to +37% growth in smartphones to 678 mn units and 30% growth in tablets to 130 mn in 2014. Moderating growth is supported by migration from 3G to 4G, HD720/Full HD displays, more advanced audio/cameras and push to quad/octa-core on TSMC’s 28nm HPM. While QCOM/MRVL lead early LTE, Mediatek is filling its gap with strong 3G export share and tablet gains. ■ Mediatek tablet ramp broadens, Intel China ecosystem emerges. Mediatek looks on track to achieve doubling of its tablets to 40 mn units, with 2 new expansions: (1) Octa-core started with phablets but now into 7-10” phablets; and (2) New Wifi-only (MT8117/8127) solutions to target the 80-100 mn Wifi-only market led by Allwinner/Rockchip/Actions. Intel’s China ecosystem is coming together and supporting dozens of customers through aggressive marketing, subsidies for its board makers and sales agents, and free Windows 8 below 9” allowing US$99 factory price for 7” Intel 3G tablets. ■ Resolution migration supports the display sector. The 3G export sector is introducing more 5” and above high resolution HD and FHD smartphones and tablets 7-9” with IPS technology. Bay Trail tablets are also pushing higher resolution than WVGX/XGA on entry Android. The higher resolution should help display chain (panel, backlight, driver) value add in 2014. ■ Stock picks in Asian semis/display. We would still play the emerging market volumes with companies with a good competitive position to maintain margins and continue increasing value offered. Our top picks remain Mediatek and outsourced manufacturers TSMC, ASE and SPIL in the IC space, and AUO, FocalTech, Radiant and ChipMOS in the display chain. Research Analysts Randy Abrams, CFA 886 2 2715 6366 randy.abrams@credit-suisse.com Jerry Su 886 2 2715 6361 jerry.su@credit-suisse.com 14 April 2014 Asia Semiconductor Sector 2 Focus charts and tables Figure 2: Qualcomm has the early lead in US$100-150 LTE phones; Some MTK 2-chip LTE models from June Qualcomm designsMediatek designsCompany YusunK Phone8S MobileCheng FongSZ QualityMalataCoolpadZXD MobileMaysunModel nameBW905Horse 2LTE 8S5008PQ506MQT-801L500DashenG504MID4511ImageTechnologyFDD-LTEFDD-LTEFDD-LTEFDD-LTETD-FDDFDD-LTETDD/FDD-LTEFDD-LTEFDD-LTEOperating SystemAndroid 4.3Android 4.3Android 4.3Android 4.3Android 4.3Android 4.3Android 4.3Android 4.4Android 4.3Pixels1920 x 1080960 x 540960 x 540960 x 5401280 x 7201280 x 720720 x 1280720 x 1280960 x 540RAM2GB1GB1GB1GB1GB1GB2GB1GB1GBROM16GB8GB4GB4GB4GB8GB16GB16GB4GBDisplay5.5"4.5"5.0"5.0"5.0"5.0"7.0"5.0"4.5"Camera13MP + 5MP5MP + 2MP5MP + 2MP5MP + 2MP5MP + 2MP13MP + 5MPNA8MP + 2MP5MP + 0.3MPBattery2400mAh2200mAh2000mAh2000mAh2000mAh2200mAhNANA2000mAhCPU Speed1.2GHz1.2GHz1.2GHz1.2GHz1.2GHz1.2GHz1.7GHz1.7GHz1.7GHzProcessor ChipMSM8926MSM8926MSM8926MSM8926MSM8926MSM8926MT6290 +MT6592MT6290 +MT6592MT6590 + MT6582MMulti-coreQuadQuadQuadQuadQuadQuadOctaOctaQuad Source: Company data, Credit Suisse research Figure 3: Tablets are also adopting higher-quality displays, including new Bay Trail and Mediatek Octa-core designs CompanyPloyerPloyerAinolVidoPloyerFirstviewCheng FongJoyplusCheng FongTHDVidoModel nameMomo 9-3GTM