¡£ UBS Global I/O: Tech Hardware/Displays/Semis 14 January 2019 2Figure 1: Most and least preferred listCompany Ticker Rating Price PT '19E PE '20E PE '19E PB '20E PB '19E EV/rev '20E EV/revMost preferredAlphabet GOOG.O Buy US$ 1,057 US$ 1,400 23.7 21.4 3.49 2.91 4.95 4.38Apple AAPL.O Buy US$ 152 US$ 180 12.7 11.3 9.18 9.99 2.29 2.20ASML ASML.AS Buy € 141 € 200 18.4 15.2 4.63 4.22 4.98 4.35Broadcom AVGO.O Buy US$ 251 US$ 275 10.5 8.8 361.82 361.19 5.47 4.84Catcher 2474.TW Buy NT$ 212 NT$ 412 5.7 5.1 0.95 0.84 1.46 1.16Hitachi 6501.T Buy3,3466,250 7.3 7.1 0.77 0.69 0.36 0.30HP Inc HPQ.N Buy US$ 21 US$ 28 9.4 8.8 51.38 18.07 0.56 0.55Infineon IFXGn.DE Buy € 18 € 24 18.2 17.1 2.90 2.63 2.50 2.34KLA Tencor KLAC.O Buy US$ 94 US$ 135 8.9 9.3 9.76 9.99 3.25 3.25LG Innotek 011070.KS Buy Won 88,800 Won 150,000 7.0 5.7 0.87 0.76 0.36 0.33Luxshare Precision 002475.SZ Buy Rmb 15 Rmb 21 16.6 13.3 3.26 2.66 1.43 1.20Marvell MRVL.O Buy US$ 17 US$ 25 11.5 8.6 1.40 1.30 2.77 2.46MediaTek 2454.TW Buy NT$ 228 NT$ 355 13.0 12.7 1.24 1.21 0.72 0.72Samsung SDI 006400.KS Buy Won 231,000 Won 315,000 12.5 11.0 1.12 1.02 0.68 0.59Sunny Optical 2382.HK Buy Rmb 69 Rmb 128 14.3 11.2 4.86 3.65 1.53 1.21TDK 6762.T Buy7,50014,400 8.9 7.7 0.96 0.87 0.67 0.59TSMC 2330.TW Buy NT$ 221 NT$ 285 13.9 11.3 3.02 2.71 4.32 3.51Wonik IPS 240810.KQ Buy Won 18,600 Won 37,000 7.1 4.5 1.59 1.20 0.82 0.46Least preferedBYDE 0285.hk Sell Rmb 10 Rmb 8 10.9 11.1 1.01 0.93 0.29 0.26FTC 2354.TW Sell NT$ 58 NT$ 60 8.8 9.8 0.58 0.56 -0.18 -0.22GWC 6488.TWO Neutral NT$ 288 NT$ 290 8.2 8.9 2.54 2.39 1.55 1.52Hirose Electric 6806.T Sell11,06010,500 22.7 21.4 1.33 1.29 1.41 1.36Hon Hai 2317.TW Neutral NT$ 69 NT$ 79 9.3 8.2 0.83 0.78 0.10 0.10Innolux 3481.TW Sell NT$ 10 NT$ 8 -6.0 602.9 0.43 0.43 0.30 0.32Realtek 2379.TW Sell NT$ 147 NT$ 102 22.0 19.8 3.43 3.27 1.01 0.91Sharp 6753.T Sell1,209900 14.2 13.8 2.22 1.96 0.37 0.36SK Hynix 00660. KS Neutral Won 65,100 Won 70,000 5.2 5.4 0.85 0.75 1.31 1.23SMIC 0981. HK Neutral (CBE) US$ 7 US$ 8 -31.9 -42.4 0.63 0.64 1.72 1.63Texas Instruments TXN.O Sell US$ 99 US$ 90 20.1 18.1 9.33 9.10 6.58 6.24Wistron 3231.TW Sell NT$ 19 NT$ 16 12.3 10.1 0.83 0.77 0.07 0.06ZDT 4958.TW Sell NT$ 75 NT$ 59 11.3 12.3 1.06 1.04 0.50 0.51Source: UBS estimates, priced as of 11 Jan 2019UBS Global I/O: Tech Hardware/Displays/Semis 14 January 2019 3Key segment takeawaysSemiconductorsMemoryWe hosted company meetings at CES and conducted channel checks same time.In line with our recent sector update (Memory Semis Monthly Jan '19: Rough endof 2018, tougher start of 2019), the demand envrironment entering 1H19appears to be challenging across the board (with perhaps the exception of flashenterprise storage). Smartphones memory procurement is much weaker thanexpected both for Apple but also for Chinese smartphone OEMs. Hyperscalecustomers (especially US) drastically cut procurement late 4Q18, and demand isforecasted to remain weak in 1H19. The hope of a 2H19 recovery for Hyperscaleremains, but is in opur view a low-probability event. We are concerned about twokey factors: (1) we do not see the release of Intel's Cascade Lake as a key driver forcomputing demand, ie we have not seen evidence of pent-up demand in theHyperscale market; (2) we estimate that the current slowdown in hyperscaleprocurement is not just a reflection of excess DRAM inventories, but also excesscompute spending as well as software optimisation.On the supply side, for DRAM, we see no evidence of production cuts nor anyplanning for them to occur; this comes from DRAM makers still generatingsignificant FCF. Micron's 15% CY19E bit shipment growth target stems, rather,from managing the transition to 1Y nm, ie the pace of it, whilst the timing of 1Ynm production starting remains unchanged. As for Samsung, as we indicatedbefore (Samsung: Slight upside to '19E memory bit growth), it is accelerating itstransition to 1Y nm as it already rolled out Mobile devices, and is rapidly goingthrough customers' qualification for servers, with yields already in good shape.Inventories already went up upstream, we estimate c. 5 weeks for Samsung(finished dies), and will likely be maintained in 1Q19. Micron's total inventoriescold go up to 130-140 days. This will add to supply risks once downstream DRAMinventories (we estimate 8 weeks for PCs, 8-10 for mobile and 8-12 weeks for UShyperscalers) are digested.In NAND flash, we also reiterate our view that Samsung is accelerating its transitionto 92L due to its perceived cost advantage vs peers and good production yields,witn the aim to gain market share. As for DRAM, Samsung does not plan to addwafer capacity in NAND in 2019.Non-memorySemis companies are all reflecting remarkably low visibility beyond that provided byproduct lead times ¨C and even then, there is a very high degree of uncertaintyahead of Chinese New Year. Several major companies are citing deferrals fromChinese customers in particular from CQ1 to CQ2, making CQ1 slightly sub- seasonal on the wholepany takeaways:Nvidia (Neutral): Despite our customer checks that still suggest significantinventory levels, NVDA remains confident that it is about halfway through the 1- 2Q channel inventory digestion for mid-range Pascal gaming cards. Theintroduction of RTX 2060 brings Turing into the mainstream segments of the UBS Global I/O: Tech Hardware/Displays/Semis 14 January 2019 4market (~1/3 of the installed based is 960/970/1060) and brings Turing tonotebooks as well. The company feels that pricing, at $349, is at enough of apremium to Pascal, that sell-through/inventory clear-out should not be impacted.While there was little new on data center, demand remains strong as hyperscalersystem optimization efforts have been largely focused on storage rather thancompute, the implication being that NVDA will continue to see strong growthvectors even as hyperscaler capex growth slows. On the inference side (weestimate ~$150-200MM/yr run-rate), most of the growth to date has come fromnew workloads with GPU displacement of CPU at enterprises still very small and onthe come.AMD (Neutral): In addition to NVDA launching RTX 2060 ¨C pushing its newTuring architecture to the mid-tier of the market w/$349 ASP ¨C AMD launchedRadeon VII, the indusry's first 7nm GPU. AMD also previewed 3rd gen Ryzen, whichis pushing its unique chiplet architecture into desktop. While there was noofficial EPYC 2 (Rome) launch, AMD remains on-track to ship Rome in mid-2019.We noted an increase in AMD Ryzen penetration in 2019 laptop line ups, withmost notably Lenovo offering AMD in all but two of its 2019 models (includingThinkpad), vs only 2 in 2018.Marvell (Buy): The company continues to highlight its significant leverage to 5Gand we ran through some simple math. Based on ~1.2-1.3MM/yr basestationshipments and ~$3000 blended content (our number, not MRVL's), this implies~$350-400MM/yr incremental opportunity (10% incremental to MRVL corporaterevs run-rate in C2020 based on our model) assuming only Samsung's current10% share. If the ramp timing is similar to 4G, this would take ~4yrs to fully rampto mature penetration, but MRVL expects revenue to start later this year and ofcourse Samsung is also stating 15-20% share targets in 5G (it did not have a fullsolution during the 4G buildout in Korea). This is also to say nothing about thepotential for MRVL to win one of the European OEMs as these companies' internalASIC efforts come under pressure in a 5G world. Relative to its ARM server effortswith Thunder X2 (just launched) and X3 (in development), it continues toemphasize a gradual ramp, though recent announcements from AMZN aresupportive of the ecosystem and MRVL has regardless made this all upside to itsfinancial model. Storage remains challenging, though the company offered nospecific updates in our meeting.Intel (Buy) ¨C Mobileye: The Mobileye presentation was well attended. Mobileyeindicated that for 2018 it had 2