THEME - research-doc.credit-suisse.com

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE 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.

12 September 2016 Asia Pacific

Equity Research Technology

Asia Technology Strategy Research Analysts

Manish Nigam

852 2101 7067

[email protected]

Technology Research Analyst Team Manish Nigam

(Head of Technology Research, Strategy)

Randy Abrams (Semiconductors)

Pauline Chen (Compnents, Handsets)

Keon Han (Korea Technology)

Jerry Su (Display)

Sam Li (China Technology)

Thompson Wu (PC Hardware)

Derrick Yang (Components, Display,LED)

Evan Zhou (China Internet)

Kyna Wong (China Technology)

Sang Uk Kim (Korea Technology)

THEME

17th ATC: Message is mixed Figure 1: Outlook/sentiment of companies attending the ATC (%)

Source: Credit Suisse

■ Relatively positive corporate tone. At our just-concluded 17th Asian

Technology Conference (ATC), the overall tone of the companies was the

third most positive (after 2007 and 2014) in the past ten years. A point of

caution though: performance of the MSCI AxJ tech index to end of the year

post ATC in both 2007 and 2014 was modestly negative! We believe that

the feedback from the attending companies was mixed, depending on the

end-markets they addressed and their relative position in the supply chain

(visibility beyond the next four to six weeks remains low).

■ Mixed views. PC builds in 3Q are tracking better than feared, though

probably in line with seasonal. 2Q end-demand for TVs seems to have

been stronger than expected, impacting panel inventories. Some upstream

suppliers to China smartphones are seeing some softening in business

momentum, though not a sharp rollover. Both DRAM and NAND traction

appears to sustain its strength into 4Q. Overall for the sector, limited

visibility, lack of product cycles and high product penetration lead to a

relatively low-confidence environment.

■ Stock ideas. While Samsung has been, and remains, our top pick, we are

now more comfortable holding SK Hynix as well. Our relatively

conservative view on Taiwan tech is maintained, and we would tactically

trim/take profits in Taiwan upstream. We continue to recommend panels

where AUO is our preferred pick. We highlight Himax as one of the names

where we see upside to street estimates. Lenovo seems to be performing

better than what the market is giving it credit for and is a recommended

buy. Naver is seeing strong business traction in its businesses and remains

a key buy.

12 September 2016

Asia Technology Strategy 2

Focus table Figure 2: Summary valuations and the tone of speakers of some of the key companies attending the ATC

Source: *Not covered companies based on Bloomberg consensus; closing price as of 9 September 2016. Source: Company data, Bloomberg, IBES, Credit Suisse estimates

12 September 2016


17th ATC: Message is mixed Corporate tone: Our analysts were able to attend meetings with, and write their

comments on, 85 of the ~110 corporates that attended our just-concluded 17th Asian

Technology Conference (ATC) in Taipei. Of these 85 companies, 66 came from the

technology sector. While the overall tone of the companies wasn't as positive as it was

in 2007 or 2014, it was nevertheless the third most positive year—in terms of

percentage—in the past ten years. A point of caution though: performance of MSCI

AxJ tech index to end of the year since the end of the ATC in both 2007 and 2014 was

modestly negative! We believe that the feedback from the attending companies was

mixed, depending on the end-markets they addressed and their relative position in the

supply chain. One factor was quite noticeable though across most companies—

visibility/confidence beyond the next four to six weeks remains low, and hence there

still remains a fair degree of uncertainty about 4Q.

Figure 3: MSCI historical performance and outlook/sentiment of companies attending the ATC (%)

Source: MSCI, Credit Suisse

PCs: PCs seem to be tracking better than feared. Demand in 1H from the US and from

enterprise was relatively strong and that led the major US OEMs' (HPQ and Dell) builds to

remain decent in 3Q. At the same time, Lenovo claims that the excess inventory it had in

China has been worked through and that also seems to be helping the ODM builds in 3Q.

The combined effect is that builds in 3Q for PCs seem to be tracking in line with seasonal

with two ODMs indicating that 3Q is likely to end up near the higher end of their prior

guidance. While that doesn't make for a significant positive strength, it does allay fears

that the above-seasonal QoQ growth seen by the ODMs in 2Q may have led to excess

inventory build. In the niche segment of gaming PCs, it seems that the demand remains

quite strong.

TVs: AUO mentioned that the final demand, as per the end market data that it received,

for TVs in 2Q was quite strong with major markets such as North America, Europe and

China all seeing YoY growth in excess of 10% each. That compares against full-year

expectations for a flat to low single-digit YoY growth. If indeed demand was that strong in

2Q (we subscribe to IHS, where we receive sell-in data and that is still showing a flattish

quarter), then that shows the current strength in TV panel ASPs in a different light (i.e.,

12 September 2016


driven by end-demand rather than an inventory swing and inventory rush on the back of

likely shortages coming later in the year), and implies that the strength should very much

last at least into 4Q16. Most companies across the display supply chain seem to be seeing

fairly consistent strength.

Smartphones: The China smartphone market remains the most debatable end-market,

with opinions varying by sub-sector and even between companies within the same sub-

sector. Several companies from the upstream space seem to indicate some cuts/softness

coming in from Android smartphones in late August and in September. However, some

component companies are seeing continuing demand strength driven by fears of some

key component shortages. End-market insights—in terms of final sell through to

customers—for China are difficult to gauge, but clearly haven't been as strong as the YTD

YoY build momentum. In our view, the end-market is probably up 10-15% but the builds

have been up anywhere between 15% and 25% YoY, depending on where one looks at in

the supply chain. We believe that we should continue to see some softness in builds as we

progress through this year, but we are not yet seeing a sharp rollover.

Apple also announced its iPhone 7 in the midst of the ATC. However, from a supply-

chain perspective, Apple units have not been a swing factor for the past three months—

estimates have not varied much, except for some tightness being induced due to yield

issues for some modules/components. Next four weeks will be interesting in determining if

the actual demand for these phones is in line with the builds for 2H16. Our view is that

units for 7+ could surprise positively if consumers end up liking what they see in the dual

camera implementation and are willing to pay the price premium. On the other hand, units

for iPhone7 could disappoint if several of the iPhone 6 holders give this version a pass.

But again as we said, data points on this front will only be available over the next four-odd

weeks.

Memory: The summary view from the companies attending the ATC and our team's

meetings in Japan and Korea during the pre-ATC tours is that both DRAM and NAND are

in better shape than our prior estimates. As discussed earlier, PC builds seem to be

progressing better than feared and checks with both Samsung and SK Hynix indicate that

inventory levels are quite healthy at about two weeks. While we have held a positive view

on DRAM into 2017, we were concerned about a pullback in DRAM ASPs into 4Q16—that

fear now appears to be unwarranted. NAND continues to be strong, driven in the near

term by the smartphone builds and the rising density. Samsung's strength and lead in 3D

NAND appears to be more secure with delays in yield ramp at most of its competitors. Our

team has heard from various semi cap equipment manufacturers that the 2H16 order

momentum from non-Samsung 3D space is slower than expected.

Stock conclusion: We remain overweight Korea tech—while Samsung has been, and

remains, our top pick, we are now more comfortable holding SK Hynix as well. Our

relatively conservative view on Taiwan tech is maintained, and we would trim/take profits

in Taiwan upstream—driven both by solid performance and likely cuts in September and

beyond as the China smartphone build starts to roll over. We will continue to recommend

panels where AUO is our preferred pick. We highlight Himax as one of the names where

we see upside to street estimates. Lenovo seems to be performing better than what the

market is giving it credit for and is a recommended buy. Naver is seeing strong business

traction in its businesses and remains a key buy.

12 September 2016


Takeaways from the company meetings at the conference Foundry – Logic and RF

Hua Hong (1347.HK)

Speaker: Daniel Wang, CFO

Tone: Positive

Analyst: Randy Abrams

Key Takeaways:

■ 2016 on track to moderate growth. Hua Hong indicated 3Q16 sales growth is on

track to grow 3-4% QoQ off the higher base to US$183-185mn with good growth from

discretes, MCUs, logic and RF. GMs are also targeted to remain between 30-31%.

Contrary to a sharp correction in 4Q15, Hua Hong sees the inventory levels remaining

healthy and momentum from power discrete and banking card remaining solid,

offsetting the slowdown in SIM card, and now expects to see mild growth in 4Q16. We

keep our expectation for +10% YoY growth in 2016 with drivers from embedded flash

moving to 90nm, discretes and power management. The company has gained

incremental market share from Taiwan customers and seeing strength from its Chinese

customers.

■ Targeting double digit growth in 2017. Hua Hong management believes the demand

from MCU and eNVM will continue to be strong on China customers’ share gains.

Discretes are seeing high growth as the company adds capacity and brings in higher

margin superjunction business and the management believes it will continue to grow

meaningfully from 27% of revenue to 30% in 2017 following a 30% YoY growth in 2016

due to limited competition and demand for super junction from local customers

continues to be healthy. The company is also growing its specialty logic IC business

from a low base. Though the capacity increase is limited, the company believes it could

still grow at least 10% YoY in 2017 supported by the ASP lift through product mix

improvement. GMs will be sustainable at 30% levels on high utilization and better

product mix.

■ Capacity expansion continues on track. Hua Hong had 151K capacity in its 3 China

8" fabs and we expect it to maintain 90-100% through 2H16. The company plans to

grow capacity +10% YoY to 160k WPM in 2016 with US$150mn capex split between

$100mn for expansion and $50mn for upgrades. The management indicates the

ultimate goal is to expand capacity to 164K WPM and could consider M&A if the

demand remains strong. Depreciation guided to grow from US$79mn to

US$93mn/US$110mn in 2016/2017. We estimate FCF rebounding to US$15mn in

2016 but could be over US$100mn in 2017 after this initial post IPO capex spend.

■ Growing with China domestic customers. Hua Hong believes the government’s

initiative on supporting local semiconductor industry will benefit foundries and back-end

suppliers. The company expects revenue from China customers will grow from 50% to

60% in the long term and 20% from the U.S. customers. To support the growing

demand, the company will consider acquiring assets and potential M&A with smaller

domestic foundries for capacity and the company still has land for further fab

construction. In contrast to SMIC which is seeking foreign asset acquisitions

aggressively, Hua Hong won’t consider acquiring foreign foundries due to more

difficulty in management.

12 September 2016


LandMark (3081.TT)

Speaker: Jerry Yang, CFO

Tone: Neutral

Analyst: Jerry Su

Key Takeaways:

■ Epi wafer process specialist. LandMark provides Epi wafer process for laser diode

and photo detector used in GPON, data center, and silicon photonics. In 1H16, 60% of

sales came from optical telecom (FTTX/4G), 30% from data center/silicon photonics

(20% from silicon photonics), and 10% for industrial/consumer applications.

■ Q3 sales to remain flat to down slightly YoY. LandMark expects Q3 sales to be flat

YoY, implying ~15% QoQ decline given the slower GPON pull-in from its major

Chinese end customer. It noted the current shipments for GPON is only 30-50% of

peak level.

■ 4Q16 sales to stabilize and then resume growth from 1Q17. It thinks Q4 sales

should stay at similar level vs Q3 and could see some upside if its GPON customers

begin pull-in again. It already started small volume production for 10G and thinks the

next upgrade cycle from 2.5G to 10G could start from 1Q17. LandMark believes it

could enjoy a 40-50% ASP increase for the transition.

■ Silicon Photonics remains on an upward trend. LandMark expects its Silicon

Photonics sales to see 100% YoY growth in 2016 and could see another 30% YoY

growth in 2017, driven by the recent product launch announced by its US customer. It

believes Silicon Photonics will see better competitiveness for 200G-above applications

and could see more integration with high-end CPUs in the future.

SMIC (0981.HK)

Speaker: En-Ling Feng, Director of Investor Relations

Tone: Positive


Key Takeaways:

■ Business remains strong. SMIC says it is on track to high single-digits growth in

3Q16 and further growth in 4Q16, with annual growth revised up again during the 2Q16

conference to +25-30% YoY vs. 20% at the start of the year.

■ The company targets 20% sales CAGR through 2019. SMIC is being lifted from

China fabless gaining share and system houses growing their internal ASIC mix.

Management expects growth for 2017 to be sustained by continued China customer

gains and more 8” capacity to allocate to existing demand for CIS, power management

and fingerprint.

■ 8” and 12” capacity may need new fab space. According to management, the

company will have 220k capacity at end of the year and can add 19k additional

capacity for 8” to fully build out Shenzhen. Management is preparing for potential fab

space for more 8” and legacy 12” capacity (connectivity, set-tops, RF). The company

says it has a 12” fab shell in Shenzhen and could equip that for 8” or 12” up to about

35k 12” or 50k 8”. Per management, the company’s Beijing JV also has room for 17k

capacity and is starting the next shell for installation in 2018. The company says it

could have similar capex next year to fill its existing fab space (19k 8”) and (17k 12”)

plus add some fab.

12 September 2016


■ Margins. The company acknowledges mid-20% GMs could be reasonable factoring

depreciation of US$2.5bn capex over 7 years would add US$350mn

depreciation. R&D funding for process development on 28nm / 14nm is rising relative

to the lower cost 40nm node so is increasing to US$60-70mn run rate the next few

years and may gradually grow up with rising process development costs. Opex should

rise about in-line with revenue near-term but provide scale benefits longer-term.

■ 40nm business sustaining. The company says it's 40nm mixed-signal business

remains solid but could shift toward 28nm in 2018. The company believes it is still

gaining share and benefiting from proliferation of connectivity into more IoT

applications. The company says it may continue to prioritize 40nm mixed signal over a

me-too 28nm digital process next year, keeping 28nm small but fabs full running 40nm.

UMC (2303.TW)

Speaker: Bowen Huang and David Wong, Investor Relations

Tone: Positive


Key Takeaways:

■ Sales on track for this quarter. The company guided shipments up 2-3% QoQ and

blended NT$ ASPs flat QoQ with overall utilization at mid-80% due to capacity being

added.

■ 8” softness as expected. UMC’s 8” utilization had been in the 95% range through

2015, but has been in an inventory correction cycle, declining from 90% in 1Q16 to

85% by 3Q16 due to lower exposure to some high growth applications like fingerprint

and mix issues on driver ICs. The company is targeting more on fingerprint, image

sensors, MCUs, and display drivers to get utilization back up.

■ 28nm ramp on track. UMC’s 28nm was 17% of sales in 2Q16 and 20% or slightly

higher in 3Q16, with utilization at 95% or above in 2H16. The company exited last year

at 20k and will reach 30k by year-end. Exposure is through handsets/tablets, TVs and

set-tops. Profitability is still below but approaching the 12” average by year-end.

■ China fab ramping up in 2017. UMC has about 5% of sales from Chinese customers

but is targeting growth with its new Xiamen fab for 40/55nm. Capacity will be 3-6k by

end of the year. In pre-production, costs are in opex and shifts to COGs, with 70%

deducted as non-controlling interest.

■ 14nm still in the R&D stage. The company has 2-3k capacity R&D line but has not

set the timeline for meaningful revenue.

■ Capex still up a bit this year. UMC spent US$1.9bn last year and US$2.2bn this year,

with over 50% for 28nm and the rest for Xiamen. 2017 capex is not yet finalized.

■ Memory collaboration. UMC has a dedicated DRAM R&D development team for NRE

revenues but will not manufacture, spend capex or sell on DRAM.

■ New businesses slowing coming down. The company divested Topcell when it

merged into Motech and still has some exposure, but sales down to 2%.

■ Cash payouts should continue. EPS was NT$1.08 in 2015 and NT$0.55 was

distributed, consistent with the past few years at a bit over 50% for about 4-5%. The

company will try to balance capex needs with continued payouts.

12 September 2016


Vanguard (5347.TW)

Speaker: Janey Liu, Investor Relations

Tone: Positive


Key Takeaways:

■ Sales tracking pretty well through 3Q16. Vanguard is comfortable with 3Q16

guidance and could reach the mid-high-end of +1% to -3% QoQ with GMs 33-35% and

OpM of 21.5-23.5%. The company guided power ICs up 10% QoQ, small panels flat

and large panels down 10%. The company’s large panel wafer demand is a little better

for TV and PC/Notebook due to lower inventory at customers and some Taiwan

customers gain into Samsung’s LCD shut-down, with small panel drivers and power

ICs in-line. NT$ is averaging 31.9, near the 32.0 expectation but not material.

■ Utilization holding up in 4Q and could hold flat. The company sees potential for

sales to hold closer to flat (large size up, small size flat, PMIC down), as it has visibility

for utilization holding stable through October, with only power management is pulling

back after 7 quarters of growth. It believes inventory is reasonable at large panel

customers and supported by 4k2k holiday ramp. It does see slightly higher inventory

for small panel to handle strong low-end China smartphone demand.

■ Power management still expected to grow double digits next year. Vanguard’s

target is to be in-line with foundry up about 5% YoY in a given year. Power

management is the main driver, up mid-high teens YoY in 2016 and with IDM ramps

from US/Europe auto/industrial targeted for mid-teens growth in 2017. The company

expects large size could be flat to up (4k penetration rising), small panel flat to down,

and others contingent on fingerprint design wins.

■ Fingerprint has potential but not yet certain. Vanguard has high single digits from

other (fingerprint sensor (~1% now), CMOS sensor, mixed-signal, legacy memory and

magnetic sensors). Fingerprint sensor orders are controlled by TSMC at a China and

Taiwan customer so could be outsourced to Vanguard.

■ Small panel to decline over time from OLED and TDDI. The company

acknowledges some risk on its small panel IC business from Korea gains on OLED,

TDDI and move to 2K displays. Near-term is okay but sales could decline from low-

mid teens percent of sales and come down to 10% by 2020. Some sales could hold up

for small panel into low-end mobile and consumer (automotive, display, GPS, DSCs,

toys). The company can also do low-mid-end OLED for its customers or eventually

migrate full HD to RAM-less.

■ Capacity outlook. Vanguard’s utilization reached 90% this year. The company plans

disciplined capex below NT$2bn with depreciation maintaining this year’s NT$2.05bn.

Capacity will grow mid single digits. The clean room can expand from 190k WPM to

215k WPM before new fab space is needed. The company sees potential to look for

IDM capacity as they move asset light.

■ Cash returns possible for excess cash. Management will have NT$18bn cash by

year-end but views NT$10bn cash as good enough for operations and capex since it

generates about NT$7bn from operations. Vanguard’s cash strategy is for 1) cash, 2)

rising absolute dividend (payout 90% to 100%+), and 3) share buybacks. Management

is weighing capital reductions with benefit of tax free but negative for liquidity since

large holders lock up about half the shares. It would split the reduction into multiple

years of about 5-10%/year.

12 September 2016


Visual Photonics (2455.TW)

Speaker: Peggy Jih, Special Assistant to President/Spokesperson

Tone: Neutral

Analyst: Derrick Yang

Key Takeaways:

■ Soft 3Q16 outlook. Management indicates that the 3Q16 business outlook is soft, due

to the slower pull in from both the RF and optical businesses. August revenues of

NT$161mn were down 2% MoM and down 16% YoY and management expects that

Sep sales might not see significant growth, implying double digit QoQ growth in 3Q16.

■ RF business seeing a sequential decline. Due to the lackluster order flows from

some key RF customers for various reasons like higher inventories on hand, fewer

outsourcing orders, conservative view toward the 4Q outlook, etc, RF business (80-

85% of its total revenues) will see sequential decline. Order visibility remains at about

one month, so there is limited outlook into 4Q16 now.

■ Optical business suffering from the inventory adjustment. For the optical

business (15-20% of its total revenues), the inventory adjustment in the China market

extends into 3Q16, after an aggressive build in 2H15-1Q16. While there are some

signs of bottoming out, it will take some time to see whether the momentum is

sustainable.

■ Laser diode business on schedule. Management indicates that laser diode product

is in reliability testing now and is on track for small volume shipment in 4Q16, though

the current weak demand in the optical market could be a swing factor for the timing of

the meaningful revenue contribution. It believes that its design could help customers on

better yield and lower packaging costs.

Win Semi (3105.TWO)

Speaker: Joe Tseng, Director of Finance Division & Spokesman

Tone: Neutral


Key Takeaways:

■ 3Q16 revenues down low single digit QoQ. Management reiterated the revised

guidance that 3Q16 revenues should be down by low single digit QoQ, due to the NTD

appreciation (1-2% QTD) and more conservative pull from smartphone customers. It

hasn’t changed the official guidance (flat QoQ) yet, as it will take them more time to

access the impact from various factors. Management indicated that there is limited

visibility into 4Q16 yet, but traditionally 4Q should be the slow season.

■ Smartphone momentum slows down. Management indicates that the momentum for

the new tier-one smartphone model has slowed down from Sep after the build for the

first round. Android smartphone pull is more mixed among different customers, after

solid shipment in 1H16.

■ Capacity expansion plan on schedule. Despite the near term softness, management

indicates that the company has installed 3K 6” wafers in the new Fab C and will install

another 2.5K as scheduled by end of 2016, as the new capacity will be for the growth

in 2017. Optical business should start from 4Q16, but more meaningful contribution

should be seen in 2017.

12 September 2016


■ IDM capacity and outsourcing strategy. Management indicates that the capacity

expansion among IDM players are mostly for filters and modules, while the compound

semi orders should continue to go to foundry players. It added that there is no major

change in the sourcing strategy among its major customers.

Backend Test and Assembly

Amkor (AMKR.OQ)

Speaker: Steve Kelly, CEO

Tone: Positive


Key Takeaways:

■ Sales seeing a strong 3Q16. According to management, 2016 is improving with a

strong 3Q16. The company has seen improvement through the year and improving

sentiment. The company is seeing good smartphone builds for the high-end

supplemented by share gains in both ecosystems, supporting its 3Q16 sales guidance

up 15% QoQ. Automotive is also strong and growing 10% YoY vs. normal mid-high

single digits of sales driven by content gains. Tighter capacity is also shifting the

mentality from demand focused to supply across smartphone and mainstream

customers. 4Q16 is normally still a slightly down quarter.

■ J-Devices consolidation adds automotive exposure. J-Devices was consolidated at

the end of 2016, bringing 10 factories from Renasas, Toshiba and Fujitsu, adding

US$800mn sales to bring the corporate level to US$3.6-4bn and 15% back-end market

share. Post consolidation, Amkor is now largest in the back-end automotive at 25% of

sales.

■ Amkor believes it is gaining 100bp share this year. The company targets 100bp

market share this year driven by; 1) consolidation of Taiwan competitors, 2) China

players trying to manage complexity integrating overseas acquisitions, 3) customer

consolidation and 4) gains from some smaller 2nd tier players. The company was also

lifted by its top customer gaining market share at a high-end phone.

■ Wafer level packaging expanding. The company has 100 customers for WL CSP as

a growing business. The company has SLIM/SWIFT as a die last approach to roll out in

its new K5 Korean facility to qualify customers in 1Q17 for single die volume in 2017

and mobile products in 2018. Cost is still higher due to new equipment cost and cost to

build-up layers relative to flip chip so the company is now focused on cost reduction

per management.

■ China fab adding capacity to support local customers with advanced capacity.

The company is expanding Shanghai capacity that could be filled in the next couple

years with advanced products (WLP, memory stacking, SiP and flip chip/bump). The

company’s Greater China fabless share is 5% but the company believes it should have

20% of the market if it executes. It believes opportunity is higher where it can

differentiate with best in class fab in China (and 5,000 employees) near SMIC’s fab,

though acknowledges local suppliers compete well for low-end commodity wirebonding

in China.

■ Management expects margins to have leverage. The company’s GMs were guided

to 16-20%, up from 14.3% in 2Q16. The company’s Amkor, only piece (ex J-Devices)

at US$800mn, is about 20% GMs and peaks at US$850mn at 23% GMs. The company

is putting more effort on judging customer forecasts to over-build forecasts and

12 September 2016


challenge managers' forecasts for their capacity to improve utilization and limit over-

investment.

■ Management believes capex could come down post the K5 construction. Capex

this year is targeted at US$650mn including US$170mn for K5, with initial capex

around US$500mn in 2017 according to the management. The K5 shell was finished

funding in 2Q16 and China fab finished funding in 3Q16, so capex by 2017 will be

down to equipment only. Capital intensity ex K5 should be in the low teens for stable to

modest growth and above/below if the cycle turns stronger or corrects according to the

management.

Chipbond (6147.TW)

Speaker: Alan Cheng, Investor Relations

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ 3Q16 tracking ahead of 5% QoQ guidance. Chipbond said its Q3 sales are likely to

grow 10-15% QoQ vs its original 5% QoQ guidance. Management said this is led by

better shipment for TV DDI and the ramp of PA bumping, although shipment for its

high-end smartphone customer remains slow.

■ OLED adoption for iPhone will be clearer by Q4. Chipbond thinks there will be only

one iPhone model using OLED in 2017, rather than all models. It believes Samsung

will be the sole supplier for OLED panel and also DDI, although other DDI makers are

developing OLED DDI for 2018 iPhone. Nevertheless, it said it will get a clearer picture

by later Q4 as its customer will need to plan for wafer start by then. Year-to-date,

iPhone DDI accounts for 7% of its sales vs 15% in 2015.

■ Large size and Android DDI demand continues into Q4. Chipbond sees healthy

inventory in the supply chain post the Olympic promotion and expects its TV DDI sales

momentum to continue into Q4, judging from the wafer starts at upstream wafer

foundries. It also sees solid demand for Android smartphone into Q4, supported by the

demand from India, while China demand is OK.

■ RF bumping business to further grow. Chipbond said its PA bumping business has

started to ramp up from late Q2 and expects it to see strong QoQ improvement in 2H16.

It believes the transition from wire bonding to bumping is an industry wide event for RF

makers, and it expect to provide bumping service to switches and filters, on top of PA.

It expects PA to account for 3% of sales in 2016, double in 2017, and could reach

~10% in 2018.

Inari (INRI.MK)

Speaker: PG Ho, Executive Director / KC Lau CEO / Gene Chen Chairman at PCL /

Vincent Chao R&D

Tone: Positive


Key Takeaways:

■ High growth Malaysian back-end supplier with RF focus. Inari was founded in 2006

focused on back-end packaging near many major chip companies in the Penang free

trade zone. The company started with RF SiP focus and expanded through Amertron

acquisition in 2013 (fiber optics and opto) with Avago as its main customer.

12 September 2016


■ Sales outgrowing the industry. Sales in FY16 (June) was +12% YoY to RM1bn, with

RM147mn net income and RM208mn EBITDA. June sales were RM255mn, up from

RM217mn QoQ. Capex is RM165mn to add about 15% capacity on top of 35%

capacity growth in 2015. Net cash is RM176mn with 50% payout (3% yield). RF is in

control, fiber is ready, smart LEDs ramping in Penang and PCL China ramping for

China SiP.

■ Growth driver at its key customer. The company expects growth from Avago RF

growth at 20% CAGR and expansion into Broadcom products for back-end test of data

center ICs starting from 50 testers this June (can reach 50-70mn Ringgit annualized (5-

7% of sales), with room for 280-300 testers. RF testers are consigned by Avago but

testers are purchased for Broadcom.

■ Key Avago supplier with expansion potential following its Broadcom merger.

Inari supplies 90% of Avago’s RF FBAR wafer processing (probe test, singulation,

laser marketing), 25-30% of assembly (ASE can offer the substrates), and 90-95% of

final test. Avago contribution was 78% of sales in 2015, with 10% from OSRAM and 7-

8% from Keysight (Agilent test and measurement) and a small medical division for IoT

products. The company is leveraging its relationship with Avago to add the Broadcom

products post their merger to address their US$15bn revenue (vs. Inari base only

US$250mn).

■ Amertron diversifies applications. The Amertron acquisition grew sales from

RM250mn to RM600mn in 2013 added exposure to analog and fiber optics which is

growing at least 5% per year. The company provides packaging for more Avago

products and a few new applications: 1) ceramic optocouplers for automotive from

Microsemi), 2) mature mouse ICs for Pixart, 3) fast Ethernet fiber, 4) IR sensors and 5)

OSRAM automotive LED and infrared controllers. Amertron also has strong capability

in fiber optics in China.

■ PCL Technologies supports its China fiber strategy. Inari has an operation in China

for non-RF SiP with the top China smartphone OEM. The company will bundle

controller ICs in a miniaturized package working alongside PCL Technologies.

■ Filter content could have continued 20% growth. The company’s products are now

50% RF (Fbar filters) and is now shipping 3bn SiP for smartphones using a high

accuracy flip chip, singulation and integration process (integrated passives) with

automated internal machines. Volumes are benefiting from rising filter content from 3G

to 4G and 4G + CA, with smartphones from 1.5bn to 1.9bn but its customers’ filter

capacity has doubled vs. 18 months ago ramping this quarter to support 20% YoY

growth.

King Yuan (2449.TW)

Speaker: Peter Chung, Senior Administrator and Aaron Chang, Director Planning Division

Tone: Positive


Key Takeaways:

■ Mild growth continues into 3Q16. 2Q16 sales were up 16% QoQ driven by China

smartphones, CMOS sensors, new baseband project and flash controllers. 3Q16 sales

are expected up 6-8% QoQ, with GMs at 31-32% driven by strong CMOS sensors,

graphics, Wifi, China smartphones, and baseband.

■ 4Q16 seeing a mild decline. 4Q16 sales may decline ~5-10% QoQ due to seasonal

inventory adjustments with base case about 7% decline. Sales are falling off more due

to high base in China smartphones, graphics, Wifi and baseband. Growth is holding up

12 September 2016


better in CMOS sensors and at a local system company. The company does not

expect a major inventory correction from China smartphones.

■ Solid full year growth this year. Sales are growing 15% YoY with targeted GM at

30% and could drive EPS around NT$2.50. Drivers for this growth have been the

rebound in China smartphones, CMOS sensors, new baseband project and graphics.

■ 2017 growth drivers. The company still expects more moderate growth around +5-

10% YoY with outgrowth from its smartphone and infrastructure, graphics and

baseband business.

■ In-house testing growing for drivers ICs and MEMs. The company has 20% of its

capacity from its internally developed testers but can now promote its own testers for

driver ICs so could grow this business.

■ Initial Capex view down next year as growth moderates. Capex this year is NT$8bn

(NT$1bn for the building, NT$4-5bn for new tools and NT$1.5bn for upgrades and

NT$1.5bn for handlers/probers) but the initial baseline is coming down to NT$5bn in

2017. Depreciation is NT$6bn this year and will be NT$6.5bn in 2017.

■ Test capacity additions to also slow next year. King Yuan now has 3,000 testers

after adding 150 in-house testers and 50 external testers this year and expects to add

another 150 in-house testers next year but few external testers. Utilization is 67% in

3Q16 with peak at 70% utilization but growth may be more moderate. Consolidation to

3 test suppliers helps it keep testers more fully loaded. The company estimates it can

recover the cost of a new tester in 3 years. Targeted dividend payout is also 70%.

Kingpak (6238.TWO)

Speaker: Joe Liu, Chairman

Tone: Positive


Key Takeaways:

■ A transition period this year. 2Q16 slowed QoQ from NT$709mn to NT$566mn down

due to inventory adjustments and competition in VGA view sensing from Omnivision.

3Q16 is the low season but picking up into 4Q16 and next year.

■ Growth to rebound in 2017. The company sees potential for 40% growth in 2017 from

automotive growth, megapixel migration and share gains. Growth is now coming from

auto’s migration from VGA to 1.3 MP from 10-15% of 2015 mix to 35% of 2016 and

more than 60% of 2017.

■ Mix diversifies from memory, continues shifting to automotive at higher margins.

The company’s product mix has diversified from memory, falling from 35% in 1Q15 to

10% in 2Q16 and dropping to single digits. Remaining mix is 45% automotive, 33%

security, and 12% consumer. Automotive is targeted to grow to 60% in 2017 and 80%

in 2018. GMs will benefit from automotive mix shift at higher margins, with medium

term expanding from recent low 30% to mid-30%.

■ Strong automotive position. The company’s overall share is 50-55%, with >70%

OEM market share, with OEMs moving up to 90% of the market mix as more cameras

in the original car sale. The company supplies all the automotive CMOS sensor makers

(On Semi, Sony, Panasonic) except Omnivision and could see share move over 60%

next year with the market’s move to 1.3MP. On Semi is over 70% of sales, but Sony

could ramp from low single digits to 20% of sales next year as security and auto

designs ramp. Smartphone image sensors will stay supplied by chip on board

(Foxconn, Sunny, Sony)

12 September 2016


■ Good capability over rivals. The company believes rival packages do not meet

automotive reliability specs and have higher cost structure on larger chips. Its own

iBGA (image BGA) technology has 500 patents filed meets reliability specs while it

believes rivals WL CSP is not qualified. It noted that Omnivision uses Tong Hsing’s

PLCC/Ceramic solution but has not passed the AECQ-100 automotive standards and

needs to add back board level reliability with underfill to supply the market. Competitors

chips wafer level packages do have a cost advantage on low cost small die size chips

but disadvantage on larger die size with the transition to 1.3 MP view sensing cameras

next year. It also believes global players may target the market but would take several

years.

Powertech (6239.TW)

Speaker: Evan Tseng, CFO

Tone: Positive


Key Takeaways:

■ Growth on track in 3Q16 and holding stable into 4Q16. The company would grow

double digits QoQ with a flat September, keeping business on track to expectations led

by NAND and Mobile DRAM, but also with growth in commodity from Xian ramping.

GMs should also be a little higher than the 21% reported in 2Q16, with potential for full

year EPS of NT$6, in-line with consensus. 4Q16 at this stage could maintain flattish

based on the current outlook. Sales is normally down in 1Q17 but 2017 has growth

drivers from NAND, advanced logic, 8” bumping and commodity/server DRAM.

■ Some GM leverage still possible. Assembly utilization is 85-90% and test is 80-85%,

so the company could still get some leverage from higher utilization. Test mix at higher

margin is also lower that historically at 23% vs. traditional mix closer to 30% so could

rebound with new test projects including use for NAND.

■ Xian DRAM project continuing to ramp on track. Powertech’s Xian facility could

ramp from 20mn chips/month now to 100mn/month volumes by 1Q17 for

commodity/server DRAM, approaching 10% of sales. The company could expand

further if its partner adds to its test although acknowledged it may lose a bit of GDDR4

graphics test to insourcing.

■ NAND flash opportunity from International manufacturers in China. The company

could see incremental China business as supplying SSD assembly and test which

could grow this business from 4-5% of sales to 10% of sales. Powertech will also grow

its SSD assembly in Singapore from 4 lines (about NT$100mn/month) to 6-7 lines.

■ High-end density increase in the flagship smartphone providing some benefit.

The company believes the high-end flagship is maintaining the PoP package of Mobile

DRAM for 2-3 years, as mobile DRAM with CPU may have yield loss and TSV is still

maturing. Powertech will still do die stacking for Toshiba and Micron.

■ Advanced logic growing. The company’s primary advanced technology is copper

pillar and solder bumping, RDL for memory and logic, flip chip (now break-even) and

probe test for logic and GDDR5. The company has about 6% of sales now from

advanced logic and could approach 10% by next year.

■ Panel level fan-out ramping. The company is spending NT$2bn for a facility and

equipment and qualifying panel level fan-out for 2H17 volumes for communications.

■ Capex higher this year. Capex this year is NT$15bn versus NT$9bn depreciation and

about NT$13bn operating cash flow. Capex this year is for 1) NT$2bn for the fan-out

12 September 2016


packaging line, 2) NT$5bn for flip chip and bumping from 50k to 70k WPM, 3) testers

for 3D NAND, 4) expansion of assembly and 5) Xian capex (US$130mn total capex

with 1/3 spent). 2017 capex may fall back to NT$10bn next year.

■ Tsinghua Unigroup status. The application has been submitted to the investment

commission but still pending review in Taiwan. The deadline is January 2017 and

would require shareholders’ approval again. Powertech still views Tsinghua having a

good position to develop NAND through its collaboration with XMC if they can still get a

license from an established player.

■ Dividend payout maintained. The company paid NT$3 cash last year and maintains

60-70% payout which could imply closer to NT$3.50 if business could meet consensus

expectations.

Fabless Semiconductors / IC design

ASpeed (5274.TW)

Speaker: Lili Wu, Investor Relations

Tone: Positive


Key Takeaways:

■ Near-term upside strength. ASpeed’s sales are tracking up 20% QoQ in 3Q16. The

company is aiming for flat QoQ in 4Q16. Shipments should reach 4.4-4.5mn vs.

original 4.0mn guidance (vs. 3.5mn last year). Capacity is in a bit of shortage through

October due to demand outpacing original order expectations.

■ Demand driven by AR/VR and cloud workloads. Near-term strength is coming from

leading two leading US cloud companies to support more public gaming using AR/VR

and picture beautification apps relying on the server and more SME corporates moving

workloads to the cloud, shifting cloud/non-cloud up to 40/60% and toward 50/50 in a

few years.

■ Perlyn generation will gradually ramp next year. Perlyn platforms starts shipping in

February (BMC ships 2 months ahead of Intel) for 2Q16 launch. The company expects

gradual ramp and not meaningful until late 2017. ASpeed expects to grow 15-20% YoY

from new customers (gains into H3C, Oracle, IBM and Intel) plus organic growth and

possible pick-up from China after two flat years.

■ Server platform moving to a prolonged life cycle. Intel’s server life cycle is pushing

out from 2 years to 2.5 years. The Perlyn ramps next year and Tinsley generation

would launch in 2019/2020. The longer cycle allows more time for R&D but also implies

more gradual share shifts.

■ AV Extension constrained near-term, could ramp with a new low-end product in

2017. A/V extension was 6% of sales in 2Q16 and 3-4% in 3Q16 as units are

reallocated to BMC to handle constraints, but still up 20% YoY for the full year from

130k in 2015. ASpeed will launch a low-end 1:1 4k2k extension product in 2017 at

US$15-17 (vs US$30 for high-end) to target applications like retail/malls/convenience

stores. Margins are still higher on A/V than 60% corporate average at same ASP due

to upgrade to 4k.

■ Virtualization still small but targeting Rural China for 2017 growth. ASpeed’s

virtualization controller (US$15 ASP) has had a slow ramp this year supplying niche

smaller customers but is now targeting China rural area projects. The product is still

12 September 2016


just 1% of sales in 2016 but if this project is successful could grow the segment to 3-

5% of sales in 2017.

■ Emulex deal pushed back to December. ASpeed’s deal closure has pushed back

from August to early December as the Taiwan government is requesting Emulex

audited product line financials for the past few years. ASpeed’s acquisition is the first

from Taiwan of only a product line vs. a whole company so is adding complexity.

Emulex will add about 1.5mn incremental units so allow 40%+ growth and still accretive

EPS factoring in opex and the 6% dilution.

■ Emulex could help the enterprise business. ASpeed has received favorable

customer feedback on Emulex product line performance and requires no re-design and

also brings much better security capability to the firmware. ASpeed has focused on the

cloud servers which prioritize high performance and low power efficiency but OEMs

prioritize security. ASpeed can use Emulex firmware for enterprise and its own

firmware for the ODM/cloud market for the post Perlyn design cycle in late 2016/2017.

The company’s untapped opportunity is HP (in-house), Dell (Nuvoton) and Huawei (in-

house) and could be targeted with a 28nm chip offering better power/performance.

■ Technology migration for Aspeed. ASpeed will be on 40nm for Perlyn and will

decide on whether to use 28nm for its next project next year. For the Emulex products,

ASpeed will take those from the existing foundry Renasas but shift to TSMC from 2018

and could help better margins due to purchasing scale.

Egis (6462.TWO)

Speaker: Todd Lin, COO and Yipin Lee, CFO

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ 3Q16 sales tracking ahead. Egis reported August sales of NT$181.3mn, up 112%

MoM but down 12% YoY, ahead of market expectation on strong fingerprint sensor

shipments to its Korean smartphone customer. July and Aug sales collectively

accounted for 89% of our 3Q16 revenue estimate of NT$301 mn (up 19% QoQ and up

26% YoY). It expects September shipment for fingerprint sensor to grow MoM, while it

will not book any software licensing income in Sep.

■ Revenue expected to further grow in Q4. Egis noted the software licensing income

booked in Aug/Q3 has seen a rapid decline versus May/Q2, suggesting the majority of

the MoM revenue growth in Aug came from sensor shipments. Management expects

its sensor shipments to Samsung to further grow into Q4 as its customer ramps up the

shipments for 2H16 new models besides existing design win for A- and C-series, as

well as pull-in for 2017 new models (A, S, and J). It noted Q4 shipment could be 3x of

Q3, based on current design wins.

■ New chip to penetrate into the high-end segment. Egis' new chip (ET51X) now will

be able to detect fingerprint through ceramic (100 um thickness) or glass (210 um

thickness). It believes the new chip could offer similar or even better performance vs

active sensing peers, which could help Egis break into the high-end segment.

Management said it is very optimistic on its allocation at Samsung’s 2017 models,

including the flagship Galaxy S8, since its new chip can achieve fast response time

(0.2 sec), while its peer is still developing.

■ Competitive cost structure vs peers. Egis said it is the only fingerprint sensor maker

using passive-sensing technology and the others are mostly using active-sensing,

which might face patent infringement issue against Apple. Moreover, management said

12 September 2016


its passive-sensing technology does not require bezel (US$0.3), save 2nd die to drive

high voltage (US$0.3), has better natural yield due to less wafer process/design, does

not require an external crystal (US$0.1), and also has better power consumption than

peers

■ Shifting its focus to Chinese customers. Management believes its business

development at Samsung is on the right track and targets for 50%+ allocation in the

2017 new models. It has shifted its focus and engineering resources toward the

Chinese customers in the past few months and has submitted samples to leading

Chinese smartphone brands for qualification. Egis expects that its shipment to Chinese

smartphone makers could start in early 1Q17, given 4-6 months design cycle. It has

partnered with O-film for fingerprint module assembly, although its will also work with

other module makers per customers request

Elan (2458.TW)

Speaker: Dennis Liu, Director

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ 3Q16 tracking ahead. Management sees strong demand for touchpad and touch IC

on market share gain, and believes its Q3 sales could surpass the NT$1.8-1.9 bn

guidance range. GM will also be better than 41-42%, given favorable product mix.

■ 4Q16 sales to see slightly decline. Management thinks Q4 sales will decline QoQ on

seasonality. Among its product lines, touch NB IC will stay flattish, while point stick and

touch pad will be down QoQ. GM should be similar to Q3.

■ Targeting for more share gains on touch pad. Elan said it is gaining share from its

US peers as it recently penetrated into several US NB brands. It believes its shipments

for 2016 will grow to 49mn units for 32% market share, despite the NB industry

declining.

■ More customers on fingerprint. Elan said it has been shipping fingerprint to several

smartphone brands (Wiko, Micromax, Sharp) and NB brands (Acer, Asus). It will add

more smartphone and NB customers in Q4 and 2017. It is also working with Jinco with

a Korean bank, and expects to begin mass production from 4Q16.

eMemory (3529.TWO)

Speaker: Li-Jeng Chen, IR Director

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ Flagship smartphone correction impacted 1H16 royalties, but now rebounding.

The company noted an inventory correction and production transition issue on both

driver ICs and power management for a flagship smartphone which dampened

royalties in 1H16 to 8% of royalties, down from a peak of 20-25%. Sales in 2Q16 were

down 12% QoQ and flat YoY at NT$280mn as a result. The company is now seeing

rebounding royalties as projects resume and also from new TDDI projects also

integrating the touch IC.

■ OLED a modest risk, but offset by other projects. Management supplies most

TFT/OLED driver IC suppliers (40% of its royalties from driver ICs) with its IP except

12 September 2016


Samsung so would have some impact, mitigated by ramps of new projects, with TDDI

providing royalties for the touch and driver IC and also from other OLED customers.

■ Incremental royalties from a couple customers shift from one-time to on-going

royalty model. The company is shifting a couple customers from a one-time fee model

to a recurring royalty for 0.18 micron. It resigned a US customer from one-time fee paid

in 2010 to on-going royalties starting from next year. The company also has transferred

a new European IDM to on-going royalties using OTP and MTP products.

■ Power management seeing good growth. eMemory generates 35% of its royalties

from power management also supplying other Asian and overseas customers, a

segment seeing solid 20% growth over time.

■ 12” migration the next focus. eMemory started first with 8” applications while its

competition is Sidense and Kilopass which started on 12” advanced nodes. eMemory

is now qualifying more 28nm/16nm applications and noted its overall scale is already

much bigger than those competitors due to its high share already on 8”. eMemory is

adding 12” (Asian customers for TV controller, set-top and Networking) for a security

key to replace eFuse.

■ Random number generator being unveiled. The company will roll out its random

number generator IP at the upcoming OIP forum for high security and targets overseas

fingerprint sensors, MCU and Bluetooth and could be suitable for automotive

electronics ICs, with customers showing interest to design-in.

■ 2016 could be the trough. Growth this year is 10-15% but could be the trough, with

rebound as its one-time licenses convert to royalties and from application growth in

future years.

FocalTech (3545.TW)

Speaker: Elsie Lin, IR Manager

Tone: Neutral

Analyst: Jerry Su / Derrick Yang

Key Takeaways:

■ 3Q16 tracking to high single digit QoQ growth. Management indicated that 3Q16

revenues are tracking to be high single digit QoQ growth, in line with its expectation.

3Q16 gross margin should be up QoQ due to more favorable product mix. Opex is

likely to stay at NT$5230-550mn.

■ Slow seasonality in 4Q16. It expects to see slow seasonality in 4Q16 for most of the

product lines, though IDC might continue to grow sequentially on more project wins.

Overall 4Q16 revenues should decline QoQ, though extent might not be significant due

to the strength from the IDC shipment.

■ IDC to be the major driver in 2016 and 2017. Management indicated that its IDC

shipment has been growing significantly every quarter, with 3Q16 volume doubling that

in 2Q16 and 4Q16 increasing by another 50% QoQ. The majority of its IDC in the HD

resolution in 1H16, but the FHD shipment will ramp up quickly to over 50% of its

volume in 2H16. It has solutions for both a-Si and LTPS technologies. It is also working

with its customer for a 10” in cell solution for the tablet application, scheduled for

shipment in 2Q17.

■ Fingerprint sensor likely to ramp up from 2017. Management indicated that the

company has been engaging with customer in 2016 and will likely see more revenue

contribution from the fingerprint sensor products. Though FocalTech will be a late

12 September 2016


comer to the fingerprint sensor market, it believes it could leverage its customer

relationship with China smartphone brands to gain more traction than other players.

Himax (HIMX.OQ)

Speaker: Penny Lin, IR Manager

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ LCOS/WLO ASP raised. Himax said that its AR glass customer has agreed to

upwardly adjust the ASP for LCOS and WLO since the shipment volume for 2016 is not

able to meet the original target. Management advises this will lead to upside on

Himax's Q3 sales and OP since the company did not consider the ASP hike for

LCOS/WLO when providing the Q3 guidance in early Aug.

■ Expanding LCOS/WLO capacity. Himax announced earlier that it would expand its

LCOS/WLO capacities by spending US$80-100 mn. It will add 3K 12" wafers/mth for

LCOS. It will also add WLO capacity by 6K 8" equivalent mother glass/mth. The new

capacity will be ready by late 2017 or early 2018 and management says this will

support its long-term growth on AR glass and 3D sensing for smartphone.

■ Upside on smartphone DDI sales. Management also mentioned that it has secured

more wafer capacity for the smartphone driver ICs; hence its Q3 smartphone sales

should also outperform its original guidance of flattish QoQ.

■ Large DDI business remains solid. Himax sees solid revenue momentum from its

Chinese panel customers, as well as pickup of Taiwanese panel customer given the

40-43" panel supply tightness. It now expects large size DDI sales growth to hit 35%

YoY for 2016, vs its previous 30% YoY guidance.

Novatek (3034.TW)

Speaker: Tony Tseng, Deputy Head of IR

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ 3Q16 sales tracking to the high-end of guidance. Novatek's Aug sales of

NT$4,095mn was up 7.3% MoM and QTD sales is tracking to the higher end of the

guidance range (NT$11.7-12.1 bn or up 2-6% QoQ). Management said demand from

SoC and large size DDI remains strong, and it expects Sep sales to remain on the right

track. It maintains its 27-28.5% guidance for GM as the GM largely depend on the final

product mix (SoC higher GM but ramless DDI has lower GM) and FX.

■ TDDI volume to pick up from Q4. Novatek said its FHD TDDI has won several

projects via multiple panel partners, and Novatek believes it will start to contribute

revenue in Q4 this year. It currently has launched FHD with ram TDDI at a premium vs

DDI+touch, and will introduce FHD ramless and HD ramless TDDI later.

■ Non-DDI sales strength to continue into 2017. Novatek thinks its non-driver revenue

could grow over 10% YoY in 2016 (up 14% YTD) given the solid demand from TV SoC,

T-Con, FRC, and scaler ICs. It thinks the momentum will continue into 2017 given its

stable market share for TV SoC at its key Korean TV customer, growing business with

Chinese/Japanese TV brands, and some share gain for T-Con business.

12 September 2016


■ Large DDI sales to remain stable. Novatek expects demand for large DDI to remain

stable in 2016-17 given stable TV panel demand, continue proliferation of 4K, and

introduction of 8K, offset by slower IT demand. It thinks GOA has reached 80%

penetration for leading panel makers and sees limited impact to its future business. It

will also be more aggressive to engage the Chinese panel customers and will leverage

China front- and back-end capacity for cost reduction.

■ M&A is always an option but needs to see some synergy. Novatek said it does not

rule out the possibility of acquiring other companies but it would prefer to see synergies,

such as bringing in new business, new technologies, or talents, before pulling the

trigger. It currently does not have any target now but thinks there should be a higher

possibility for M&A to happen in the non-driver IC area (such as analog IC), rather than

driver IC.

Parade (4966.TWO)

Speaker: Yoming Chang, IR Manager

Tone: Positive


Key Takeaways:

■ 3Q16 guidance reiterated. Management reiterated 3Q16 guidance for revenues to be

US$63-66 mn (down 4% at the midpoint), GM to be 41-44% and opex to be US$16.5-

17.5mn. Aug sales were up 51% MoM and 15% YoY to NT$763mn, along with the new

product ramp up for its customers. Management indicated that the below-seasonal

3Q16 revenue growth is mostly because of one panel customer planning to exit the NB

panel business and the delayed of the tablet refresh model.

■ SIPI driver IC to see more contribution in 2017. Management believes that it could

see more contribution from the SIPI driver IC business, by leveraging its existing

customer base in the eDP T-Con market, as its SIPI driver IC could support higher data

rate vs mainstream driver IC, making it a good fit with the eDP T-Con. It has been

working with multiple panel makers for the bundled eDP T-Con and SIPI driver IC for

NB and tablet applications, as the resolution migration and technology upgrade should

lead to more demand for higher data rate for display-related ICs.

■ Type C opportunities. USB Type-C could also present an opportunity for Parade, as

Parade could ass more value providing SoC solution integrating the switch and

repeater function for more value added. Parade believes its proprietary repeater

technology could help maintain the data integrity amid the high speed transmission,

which will differentiate itself from peers.

■ TDDI to gain some traction in 2017. With the acquisition of the touch controller IC

business from Cypress in 3Q15, Parade had obtained enough capabilities to develop

TDDI and probably will see some revenue contribution in 2017.

■ More dollar content to drive growth. Excluding the touch controller business,

Parade is mostly focusing on the NB/PC/tablet market, where the growth is stagnant,

though it is trying to increase the dollar content within those devices, such as SIPI

driver ICs, type-C redriving switch, etc., which lead to better growth outlook that the

underlying market.

12 September 2016


Realtek (2379.TW)

Speaker: Dr. Huang and Ivy Chen, Director of Investor Relations

Tone: Positive


Key Takeaways:

■ Business on track. Realtek’s business is seeing MoM growth through

August/September consistent with its investor conference, though it expects a little bit

of softening consistent with seasonality in 4Q16. GMs have been slightly above the 42-

44% range although customer induced pricing pressure and intense product

development persists so it conservatively maintains a medium-term range of 42-44%

GM and 9% average OpM.

■ Growth drivers should continue for the next 1-2+ years. Realtek’s key product

drivers the past 12-18 months and should continue into next year: 1) TV controllers, 2)

Wifi/Bluetooth, 3) Switch, and 4) Broadband router. Management advises new drivers

will be SSD and USB Type C, with mass production and contribution starting next year.

■ SSD controller qualified at three flash vendors. The company targets PC and PC

peripherals with solution offering low power/read write performance. Realtek is

qualified with 3 NAND vendors now (US, Korea and Japan) and finishing module

maker qualification. The 1st gen product is MP end of 2016 with SATA, PCI-Express

and 8 channels (peers at 4 channels) and 2nd generation for 2017. Too early for

projections but 5-10% market share in 2017 would be a success, according to

management.

■ USB Type-C starting slowly, an important driver 1-2 years out. USB Type C is

slower than management expected near-term (complicated spec) ramping to 10% PC

penetration in 2016 and 25-30% and more meaningful in 2017-2018 to become an

important and profitable driver for the company. Realtek is seeing design traction in

monitors with hub for multiple connections, display port interface and power delivery

leveraging its traditional strengths in this area. Its 1st generation is shipping, 2nd

generation taping out and 3rd generation getting designed in.

■ Wifi position remains strong. The company is seeing more benign Wifi competition

from Broadcom (more focused on mobile) and Marvell and rising volumes from

broadening applications at slightly above corporate margins, with typically new Realtek

products also slightly above average.

■ IoT ramping but still small. Realtek’s Ameba IoT device includes Arm M-series MCU

versions with Wifi or Bluetooth and embedded flash and picking up but contribution still

modest.

Silergy (6415.TW)

Speaker: Maggie Liang, IR Manager

Tone: Positive


Key Takeaways:

■ 40% YoY growth for 2016 revenues. Management indicated that 40% YoY growth for

2016 revenues should be achievable, considering the incremental contribution from the

newly merged smart meter and LED driver IC business from 2Q16. In the near term,

12 September 2016


3Q16 revenues should be flat QoQ and 4Q16 should resume sequential growth on

seasonality.

■ Solid growth outlook into 2017. Looking into 2017, management believes that it will

be able to deliver 20-30% YoY revenue growth and sustain gross margins at similar

mid-40% GMs YoY. The major growth drivers will be the share gains at the Chinese

smartphones and TV brands, as well as the LED driver business.

■ Mergers are earnings accretive. Silergy had made two major merger deals in 2016,

including the smart meter business from Maxim at US$105 mn and the LED driver IC

business from NXP at US$20 mn. Both deals are financed with cash from back loans

and a follow-up ECB (~11% dilution). The smart meter business could add a new line

to its product portfolio and the gross margin is above its corporate average. The LED

driver IC business is complementary to its exiting LED business in terms of market

focus, patent portfolio, and customer base, and could generate similar gross margins

vs its existing business. Even consider the amortization expenses (NT$71mn in 2Q16,

NT$60mn for the following 10 quarters and NT$30mn onward after that for a total of

NT$1.6bn intangible assets from these two deals), both new business could deliver

profits in 2016.

■ Automotive deployment. For the automotive market, management said that the

company has allocate some R&D resources from 2015 and expects to see more

meaningful revenue contribution in 3-5 years, as it usually takes a longer period of time

for qualification in the automotive market.

Silicon Motion (SIMO.OQ)

Speaker: Riyadh Lai, CFO

Tone: Positive


Key Takeaways:

■ 2016 business supported by SSD and eMMC. Silicon Motion believes the overall

2H16 outlook remains healthy supported by the mobile demand and sees limited risk of

severe correction in 4Q16 vs. 4Q15. The management maintains its 2016 sales

guidance for up 44-46% YoY on the back of growing eMMC revenue supported by

healthy China smartphone demand and its customer’s share gain. Management

expects the Client SSD business to grow to at least US$150mn in 2016 and could

potentially surpass eMMC by the end of this year due to rising SSD penetration in

computing devices with over 40% in notebooks and growing demand from gaming PC.

GMs/OpMs guidance are also maintained at 48.5%/26.5% for 2016 but the company

believes rising revenue scale could drive operating leverage and bring OpMs back to

30% in the long term.

■ Growing opportunity in client SSD in the long term. Silicon Motion believes the

global client storage devices including HDD and SSD is 500mn units and overall SSD

penetration is only at 10%. As the penetration in computing devices continues to rise

and the applications are expanding to non-mission critical data center applications, the

company believes overall client SSD market will reach US$2.5bn with long term ASPs

at US$5. Though the competition might heat up, the management believes it could

maintain ASPs at that level and market share at 30-35% with continued product

portfolio refresh and more functions integration, implying a US$700-800mn opportunity

for the company.

■ Competitive landscape is still healthy. The management acknowledges there is

more competition in the SSD controller market from its Taiwan peers but noted the

technology difficulty is optimizing the firmware and hardware. Currently the major

12 September 2016


competitor is Marvell in the client SSD market with Micron and Sandisk and some of

the module makers (e.g. Kingston) using their solutions but still not competitive in

firmware. The company believes that although Phison and Realtek claim their solutions

are ready, the solutions will need to be qualified and proved to be reliable and thus

believes the impact from that competition is limited.

■ 3D NAND supply will ramp up in 2017. Silicon Motion believes most of the NAND

suppliers migrating to 3D NAND technology are suffering from low yield and technology

barriers and the technology won’t be a game changer until 64-layer 3D NAND can be

manufactured at high yield. The company now expects the industry output will grow

meaningfully in 2017 due to its aggressive capacity expansion plan for high

performance computing and enterprise applications. The company already has several

3D NAND controller products in production with meaningful revenue contribution

starting from mid-2017.

■ UFS penetration will still be moderate at least until 2018. Silicon Motion indicated

that only 10% of smartphones are using UFS controller with the majority in Samsung’s

flagship smartphone which adopts its own in house solution. The management

believes there is only moderate UFS penetration in 2017 as most of the AP fabless

have not supported the function due to high cost. Qualcomm only supports it for its

Snapdragon 800 series and Mediatek will potentially support the function only in the

high end Helio chip in 2H17. Silicon Motion has its UFS controller solutions qualified

and believes it still holds advantage vs. Hynix internal on die size and on field

customized service.

Memory

Nanya Tech (2408.TW)

Speaker: Pei-Ing Lee, President and Spokesman

Tone: Positive


Key Takeaways:

■ DRAM supply and demand condition now more healthy. Nanya Tech remains on

track to its 3Q16 bit shipment guidance for up single digits QoQ due to seasonal

demand from PCs and smartphones. Nanya Tech indicated the overall supply demand

conditions have improved in 2H16 following a weak 2015 and ASPs will also improve

QoQ in 4Q16 supported by stronger-than-expected demand across consumer

electronics. Management also believes top suppliers are now improving profitability

though cautious capacity expansion. With the ongoing capacity conversion to

advanced nodes in the DRAM industry and more conservative capacity expansion

plans among the leading players (e.g. Samsung), Nanya Tech expects the industry bit

supply will grow 20% YoY in 2017.

■ Technology migration on track. Nanya Tech is on track to build a new fab for 30nm

to 20nm capacity conversion with a clean room to be ready by 4Q16 and equipment

move in the second half of the quarter. The company will start pilot production on 20nm

in 1Q17 and the initial plan is to convert 30K WPM 30nm capacity to 20nm for the high

density DDR4 and LPDDR4 manufacturing. Capex in 2016 remains unchanged at

NT$25.253 bn with US$120 mn on building and clean room construction, US$200 mn

for automation and other facilities and the rest for the equipment. Management

believes the capex in 2017 should come down slightly YoY. Depreciation run rate is

now NT$400 mn a month but will grow once 20nm is in mass production in 2Q17.

12 September 2016


■ Micron deal to be closed by the end of 2016. Nanya Tech believes the deal

between Micron, Inotera and Nanya Tech is progressing well and expects the deal to

be closed by the end of this year. Following the deal, Nanya Tech will use the proceeds

to invest in Micron and reiterated it has no plan to interfere in Micron’s business as

both companies will continue the partnership. An update on the deal will be provided

later in the year.

■ Competition from China and Intel is limited. Nanya Tech believes the Chinese

companies will not be able to ramp up the advanced nodes due to lack of technology

capability though local government is pushing aggressively the memory industry. The

global leaders will also be very conservative on licensing technology to Chinese

companies to prevent the risk of oversupply. UMC’s collaboration with Fujian Jin Hua

will also have limited impact on the industry due to lack of scale and its belief that most

of the technology being used is legacy. On Intel’s 3D XPoint, Nanya Tech believes the

competition in the leading edge will still be moderate in the next three years due to the

technology difficulty and yield issue.

Toshiba (6502.T)

Speaker. Kouichi Tanaka, Group Manager, Communication IR Promotion Group,

Business Planning Div., Storage & Electronic Devices Solutions Company / Makoto

Yasuda, Chief Specialist, IR Group, Public Relations & Investors Relations Div.

Tone. Neutral

Analyst. Hideyuki Maekawa

Key Takeaways.

■ NAND demand/supply. Toshiba anticipates a stronger-than-expected supply-demand

environment through Oct–Dec. It noted a possibility of inventory adjustments in China

in Jan–Mar due to double-ordering by smartphone makers badly strapped for parts.

However, it also says any adjustment in smartphone-related demand could be offset by

exceptionally strong demand for notebook and enterprise SSDs.

■ NAND prices. The company expects NAND prices to be flat QoQ, but thinks market

conditions suggest NAND price increases for smartphone and retail. It also believes

NAND prices will not decline through Oct–Dec. It expects favorable price conditions to

continue through the current year.

■ Supply bit growth forecast. Toshiba looks for supply bit growth of +40% in FY3/17

and +30–40% in FY3/18. It expects growth of at most 40% for mobile (40% of total bits)

and at least 50% for SSDs (30%), and expects retail/wafer (30%) to fluctuate

depending on the demand environment; an increased allocation toward SSDs would

mean lower bit growth.

■ 3D NAND production update. Toshiba began producing 48-layer chips in March and

is now supplying them in volume to certain customers. While some are for mobile, the

bulk are for enterprise. Samples of 64 layer chips began shipping in July toward a

scheduled start of mass production in 1H CY17. Toshiba expects certification around

next January or February and anticipates mobile and SSD customers. It targets a 10%

weighting of 3D NAND in total bit output in FY3/17 and 50% in FY3/18.

■ NAND capex. The New Y2 fab (NY2) began volume production in July and has

already installed equipment for 30% of total capacity. Toshiba plans ¥860bn in overall

segment capex (order basis) in FY3/17–3/19, with ¥285bn earmarked for FY3/17

spending on NY2 equipment and R&D. Any subsequent investment will depend on

actual demand for 3D NAND.

12 September 2016


■ 3D NAND competitiveness. Toshiba says it lagged Samsung Electronics in mass

production by around 12 months as of early 2016 but has now narrowed this to six

months. It says the gap is 64-layer is six months at most, as it led in shipping samples

and plans to begin mass production in 1H CY17 (Samsung targets end-CY16).

■ HDD competitiveness. Near line HDDs—a growth target—currently account for 5% of

total sales. Toshiba's 6TB drive is two generations behind rivals’ 10TB models. It plans

to launch an 8TB model this autumn and a 10TB model in CY17 in hope of securing

10% of the near line market in CY17. Toshiba’s 6TB drive has already been certified by

11 enterprise customers and is being shipped, but the company has to sacrifice

profitability here due to its lack of a track record in near line. Toshiba targets 10% OPM

in HDDs in the future (1Q actual. 4.5%).

Transcend (2451.TW)

Speaker: Peter Shu, CEO / Raymond Lu

Tone: Positive


Key Takeaways:

■ Product mix shifting to higher margin business. Transcend was founded in 1988

in Hsinchu with 14 offices across 8 countries and 2,400 employees. The company was

initially focusing on the consumer flash and DRAM module business but has shifted its

focus on the industrial (35.7% of revenue) for the storage in automotive and SMT

machines and consumer strategic business (19.4% of revenue) for the applications in

the car video recorder, personal cloud storage, external hard drive and body camera

for security which are more margin accretive.

■ DRAM price to continue the upward trend into 2017. Transcend believes the DRAM

ASPs will continue to rise into 2017 as the industry is highly consolidated and the major

suppliers are more cautious on the capacity expansion to improve the profitability. The

company purchases 60% DRAM from Samsung and 40% from Micron and believes it

could continue to secure steady supply with its long term partnership.

■ NAND seeing short supply in 2H16. The management believes the NAND industry is

in real short supply as the technology and capacity conversion progress among the

major suppliers are not as smooth as expected, leading to lower industry output. The

company procures 40% of NAND from Samsung, 40% from Micron and the rest from

Sandisk. Following WDC and Sandisk’s deal, Transcend didn’t see any change on the

partnership as they have signed 3 year contract with Sandisk prior to the deal already.

The US manufacturers' progress on 3D NAND is falling behind due to the yield and

performance issue and will carry worse cost structure on 48-layer 3D NAND due to

high equipment depreciation cost. Transcend believes that customer will only be

profitable on this segment if 64-layer is in mass production at high yield. Due to the

delay on that 3D NAND ramp, Transcend also delayed its product introduction to 4Q16

from original plan in 3Q16 but expects the issue to be resolved in the next few months.

■ 2017 growth supported by industrial and strategic products. Transcend believes

the momentum should be healthy in 2017 supported by the industrial and strategic

related applications, offsetting the weakness in consumer flash and DRAM module

business. The company expects the industrial business to grow 30% YoY due to rising

penetration of SSD and the company is trying to expand its customers. The strategic

product line will also have 25-30% YoY growth with applications including the car video

recorder and body camera. Consumer flash will continue to be a tough market due to

fierce price erosion from competition and the company will try to maintain the market

share but sees the revenue in this segment will only be flat YoY at best.

12 September 2016


Semiconductor Capital Equipment

All Ring Tech (6187.TWO)

Speaker: Chine De Lee, Special Assistant to President of All Ring

Tone: Positive


Key Takeaways:

■ A leading local back-end equipment supplier. All Ring, headquartered in Kaohsiung

Taiwan, was founded in 1996 supported by nearby National Cheng Kung University

and now has 201 employees focused on automation equipment for semis, passive

components and LED packaging. Product mix was semis 41%, passives 31%, LED

18%, other/robotics 11%. The company maintains an asset light model focused on

design while contracting out sub-assemblies. Key IP is the software control and

programming for its tools, with 60% of engineers in software and 137 patents granted

and 86 pending.

■ Semiconductor sales tied to miniaturization. Management expects most of its

growth from the semiconductor business driven by advanced packaging and

modularization. Key tools for semis include chip mounters and optical inspection tools

used in fan-out wafer level packaging (including TSMC's InFO and CoWoS), flip chip,

and system in package (SiP). The company supplies TSMC and all the major back-end

packagers, passive suppliers and LED makers. Top packaging customer at 38% is

locally based in Kaohsiung and 2nd customer was Everlight, though foundry and

system company sales are growing in 2016.

■ Targeting 50% 2016 growth on SiP and wafer level packaging. All Ring Tech

believes they are seeing an inflection in 2016-17 as its tools see widening adoption in

smartphone modules and advanced packaging. Management sees potential for 50%

YoY sales growth to NT$2.2-2.3bn based on project backlog. The company is seeing

orders ramp for fan-out (material removal, automation and optical inspection) and SiP

(flex mounters). The LED/other sales are stable.

■ More projects targeted for potential sales doubling from 15-17. The company's

pipeline continues to grow with increasing modularization as system companies' work

to miniaturize their boards. All Ring Tech sees potential for additional board level

modules, fan-out/interposer projects and CMOS sensor dual sourcing projects, which

could drive a further 30-35% growth and doubling in sales from 2015 to 2017 to

NT$3bn if orders firm as projects move ahead.

ASM Pacific (0522.HK)

Speaker: Leonard Lee, Senior Manager, Investor Relations

Tone: Neutral


Key Takeaways:

■ A leading back-end and SMT equipment supplier. ASM Pacific manufactures

semiconductor assembly and packaging equipment with a broad product portfolio

including die bonders, flip chip bonders and lead frame solutions. The company is also

developing the solutions for fan out packaging and SiP to penetrate into the growing

addressable market.

12 September 2016


■ 2H16 staying resilient relative to last year. ASM Pacific expects 3Q16 billings to

grow double digits QoQ off the higher base, supported by +37% growth in 2Q bookings

($561mn) which lifted ending backlog to $519mn. Growth is from multiple drivers 1)

Higher China back-end capex (China OSAT's capex were up 92%/188% QoQ/YoY in

2Q16), 2) SiP and fan-out, 3) CMOS sensor growth for advance/dual camera projects

and 4) LEDs. Bookings will decline seasonally in 3Q16, pointing to a billings down in

4Q16.

■ SMT to recover from a low base in 2017. ASM Pacific expects the global SMT

market to grow from US$2.6bn in 2016 to US$3.0bn in 2017. The management is

confident to outgrow the market with continued share gains from its Japanese

competitors supported by the yen depreciation and orders from one of its key

smartphone customers will rebound significantly as they need to upgrade the

equipment after delaying for 2 years.

■ ASM Pacific’s outlook shifting to company specific drivers. ASM Pacific guided a

bookings decline in 3Q16 following its 1H16 consistent with the industry trend, though

will still see billings grow double digits QoQ supported by last quarter’s +37% growth in

bookings. Growth for the company is coming from 1) the higher China back-end capex,

2) SiP and fan-out, 3) CMOS sensor growth for advance/dual camera projects and 4)

LEDs.

■ Share gains in back-end and SMT. ASM Pacific said its market share has grown from

11% in 2011 to mid 20% in 2016. In the back-end, the company has about 60% more

scale than KnS and BESI and 5-6x scale over Towa and Shinkawa. The company has

gained share in the low I/O flip chip bonders and has products for mid-range and high-

end TCB.

■ Tool solution for fan-out packaging. ASM Pacific has a tool set for fan-out wafer

level packaging including laser for wafer prep and dicing/singulation (acquired last year

– ALSI), SMT for wafer reconstruction, compression molding tool, and test and

package. For broader advanced packaging, the company has 50% of sales now for

advanced packaging and tools not sensitive to interconnection (encapsulation, molding

and power management/CIS) versus 20% in 2011.

Chunghwa Precision (6510.TW)

Speaker: Louise Wu, IR Manager

Tone: Positive


Key Takeaways:

■ 2016 outlook intact. Chunghwa Precision keeps it sales guidance for up 15-20% QoQ

in 3Q16 for the peak season smartphone build supplemented by graphics products

shifting from 28nm Vertical Probe to 16nm using CHPT’s PCB with TPI’s Probe Head.

4Q16 can seasonally decline 10% QoQ to still meet full year 50% growth. The

company maintains its 50% sales growth in 2016 to NT$2.6bn, with 15-20% of sales

moving from a NT$1-3mn PCB sale to a NT$12-17mn solution sale integrating

TechnoProbe’s (TPI’s) MEMS probe head with one of its U.S. fabless customer

adopting on 28nm. The base business this year is growing from high growth Chinese

customers, graphics growth and share gains into high-end smartphones, with TSMC

declining from 54% of 2015 sales to 45% of sales as direct customers ramp.

■ Targeting high growth as the market moves toward MEMs cards. Management

projects the logic probe card market will grow from US$681mn to US$885mn from

2016 to 2020 with the high-end market growing to US$300-600mn by that time. CHPT

12 September 2016


believes it has 70-80% share in the higher-end MEMS used for 28nm and below vs.

more mature VPC/Cobra used on 28nm and above, giving it room to scale from current

US$80mn run rate as more AP, graphics, CPU, and GPUs migrate to advanced nodes.

Growth in 2017 is targeted from more products migrating from Vertical to MEMs probe

cards and solution sales growing from 15-20% of 2016 to 30-40% of 2017.

■ Limited competition in the advanced nodes. Chunghwa Precision believes it will

maintain the high share on 28nm and below nodes supported by its strong technology

capability on customization and efficient time to market. The company acknowledges

MPI is trying to develop its own MLO (multi-layer organic) interposer targeting for mass

production in 2017 as a potential threat, but remains confident on the overall landscape

and believes MPI still needs to improve the yield and technology to meet customers’

demand and won’t be able to provide as many customized solutions as Chunghwa

Precision due to limited R&D resource to support multiple projects at the same time.

■ Targeting to maintain profitability as revenue scales. CHPT maintained its

expectations for 50% GMs, down slightly from 52% in 2015 as full turnkey ramps to 15-

20% of sales and carries the solution pass-through of the TPI probe head. The impact

of the turnkey shift is kept manageable as lower margin (40%) final test load boards

decline from 20% of 2015 sales to 13% of 1H16 sales. Management expects R&D at

13-15% of sales and SG&A at 9% of sales for 26-28% OpM and 19% tax rate, implying

NT$20 EPS. Investments are also unchanged at NT$300-350n capex, though

management may consider a new fab in 2 years for further expansion.

Kulicke and Soffa (KLIC.OQ)

Speaker: Jonathan Chou Interim CEO & CFO / Khushi Ram, VP & Controller / Michael

Clark, IR & Strategic Planning

Tone: Neutral


Key Takeaways:

■ Cautiously optimistic. The company did well with the incremental SiP business this

year and aims for flattish to small growth in the traditional core wirebond business with

more traction from advanced packaging. Management sees a good pipeline for next

year and expects a good amount of electronics capex for next projects next year.

■ Wirebonding still could have low growth. The company generates 2/3’s of its

US$600mn from bonding and expects low single digit growth in bonding. The global

installed base of K&S at 90,000 units out of 130,000 units with annual opportunity

around 10,000-15,000 for the market. The company has about 65% of the installed

base with major competition from ASMP and some from Shinkawa.

■ Expanding into advanced packaging. K&S is targeting multiple advanced packaging

markets across flip chip (mass reflow), TCB, fan-out and SiP. The Assembleon

acquisition from Philips provided 60 units of its hybrid passive placement tool for SiP

which can place down to 5 micron accuracy and Apama can move down to 2 micron

accuracy. It is now targeting these for high accuracy flip chip.

■ SiP market opportunity. K&S is benefiting from SiP with tool opportunity across its

ball bonders, SMT, wirebonders and ball bonders. It has high share on the Assembleon

high accuracy and high speed placement tool. The Hybrid tool was about

US$40mn/quarter in the past couple of quarters from SiP ramps, growing from

US$25mn run rate at time of acquisition.

12 September 2016


■ Fan-out opportunity growing. The company is seeing substantial fan-out volume

from Qualcomm on power management using the eWLB product (Stats, Taiwan OSAT

and Nanium have licensed). TSMC’s fan-out is higher-end for AP. K&S Hybrid tool is

well suited for the eWLB for placement of actives/passives and Apama offers accuracy

and force/heat for the high-end market.

■ TCB bonding may ramp from 2018. K&S is seeing good interest with its system. The

company expects TCB will see memory as early adopter by 2018 starting at high

performance. Stacked memory has HBM from Hynix and Samsung starting from

graphics and now HBM-2 improving performance for a high performance stack

applicable to high-end graphics and accelerated CPU with Knights Landing. Memory

makers are evaluating a lower cost alternative using less TSVs and a low cost way to

do DDR 4 stacks to increase volumes.

■ Automotive/industrial a good growth business. The company supplies automotive

with its wedge bonders, into Chinese Electric vehicles and some business from its

Assembleon with its iFlex SMT tool. 80% is still consumer driven.

MPI (6223.TW)

Speaker: Charlie Chen, Special assistant to the Chairman

Tone: Positive


Key Takeaways:

■ 2H16 outlook remains healthy. MPI expects 3Q16 sales to grow up 8-11% QoQ

driven by the continued healthy demand for VPC (vertical probe card) supported by the

mobile demand and also growth from CPC (cantilever probe card) which saw rush

orders for touch driver ICs on rising penetration. The company expects 4Q16 might see

a seasonal 5-6% QoQ decline though demand from Nvidia’s gaming GPU business

remains strong. Full year revenue should grow slightly YoY supported by 20% probe

card shipment strength and RF/thermal testing growth, offsetting the weakness in LED

demand.

■ 2017 outlook supported by semiconductor business. MPI believes semiconductor

business could still grow 10-15% YoY mainly driven by rising demand for VPC and

MEMs probe card in the advanced nodes. The management believes that total probe

card market is US$1.3bn and growing at 6-12% CAGR and MPI will outgrow the

industry at 20% YoY in 2017, offsetting the flat CPC business. The company’s key

VPC customers include Nvidia, Hisilicon, Broadcom, Intel, TSMC, Marvell and

Spreadtrum and the company has probe head solution ready on 16nm and is now

qualifying on 10nm for the application processor ramping in 1Q17.

■ RF and thermal testing are growing business. MPI has been steadily growing its RF

testing business from US$1.5mn in 2015 to US$5mn through August and the capacity

will be fully loaded through the year end as the company is selling the products to both

labs and overseas vendors (e.g., Triquint and Qorvo) and growing demand with rising

4G penetration. The company targets to grow its share in the US$70-75mn market

from 3% now to 30% in the next 2-3 years with the management and R&D team

recruited from Cascade who currently owns 90% of the market. In addition, MPI

continues to invest in the thermal testing due to growing demand from automotive and

the management is also confident to grow its share in the US$30mn thermal testing

market to 30% in the next few years.

■ Industry consolidation and product mix improvement support its profitability.

MPI has a 6-7% share in the global probe market, and believes it could become a top 4

12 September 2016


player in the market in 2016. Management cited that the industry leaders have 75% of

market share and continue to grow to 80%+ on the industry consolidation. In addition,

the company is also migrating the product mix to higher margin non-DRAM business

and to grow its RF and thermal testing exposure, which have 55% and 65% GMs,

respectively. With improved industry landscape and product mix, the company believes

its profitability could be sustainable.

Tokyo Electron (8035.T)

Speaker: Ken Sasagawa, Director, Investor Relation

Tone: Neutral

Analyst: Hideyuki Maekawa

Key Takeaways:

■ 2016–17 WFE (wafer fab equipment) capex outlook unchanged. The company’s

2016 outlook is unchanged at $31–32bn, flat YoY, and it has no official position on

2017. Its outlook for 2017 is for foundry/logic capex to be at least flat YoY (Taiwanese

foundries spending on 10nm/7nm process technology, South Korean foundries on

10nm, Chinese foundries on 28nm), for 3D NAND capex to increase, and for DRAM

capex to bottom out owing to 1xnm investment. In the long term, it regards 3D NAND

capex as the driver, and assumes WFE capex grows to $37bn.

■ Orders to pull back in the September quarter. In Jan–Mar, leading North America

MPU manufacturers invested in 10nm technology and were followed by Taiwanese

foundries in Apr–Jun, when Korean manufacturers also invested in 3D NAND, and as a

result, orders exceeded the company forecast. Management assumes a pullback in

Jul–Sep, including in large-lot orders from major Taiwanese foundries. Samsung

Electronics is spending on 3D NAND based on an aggressive capex plan, but

investment by other NAND manufacturers remains slower than management had

assumed six months earlier.

■ Etch systems market share. The company is focusing on oxide etch and aims to

increase its share of the 3D NAND market. As Korean 3D NAND manufacturers have

yet to firm their 64-layer processes, it is unclear whether they can gain market share.

The company plans to expand capacity roughly 10% in response to growing etch

demand.

■ FY3/17 guidance. Although orders for Apr–Jun beat guidance, management may need

to review its full-year targets depending on Jul–Sep levels. Because 3D NAND does

not require advanced processes, easing the capital intensity for lithography equipment,

a declining sales share for coaters/developers, which carry the highest margins,

suggests the earnings mix will likely deteriorate slightly compared with foundries

■ Share buyback program. Management has yet to make a decision on share

repurchases. As orders often exceed targets, working capital is increasing and will

likely cap cash build-up at end-FY3/17.

Smartphone Devices

Coolpad (2369.HK)

Speaker: Mac Luo, IR Manager

Tone: Neutral

Analyst: Kyna Wong

Key Takeaways:

12 September 2016


■ Full year shipment target appears challenging. Coolpad targets 30mn smartphone

shipment for 2016 and sees it is challenging while the company only shipped 8mn in

1H16. They expect overseas business to account for 20-25% of revenue this year,

which has higher ASP and margin than domestic business.

■ Growth drivers in 2H. The company sees several drivers for volume in 2H16: 1) More

telecom subsidies, 2) increased sales in the open channels, and 3) COOL1 launch and

shipment ramp in 2H. Coolpad believes they could maintain their GPM in 2H due to

higher ASPs and mix.

■ Long-term plan for channel mix. Coolpad aims to improve its channel mix in 3-5

years with target of 30% of sales from carriers, 40% from regional open channels and

30% from online channels. Currently, 80% of sales still came from the carrier business

in 1H16.

■ Positive on its software and e-commerce business. The JV business with Qihoo did

not run well in the past. After they took over the mobile internet business from the JV in

April this year, they expect improvement and growth as they can run the business

through own channels and expand e-commerce partners such as Tencent, Alibaba,

and LeMall etc. Now, they see a satisfactory progress. Per Coolpad, they could also

leverage LeECO ecosystem for content offering.

Hardware components

Catcher (2474.TW)

Speaker: James Wu, CIO

Tone: Positive

Analyst: Pauline Chen

Key Takeaways:

■ 2Q to mark the bottom for OPM. Catcher expects OPM to recover in 3Q16, driven by

new models and recovering utilization rates. It still maintains a long-term OPM target of

32-38%

■ 2016 revenue guidance maintained. August sales showed strong MoM growth and a

decelerating YoY decline, driven by new smartphone and NB models. For 2017,

Catcher still targets revenue growth, mainly driven by (1) share gains or content dollar

gains in existing products, (2) penetration into new models for existing customers, and

(3) new customer wins from 2H16.

■ Glass cover + metal frame design not necessarily ASP dilutive. This was due to

longer machines hours to offset a shorter anodizing process for stainless steel frames.

For Al frame design, Catcher sees a similar manufacturing process, which might not

dilute the ASP as market concerns.

■ CAPEX and dividend policy. Catcher expected 2016 CAPEX to be much lower than

2015, as most factory builds were completed in 2015 and softer demand in 1H16.

Nevertheless, Catcher keeps its commitment to pay at least NT$10/share for the next

five years.

12 September 2016


Casetek (5264.TW)

Speaker: Peter Chang (IR manager), Grace Wang (IR)

Tone: Neutral


Key Takeaways:

■ Near term tracking below expectations. Sales are softer due to new NB supply

constraints and lower yield rates for the initial stage of model ramps. Casetek indicates

GM could be lower than its historical pattern due to lower utilization rates.

■ Targeting new smartphone design wins. Casetek has expanded 1K CNC machines,

and will target at global leading smartphone brands. It sees good traction from

customers and is hopeful of reporting a new customer win by end of this year.

■ Casing supply and demand varies between Apple/Non-Apple. Casetek believed

supply demand remains disciplined for the Apple supply chain due to limited suppliers,

although is more competitive for the non-Apple supply chain. However, it sees growth

opportunity from casing spec upgrade from non-Apple smartphones (from die

casting/stamping to extrusion etc).

■ New management change to refocus on cross selling opportunity. According to

management, new chairman will focus on cross selling opportunity to provide total

solutions to a wider range of customers.

Chicony (2385.TW)

Speaker: Andrew Lin (CIO), Ting Yang (IR)

Tone: Positive


Key Takeaways:

■ 2016 growth slightly shy of its internal target. Despite positive trends by product

category, Chicony believes 2016 growth might be slightly shy of its internal target

(revenue up 10-15% YoY), hurt by NTD appreciation and certain customers' weaker

performance. Nevertheless, Chicony remains upbeat on 2017.

■ Keyboard showing growth (33% of revenue). Key drivers for growth are coming

from gaming keyboards (50% share) and LED backlight keyboard (from rising adoption

from 20% to 30% by end of 2016). Chicony believes the positive product mix change

will lead to YoY revenue growth and margin expansion in this business.

■ Switching power supply also growing (33% of revenue). Key growth drivers are

from gaming devices, cloud computing and LED power supplies. Chicony will start to

ship LED headlights for Chinese car makers from 4Q16.

■ Imaging diversifying to new drivers (26% of revenue). The segment has been

suffering from volatile sports DV demand but finds new growth drivers from IP camera,

doorbell camera and drone camera, by penetrating into global leading brands. Chicony

believes its competitive strength is from its integration capability together with good

cost and quality.

12 September 2016


Delta (2308.TW)

Speaker: Rodney Liu, IR

Tone: Neutral


Key Takeaways:

■ 2H16 outlook on track. 3Q16 sales are on track to 8-10% QoQ growth, followed by a

mild decline in 4Q16. According to management, the better scale and mix should lead

to GM expansion in 2H16.

■ IA to benefit from smartphone capex and robotic demand. Management advises

YTD growth has been double digit YoY, better than expectations. 3Q is seasonally

lower but should still be up high single digit YoY. The company is optimistic on robotic

arms adoption and targets to replace 90% of its own direct labor with robots in 5 years.

■ Remaining business likely to see decelerating YoY growth in 2H16. Due to a

higher base and mediocre demand, other segments are slowing in 2H16. Networking

and power system relatively underperformed YTD, as heavier pricing pressure offset

unit growth (for networking) and was joined by soft demand from telecom and wind

power.

■ Eltek synergy on track. Management says profitability improvement is on track to its

goals by year end, despite soft demand hurt by FX volatility in Europe.

FIH Mobile (2038.HK)

Speaker: Ruth Hsieh, IR manager

Tone: Neutral

Analyst: Sam Li

Key Takeaways:

■ Recovery in 2H. FIH sees a business recovery in 2H16, as the price competition has

stabilized and volume could grow YoY with new clients in China and India.

■ Price decline to stabilize. FIH expects the ASP decline to be mostly done in 1H16,

with share gains in the China market. For 2H16, FIH sees ASP to stabilize, and is

assuming more buy and sell projects.

■ Client mix shifting to China. 1H16 weakness was partly due to weak demand at

oversea clients, but now its top 5 clients are all Chinese brands.

■ India business ramping. FIH started its second factory in India in 2H15, and served

both Chinese and Indian clients. Labor cost is only half of that in China. Indian

business could be 10%+ of revenue for 2016.

■ Nokia deal. FIH will close the deal in two months, and start feature phone sales.

Smartphones will start in early 2017.

■ Investment. FIH's major investments include Snapdeal and Hike in India.

12 September 2016


Kinsus (3189.TW)

Speaker: Jack Mu, Investor Relations

Tone: Neutral


Key Takeaways:

■ 3Q on track, 4Q cautious. Kinsus expected sales to see ~10% QoQ growth in 3Q16

and ~5% QoQ decline in 4Q16, a mixed result of cautious order builds from the new

US flagship model and China smartphones offsetting its share gains into its top GPU

customer. GM should remain stable on mix improvement.

■ Three key drivers to offset weak substrate demand. Despite concerns on InFO and

MIS, Kinsus expects the overall substrates market to remain relatively flattish, as some

lead frame products convert to substrate based solutions. Kinsus also identified three

key growth drivers in the long offset the continuous price erosion on substrate

including: (1) System-in-Package, 2) substrate-like-PCB, and (3) FPCB. It will try to

leverage its pageant company Pegatron, to add more dollar content per iPhone.

■ 2016 CAPEX likely to increase to NT$5 bn, mainly for Substrate Like PCB. Kinsus

sounded confident of being a supplier in 2H17. FPCB is under its JV with Pegatron,

which will also share CAPEX spending.

■ Mindful on the growing ecosystem in China. Kinsus sees SCC as an emerging

competitor, due to the growing ecosystem in the China semiconductor industry. In the

long term, Kinsus will seek growth opportunities from AR, VR, IOT and 5G, on top of

growing dollar content from expanding to SiP, SLP and FPCB.

Lite-On Technology (2301.TW)

Speaker: Julia Wang, IR

Tone: Positive


Key Takeaways:

■ Three key growth drivers in 2016. Lite-On targets growth drivers from cloud related

products, LED and lighting, and a profit recovery in mobile business. It expects to see

more meaningful HoH growth in both revenue and OPM in 2H16.

■ SSD growth driving margin improvement (20% of sales). OPM improved YoY to

7.7% in 2Q16, mainly driven by higher proliferation of SSDs, increasing exposure to

enterprise, and stable NAND flash pricing. For 2017, LOT will focus on client mix and

mix improvement along with internal operational efficiency improvement.

■ Handset camera module could rebound in 2H16. 1H16 underperformed due to the

lack of flagship models with new features from Android smartphones. LOT expects

momentum to resume in 2H16, with 4-5 dual camera models. LOT believes its

competitive strength comes from scale, yield, and software capability. It will leverage

those and penetrate into non-smartphone areas such as AR, VR, drone and 3D

printing. It also does not rule out the possibility to vertically integrated key components.

■ Information technology (Power Supply) has some growth drivers. Key drivers are

from non-PC power supply for server, networking and data center, and share gains in

non-power supply.

12 September 2016


Merry (2439.TW)

Speaker: Allen Huang, Finance VP

Tone: Positive


Key Takeaways:

■ 3Q16 tracking ahead of guidance. Management indicates the 3Q16 revenues are

tracking ahead of the original guidance, with the upside mostly from the entertainment

business. 3Q16 GM is also likely to be above the guidance range of 21-23% due to

more favorable product mix. 4Q16 revenues should remain growing QoQ, mainly due

to the ramp up of the speaker box projects.

■ More speaker box projects in 2017. Merry takes one smartphone speaker project in

2H16 for its major US customer, and plans to bid for more acoustic component projects

for this customer’s smartphone models in 2017. Volume should be up significantly as

Merry plans to expand its capacity to 3x in 2017 vs 2016, though the gross margin

should be lower in 2017 vs 2016, because of the new business model after Luxshare

takes the 51% stake at Merry Suzhou, its production arm for speaker boxes (now

100% owned by Merry, but will have a RMB 530 mn private placement to introduce

Luxshare as a partner)

■ Entertainment business continuing to grow. Despite the high base in 2016 due to

the popularity of one high end headset model from its major customer, management

believes that entertainment business should continue to see growth in 2017, as there

will still be some new models and it should win more projects. It thinks that it has

advantages over peers, as it has the design capability to provide the ODM service.

■ Hands free business has a potential catalyst in 2018. Management indicates that

the business focus will be on the speaker box business in 2017, and it will cooperate

with Luxshare to put more resources on the hands free business in 2018, likely

targeting at the US smartphone customer. Merry thinks that they still need to improve

the cost structure to make the GM more attractive out of this business.

Primax (4915.TW)

Speaker: Sean Lin, Spokesperson

Tone: Positive


Key Takeaways:

■ 3Q16 remains on track although is more conservative on 4Q16. Management

advises 3Q16 is set to deliver 15-20% QoQ growth, with main drivers being Audio (up

50-60% QoQ) and Handset Camera Module (up double digit) while PC peripherals

remain flattish. GMs are also to benefit from the better product mix. 4Q16 is expected

to have flattish topline growth with the Audio segment remaining strong but handset

camera module outlook is more conservative due to slightly more cautious smartphone

demand outlook and flattish PC peripherals. The company maintains full year guidance

of 5-10% YoY growth.

■ Audio segment demand remains strong. Primax is seeing strong demand from

customers on good market dynamics on more product launches in relations to the

development of the smart home environment. Top 3 customers currently represent

about 60% of Audio revenue. Company is also engaging on more headsets projects

and expects further growth next year.

12 September 2016


■ Dual camera to be more meaningful next year. Company expects limited

contribution from dual camera this year and more meaningful contribution next on

rising dual camera penetration. Company estimates single digit penetration this year

but potentially 15-20% penetration in 2017. Company is also seeing more of its

smartphone customers engaging on dual camera designs but also temporarily on a

wait-and-see position. ASP for dual camera is expected to double from single camera

but blended margin will maintain at roughly 10% given the higher cost structure.

Company will also not expand dual capacity aggressively but will slowly migrate its

currently HCM single camera capacity in relative to customer orders.

■ Actively looking to expand current business and new applications. Aside from

looking for more partnerships with its current business segments such as Audio and

HCM, Primax is also looking to expand into new applications such as automotive

through either M&A or investment

Tripod (3044.TW)

Speaker: James Wang (IR)

Tone: Neutral


Key Takeaways:

■ Conventional PCB market a stable market. The overall market has showed stable

low single-digit YoY growth in the past few years, less volatile than IC substrates, HDI

and FPCB. With limited capacity expansion from the industry and focus shifting to

automotive, server, and networking, Tripod said that it believes it can continue to gain

market share gradually in the long run.

■ Upbeat on server/networking. Server and networking will benefit from rising demand

from self-built data centers and its competitive cost structure. Overall, Tripod expects

this segment to deliver double-digit YoY growth in 2016-17.

■ Auto PCB still has room for share gains. Tripod management said that it has 5%

market share in this segment, versus the largest player's 10-15%. As electronic content

per car continues to increase and the needs to include more cost competitive suppliers

with capacity commitment, Tripod sees more room for share gains and expects this

segment to grow low teens next year.

■ Shareholder return remains the focus. Management notes that a falling deprecation

burden and improving profitability generation should lead to more a shareholder-

friendly dividend policy in the long term. It has increased cash dividend payout ratio

from 55% to 60%, and this year payout ratio should be at least in line with last year's.

Tong Hsing (6271.TW)

Speaker: Heinz Ru, General Manager

Tone: Positive


Key Takeaways:

■ Mid-single digit growth for 2016. Tong Hsing saw revenues grow by 6% YoY in 1H16

and management expects a similar growth rate for its full year 2016 revenues. 3Q16

revenues are tracking in line to the single digit QoQ growth, supported by better

demand for both image sensors and ceramic substrates.

12 September 2016


■ Ceramic business bottoming out. It expect the ceramic business to bottom out the

trough in 2015, as its customers are shifting the focus more toward professional

lighting, street lighting, automotive lighting, etc., where high power LED still has the

advantage with the reliability. Automotive lighting could be the future driver due to the

low penetration now.

■ More opportunities in the image sensor business in 2017-18. On top of the

smartphone application from its major customer, Tong Hsing is seeing its major

customer turning more aggressive in the automotive market, though it will probably

take another 2-3 years to bear fruit. For 2017, it sees the continuing image sensor pixel

migration and the popularity of dual camera as opportunities. In addition, the infrared

laser sensor should see some adoption in smartphones, which is also the addressable

market for Tong Hsing. It is also engaging new customers for potential mass

production in 2018.

■ New product in the RF business. Tong Hsing has seen the RF module business

decline over the past few years, along with its major customer’s share loss. However, it

plans to introduce the antenna switch module business from 2017 to ride on the growth

in the RF component space.

■ Longtan fab ramping up gradually. Management indicates that it has finished 60%

of the relocation to the new Longtan factory now and expects to have it 90% done by

end of 2016. The new factory has more space for more capacity and allows Tong

Hsing to redesign the work flows to make the production more efficient.

Tongda (0698.HK)

Speaker: Anthony Hui, Deputy General Manager; Long Li, IR manager

Tone: Positive

Analyst: Sam Li

Key Takeaways:

■ Full year guidance. Tongda guided 25mn+ shipments for metal casing in 2H vs. 19mn

in 1H, with ASP improvement due to different product mix and client mix. Tongda will

increase its CNC capacity to 4,000 machines (including 2,000 outsourced) by year end

from 2,500 (including 800 outsourced) in 1H. New capacity will be mainly provided to

Huawei and OPPO.

■ Glass casing a positive. Tongda sees 3D glass casing as a positive to business

rather than disruption. An example would be US$35 sales from a "3D glass case +

Aluminum frame" combination from current US$18 metal casing. And Tongda sees

laminating/decoration know-how as key advantage that it owns against glass makers,

while they can leverage outsourcing for front-end processes.

■ New precision rubber parts business. Company guided US$20mn and US$50mn+

revenue from new US client on precision rubber parts in 2016/17 respectively.

■ Cash flow positive. Tongda targets to turn FCF positive in 2016. According to Tongda,

Capex will decline to HK$800mn for 2016.

SZS (3376.TW)

Speaker: Charles Juan, General Manager of BU 5

Tone: Positive


Key Takeaways:

12 September 2016


■ 1H16 performance hurt by a new project delay. The company already moved in new

equipment but new NB projects delayed from 2Q to 3Q, leading to lower utilization

rates (50%).

■ 2H16 to recover. SZS expected earnings and sales to recover in 2H16, along with

new models. It's running at 80% UT now. Management believes the battery is no

longer in supply constraints although keyboard and others could dampen the ramp up

schedule.

■ MIM expansion continues. SZS will spend NT$4-5 NB in 2015-17 to double its MIM

capacity, for both existing customers and new customers. Phase one is already

completed in 2Q16 and phase two will be ready for production in 2Q17.

Voltronic (6409.TW)

Speaker: Alex Hsieh, CEO; Louis Wang, Investor Relations

Tone: Positive


Key Takeaways:

■ 3Q16 marking the bottom, growth to resume from 4Q16. While Voltronic has been

suffering from weakness in markets such as Africa and Latin America due to the strong

FX volatility as well as softer demand, management believes that growth momentum

should return starting 4Q16 as they have seen strong demand from customers in

developed markets. Management expects sales momentum to resume to normal levels

in 4Q16 off the high base last year and overall sales momentum to return to double

digit in 2017.

■ Voltronic to continue to benefit from pure ODM model and more out-sourcing.

Management expects near-term strength to arise from Tier 2 customers in regions

such as China as they begin to reallocate their outsourcing from their suppliers who are

also their competitors to Voltronic. In the longer term, management expects the

transition of their Tier 1 customers from hardware providers to total solution providers

to also contribute to the increase in outsourcing. Voltronic expects itself to continue to

benefit from its pure ODM business model.

■ Margin to see further upside. With the transition in its Tier 1 customers’ business

strategy towards a total solution provider, Voltronic believes its customers will

eventually gradually outsource higher-end models, thus resulting in margin expansion.

■ Higher capex for capacity expansion. Management stated that they will spend

roughly around NT$1.0bn in 2016-2017 for a new factory in China. The new facility will

allow Voltronic to double its current capacity from current level.

PC, Notebook and Industrial PCs

Advantech (2395.TW)

Speaker: Jill Su, IR

Tone: Neutral

Analyst: Thompson Wu

Key Takeaways:

■ Guidance on track. Advantech guided 3Q16 sales to remain flat to up low-single digit.

For the full 2016, Advantech expects 10% YoY sales growth and continues to target

12 September 2016


gross margin of 40%, which should translate to bottom line growth of 9-10% YoY.

Long-term, Advantech is targeting for US$2.5 bn in annual sales in 2020.

■ Macro remains mixed. Advantech said Europe is the steadiest region while emerging

markets especially Russia and Brazil are far weaker than expected. They are shifting

resources from these countries to Southeast Asia and India. North America slowed

because of channel issues. Advantech has a strategy in place to fix the channels and

aims recover in 2017.

■ Industrial 4.0 new platforms. Advantech launched two new innovations this year.

M2.com is an open platform sensor for data collection. Edge Intelligence Server (EIS)

provides light analytics at the edge. The innovations have helped Advantech capture

new business opportunity with SMB customers.

■ New campus opening. The Linkou Taiwan campus will be ready in 3Q16. Advantech

will consolidate manufacturing into the new site and plans to reduce indirect labor cost

by 20%.

Asus (2357.TW)

Speaker: Nick Wu, CFO; Karen Pan, Assistant

Tone: Neutral


Key Takeaways:

■ NB guidance on-track. Asus guided 3Q16 NB shipments to increase 10-15%

sequentially. PC demand in Asia remains weak. PC strategy is to focus on rebalancing

segment mix and strengthening product position in gaming and 2-in-1 to drive growth.

■ Smartphone in transition. Asus guided Mobile sales to decline 20% YoY in 3Q16.

Zenfone shipments were delayed into late 3Q16. Asus said due to the later launch,

marketing costs and limited scale economies will impact 3Q16 profitability. Asus

expects scale and profitability to improve in 4Q16. Asus expects tablet volumes decline

30-40% YoY in 3Q16. Asus is rebalancing tablet contribution through market

realignment and resource reallocation and expect transition lasts for 2-3 quarters.

■ 10% gaming exposure. Asus said 10% of sales are from gaming related products

including Republic of Gamers (i.e. ROG), motherboard/graphic cards, and monitors.

Asus plans to launch Mobile VR solution in 2H16; PC VR headset in 1H17; and a total

VR solution sometime mid-2017.

■ High capital returns. Asus is committed to cash dividend payout of over 60-70%. Net

cash position is currently at NT$60-70 bn (~30% of market cap) and is generating

positive cash flows.

Compal (2324.TW)

Speaker: Tina Chang, Director of Finance and IR division

Tone: Neutral


Key Takeaways:

■ 3Q16 notebooks on track to high end. Compal expects notebook shipments to grow

by 15%+ sequentially in 3Q16 from previously guided 10-15% mainly driven by the

momentum of China customers and U.S. consumer segment. Compal expects 4Q16

shipments to be flat sequentially, in line with recent years seasonality. The JV with

12 September 2016


Lenovo has been profitable year-to-date with stable annual units of 20 mn. Full year,

Compal guided 10-15% YoY decline of 34-35 mm units (excluding the JV).

■ Strong smartphone momentum. Compal sees strong smartphone momentum

particularly from its major China customer. Compal guided 10-20% volume growth in

2016. Compal established plant in India to capitalize and support its Chinese customer

expansion into the Indian market.

■ Tablet business stable. Tablet business was loss-making due to limited scale

economies the past year. The business has turned profitable as scale improved in

1H16. Compal sees limited growth opportunity going-forward. Compal expects full year

shipment to remain flat.

■ Long-term strategic plans. Compal is driving its diversification plans. Specifically, the

areas include infotainment box in auto (currently 1% of total sales), smart home (2-3%),

and wearables (1%) are the three major focuses. Partnership with AIC in medical IPC

now contribute <1% of total sales. Overall, other category is 6% of sales with plans to

reach over 10% the next few years.

Digital China Holdings (0861.HK)

Speaker: Lucy Sun, General Manager, Strategy Analysis Department

Tone: Neutral

Analyst: Sam Li

Key Takeaways:

■ Business transition in progress. DCH completed the disposal of its IT hardware

distribution business in March 2016 and is in progress to transit from a trading

company to a software company. It has started changing its working capital and

employee compensation system to support the transition and new business strategy.

■ Borrowing policy change. DCH has changed its working capital support from USD

loan and short-term debt for trading purpose to RMB long-term asset-backed

borrowings and bonds given the change of business nature. DCH does not deal with

overseas vendors and customers after disposal of IT distribution business. In future,

DCH intends to keep the RMB as its major borrowing currency and keep the cost at 5-

6%.

■ New incentive program for employees. The company explained that it plans to

launch an employee shareholding program to staff and senior management, who could

subscribe to new shares from the company.

■ Holding competition with GRG Banking. DCH indicates that it has begun the

communication with GRG Banking and understands they would be a kind of passive

financial investor and not request a board seat and operational involvement. Currently

GRG is the largest single shareholder of DCH, the company indicates that they

apparently support initiatives that benefit shareholders and the company.

■ New business strategy to launch. DCH intends to launch its new business strategy

and development plan for each sector at the end of this year. So far, it has started an

incentive scheme and compensation system as well as capital structure change to

support its future development.

12 September 2016


Inventec (2356.TW)

Speaker: Chih Pao Yu (CFO) & Ada Chang (IR Manager)

Tone: Neutral


Key Takeaways:

■ Strong server positioning. Inventec expects server momentum increases

sequentially in 3Q16 and flattish in 4Q16. Cloud data-center growth was pronounced in

1H16 driven by China customers; while traditional service is expected to grow faster in

2H. Data-center is to grow double-digit with US and China as the main sources of

growth. Overall, Inventec expects the total server business to grow high single-digits

this year.

■ Handheld growth from ex-China regions. Inventec expects a stronger 2H16

sequentially mainly from ex-China market, which is currently 10% of overall volume.

ASP pressures may cap revenue growth this year. Wireless speakers have been the

stronger grower this year, followed by a new customer ramp in wearables.

■ Xiaomi. Xiaomi is Inventec’s largest handset client contributing roughly 20% of overall

Handheld revenue. Inventec expects 18 mn smartphone shipments but also some ASP

erosion. Xiaomi originally targeted 80 mn shipments. For Xiaomi notebook Air, Inventec

expects to ship 1 mn units by year end.

■ High capital returns. Inventec's cash payout remains set at 80% or above. Current

dividend yield is 6%.

Lenovo (0992.HK)

Speaker: Bryan Hsu, Director of Investor Relations

Tone: Neutral


Key Takeaways:

■ Consolidate PC share profitably. Lenovo guided FY2Q17 PC shipments to grow

10% QoQ with ASP improvement. Lenovo said recent tightness in component supply

has not materially impacted margins as it has adjusted PC specs to offset component

price increases. Lenovo maintained its “5-point revenue growth premium" to the overall

market. Long-term, Lenovo targets 30% market share at 5% pre-tax margin.

■ Mobile restructuring on-track. Lenovo has strategies in place to improve Mobile's

positioning. Ex-China emerging markets demand has been stable. China momentum

needs additional time to improve. US sales have been weak but Lenovo has expanded

channels including Verizon, Walmart, Best Buy, and Costco.

■ Server business picking-up. Lenovo said top-line is on track to grow in 2016 though

still at GAAP pre-tax loss. Lenovo had #1 market share in China last year (i.e. 24%). In

FY1Q17, Lenovo PRC sales increased 14% YoY, while global account sales increased

45% YoY. EMEA and NA branded competition remain concerns. Lenovo is working

with China hyper-scale data-center operators leveraging solutions manufactured by

Inventec.

■ Restructuring on-track. 2016 is a transition year. Management says plans are

currently on-track including asset monetization upcoming quarters. The company says

mobile losses will narrow but will still be in the range of US$600-650 mn. Further

12 September 2016


measures will be made in product portfolio, branding, marketing, and channels this

year, according to management.

Pegatron (4938.TW)

Speaker: Kevin Tso, Finance Director; Ming Tsai, IR

Tone: Neutral


Key Takeaways:

■ On-track for notebook guidance. Pegatron guided for its notebook volumes to

increase 5-10% QoQ. Major customers include Asus and Microsoft. Asus guidance

was cut in 2Q16 from softness in China that has impacted its NB outlook. Pegatron has

worked with Microsoft for the past three years. Pegatron sees cooperation with

Microsoft for the 2-in-1 devices opening the door for other product opportunities with

Microsoft.

■ Smartphone focuses on 4.7” model. Pegatron is the major assembler for the new

4.7” model launched overnight. Ramping and volume are both on schedule. Utilization

remains high at 80-90%. Pegatron expects 2016 to be the resting year for the

smartphone business in preparation for the bigger form factor change in 2017. Long-

term, Pegatron aims to raise its allocation from 25% to 30%, but will not aggressively

move into the 5.5” model. In addition, Pegatron expects a further inventory reversal to

take place in 3Q16.

■ Focus on vertical integration. Pegatron is shifting focus to vertical integration starting

with its two key subsidiaries Casetek and Kinsus. Pegatron expects better integration

increases its value-add service to customers, which in turn can lift margins.

■ Strong momentum from game console. Pegatron considers game console order

patterns to resemble the “ice-cream” business with high seasonality in the summer. In

1H16, Pegatron saw double-digit growth in the segment. Pegatron is currently in the

prototyping stage for VR development while not involved in the first-gen of VR headset

assembly.

Quanta (2382.TW)

Speaker: Carol Hsu, Deputy Spokeperson; Alai Chiu, IR

Tone: Neutral


Key Takeaways:

■ 3Q16 notebook shipments on track. Quanta expects 3Q16 notebook shipments to

be flat QoQ while 2H16 to grow by 10% YoY. For 2016, Quanta expects high single-

digit decline, in-line with 7% decline of the industry, with full year shipments of 39-40

mn vs. 43 mn in 2015.

■ Delayed Macbook contribution. Quanta is the major assembler of Macbook. Sales

are recognized when inventories are pulled from local hubs. Due to delayed launch of

the device, QTD contributions are not yet reflected. Quanta expects a better 2H16

notebook momentum as Macbook is pulled.

■ Server business on track. Quanta expects 2016 server sales to grow by 20% YoY vs.

13% growth in 1H16. 2H growth will accelerate from US data-center projects. Quanta

continues to invest in local sales and support offices to expand its rack business, which

sells into large enterprises. Rack was 40% of equipment business in 2Q16.

12 September 2016


■ Wearable remains unprofitable. YTD the wearable from its major client remains loss-

making due to over-optimistic timeline and volume expectations. Quanta has improved

its yields and adjusted capacity but remains loss-making due to order scale.

Wistron (3231.TW)

Speaker: Mike Liang, Head of IR; Florence Hsiao, IR Manager

Tone: Neutral


Key Takeaways:

■ Notebook tracking high-end. Wistron is on-track to reach the high-end of its 3Q16

notebook guidance of +5-10%. Wistron said orders from U.S. OEMs are stronger than

Taiwan PC brands; while orders from China Brands Lenovo and Xiaomi have resumed.

Wistron said it has gained share at Dell. Xiaomi notebook Air shipments have started

with the initial target of 1 mn units through year-end remains unchanged

■ New flagship smartphone ramping. Wistron will start to ramp the new smartphone

project after the market leader Hon Hai. Wistron plans to build the larger form-factor

model only. In addition to preparing for the new model, Wistron will need to maintain

capacity for last year’s model. Wistron target operating margin for this project of 1%

near-term. Scale required is 1 mn per month. Efficiency now is in focus to achieve

these margins.

■ Server growth strong. Wiwynn’s data-center business momentum remains very

strong compared to 2H15. Specifically, Wistron is ramping up rack solutions for

Microsoft, its largest data-center customer. They expect to grow revenues in this

business at least three-fold this year. Data-center and server margins are around 10%.

■ Other business update. Wistron said the LCD assembly has returned to a break-even

level after several years of loss. The capacity adjustment and customer shift (i.e. away

from Vizio) delivered these results. Services/recycling remains loss making. The

company is taking actions to reduce losses, but will not exit near-term. Wistron said its

recycling services is strategic to their notebook business.

Display

AUO (2409.TW)

Speaker: Pearl Lin, senior IR manager

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ 3Q16 shipment tracking largely in-line. AUO reported August sales of NT$28,954mn,

up 8% MoM but down 5% YoY. Large size shipment grew 15% MoM on better pull in

for NB products after slower July, while small/medium size shipment saw 5.6% MoM

decline. Based on the QTD shipment, large size panel shipment is tracking slightly

ahead of flattish QoQ growth, while S/M size is tracking in-line of double-digit QoQ

decline guidance. QTD sales accounted for 67-70% of market expectation and the

favorable environment of panel pricing will led to better Sep vs Aug.

■ Panel pricing trend favorable. AUO said it saw TV panel price for 50"-below started

to rebound from July and pricing for 55"+ are also improved moderately. It thinks

structure shortage for 40-43" segment should continue into 2017, especially Samsung

12 September 2016


will shut down L7-1 fab by end of 2016. AUO will also tried to provide more value-add

by integrating advanced technology such as curved, narrow bezel, high color gamut,

and etc. onto the large size TV panels.

■ Inventory remains healthy. AUO said it still has difficulties to fulfil its customer

demand and expects its inventory exiting Q3 will not increase from Q2. It also

commented the channel inventory for TV remains at a normal level in China and other

regions.

■ Supply growth to be within 5% YoY in 2017. AUO noted new capacity ramp from

China besides BOE's Gen 8.5 will be quite limited. Given the fab closure by Samsung

L7-1 (~3% area capacity reduction) and Panasonic's Gen 8 fab (~1% area capacity

reduction), AUO expects the area capacity growth in 2017 to be within 5% YoY.

■ Depreciation could continue to roll off. AUO maintains its capex guidance of

NT$45-50 bn for 2016 vs depreciation of NT$40 bn. 2017 depreciation will stay below

NT$40 bn as its Gen 6 LTPS fab will start to ramp from 4Q16 and reach full capacity by

2H17.

GIS (6456.TW)

Speaker: Robert Chuang, Senior Manager

Tone: Neutral

Analyst: Jerry Su

Key Takeaways:

■ 3Q16 tracking in line. Management believes that 3Q16 revenues are tracking to the

higher end of the guidance (up 50-100% QoQ), due to the order momentum from the

new smartphone model from its major US customer and lower Q2 base. 3Q16 GM

should improve QoQ due to more favorable product mix. 4Q16 revenues should

continue to grow on the orders from smartphones and tablets.

■ Similar force touch structure in 2H16 vs 2H15. Management indicates that the

design change is limited for the force touch structure in 2H16 vs 2H15 for the major US

customer. The ASP for this business is thus lower YoY, but it also has improved the

yield to mitigate the impact.

■ Smartphone touch lamination orders might not be in 2017. Management sees a

chance for the company to return to the touch lamination business for smartphone for

the major US customer in 2018, when there are more panel makers joining the OLED

supply chain. This is consistent with the comment from its major competitor in Taiwan.

■ MegaSite business model to differentiate. It believes that its MegaSite business

model could add more value to its customers by providing the touch lamination and

LCM service at one site. It is currently operating under this business model for some

tablet projects and it expects all of the tablet models from the major US customer to

adopt this business model.

Innolux (3481.TW)

Speaker: Judy Lo, IR Manager and Daniel Lo, Director of Finance & Accounting

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

12 September 2016


■ Price increase ahead of expectation. Management said QTD TV panel price

increases, especially for 40-50", has been ahead of its expectation/guidance. It

believes its Q3 panel area ASP could further improve QoQ and will help on its

operating profit.

■ Visibility continues into year-end. Innolux noted the demand for TV and IT panel

remains strong and the panel pull-in will continue into Q4. It also thinks supply/demand

to remain tight as recent supply constraint is due to size migration as Samsung's L7-1

fab has not shut down yet.

■ Solid position in automotive market. Innolux said it is the second largest panel

supplier for the automotive panels with 15% market share for 10% of total sales. It

noted automotive customers are stickier and could generate better profitability. It thinks

TFT will still be the mainstream technology in automotive application versus OLED

given the better reliability.

■ Synergies from Hon Hai's acquisition on Sharp. Innolux believes its capacity and

fab generations are complementary with Sharp's and will work together for the 45" TV

size. It will also source some smartphone open-cell panels from Sharp and provide

module assembly service for end customers. Moreover, it is also seeing more TV panel

orders from Sharp's TV brand in the past few months.

■ Capex and depreciation to further decline in 2017. Innolux said its capex for 2016

will be between NT$40 bn for Gen8.6 fab ramp, but will decline to NT$25-30 bn in 2017.

Depreciation for 2017 will also reduce to ~NT$30 bn from ~NT$40 bn in 2016.

Radiant (6176.TW)

Speaker: Vincent Chang, Special Assistant to Chairman

Tone: Neutral

Analyst: Jerry Su

Key Takeaways:

■ 1H16 revenue up YoY from a low base but 2H16 will still decline YoY.

Management indicated that its revenue was up YoY because of the incremental iPhone

BLM projects and the tablet refresh. 2H16 revenue might be down YoY as a result of

the softer iPhone cycle and the push out of tablet refresh.

■ iPhone order allocation to be normalized in 2H16 vs 2H15. Radiant benefited from

the yield issue from its major competitor in the iPhone BLM projects and won higher

order allocation in 3Q15. It believes that it should stay as the second source for the

iPhone BLM in 2H16. One thing worth mentioning is that the model that Radiant has

higher share for 5.5", which is adopting more new features and could see more

moderate decline vs 2H15.

■ Only one model of iPhone using OLED in 2H17. Management believes that the

impact of iPhone 8 using OLED might be only <10% of total revenue, as it thinks only

the 5.8" model will adopt OLED. It noted that it has started to work on the 4.7" and 5.5"

BLM design.

■ Tablet shipment to be flat YoY. Radiant believes that shipments for its tablet BLM

shipment will be flat YoY as there might not be refresh models until 1H17.

■ New opportunities in 2017. Management indicated that it is working with panel

makers for the dashboard display in the automotive market. It also is working with

some auto brands for unique shape in-car displays. Lastly, it is working with two non-

Apple smartphone brands on BLM and could start shipment in 2017.

12 September 2016


TPK Holdings (3673.TW)

Speaker: Freddie Liu, CFO

Tone: Neutral

Analyst: Jerry Su

Key Takeaways:

■ 3Q16 sales tracking better. TPK's August revenue retuned to the NT$10 bn mark (up

35% MoM) supported by force touch ramp, and pilot production for wearable and new

2-in-1 NB. It remains confident that Q3 sales should grow 50%+ QoQ and OPM should

be around ~2% level given greater scale and higher utilization.

■ More opportunities for 2H17 force touch. TPK said it is not seeing much structure

change for the 2H16 flagship smartphone force touch vs. last year's model, and it

expects overall build to see YoY decline given the weaker product cycle. However, it is

developing a new force touch sensor structure for the 2H17 OLED flagship smartphone

by working with its Japanese film partner, and TPK believes it could become a main

source for next year's force touch if the Chinese film sensor maker fails to catch up.

■ OLED full lamination still more a 2018 story for TPK. Management thinks there will

be only one flagship model adopting OLED display in 2017, while the smaller size 4.7"

will still use TFT technology. It thinks Samsung will supply the majority of the OLED

iPhone in 2017 and there is very limited chance for TPK to enter the OLED lamination

in 2H17. Nevertheless, it believes it could re-enter the supply chain after other panel

makers (i.e. LGD, JDI, and etc) ramp up its OLED capacity for iPhone after 2018.

■ Wearable volume remains muted in 2016-17. TPK thinks its shipment for wearable

devices will remain weak in 2H16-2017 given the muted outlook. It also mentioned the

ASP for this years' wearable project could be down YoY and the complicated

production is also leading to lower yield, resulting in a very weak margin profile for TPK.

Management said it might intentionally take less orders for the wearable touch

business, since this is a loss making product for TPK.

Automation

Airtac (1590.TW)

Speaker: Ivan Tsao, CFO

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ 2016 sales to grow high-teens YoY. Airtac guided 2016 sales growth of high teens

YoY, vs prior expectation of 10-20% YoY, since YTD sales already grew 22%.

Management said it saw stronger demand in consumer electronics, automotive, and

battery-related. Q3 sales were also guided to be flattish to only down slightly vs

seasonality of down 5-10% QoQ.

■ Targeting for 30% OPM. Airtac said its 2016 OPM could achieve 26% and could

further improve to 27-28% in 2017. It targets OPM to reach 30% in three years by

controlling its OPEX (market expense decrease from 17% to 14% in 2017) and greater

scale.

12 September 2016


■ Tainan site to reach breakeven by Q4. Airtac said its Tainan site has been loss

making in the past two years but it expect the Tainan operation to turn breakeven in

4Q16 (still loss making for full year) and will turn profitable in 2017.

■ Pull-in capex on better demand. Airtac said it has decided to pull-in its capex, given

the strong end-market demand. Its 2016 capex is now NT$1.5 bn, vs prior NT$1.2 bn,

and 2017 capex is guided to be NT$2.0 bn vs prior NT$1.5 bn. It plans to issue ~10mn

of new shares (5.3% dilution) in 3Q17 and will divest some of its idle assets to fund its

capex in 2017.

■ Dividend payout keep at 50%+. Airtac's dividend payout stood at 50-60% in the past

few years. It plans to keep its dividend payout at 50% (mostly cash) in the next few

years given its capex plan.

Chroma ATE (2360.TW)

Speaker: Jennifer Chien, IR Director

Tone: Positive

Analyst: Jerry Su

Key Takeaways:

■ Turnkey is the main driver for 2016. Chroma said it expects Turnkey sales (27% of

1H parent sales) to reach NT$1.5-2 bn, vs ~NT$500mn in 2015, mainly driven by the

EV battery cell capacity expansion in China and solar cell expansion by its US

customer. It believes it has majority market share for this year's China capacity ramp

given its proprietary patented energy recycling technology.

■ Semiconductor sales also recovering. Chroma noted its semi sales (16% of 1H

parent sales) saw 20-25% YoY decline in 2015 to NT$759mn as its fabless customer

re-allocates its manufacturing foundries. For 2016, it expects semi sales to recover to

NT$1 bn as the pull-in resumes, as well as its graphic customer ramps the VR graphic

chipset shipment.

■ T&M seeing stronger growth in 2016. Chroma's T&M sales saw 18% YoY growth in

1H16 vs historical run-rate of mid-single % YoY. Management said the better-than-

expected growth in 2016 is driven by the testing instruments for EV downstream

applications (controller, charger, motor, charging stand, BMS, battery pack, etc), as

well as upgrade demand for the power module component testers.

■ New projects to support 2017 growth. Chroma said its turnkey solution includes

solar, EV, and IoT/AR. It believes the launch of multiple AR glass and solar cell ramp

could lead to more equipment demand for turnkey in 2017 amid slower battery cell

formation equipment pull-in. It also noted it will supply burn-in and optical inspection

equipment for LD projects.

■ Dividend could increase in 2018. Chroma said it will maintain its 70% dividend

payout policy (all cash) and could distribute special dividend in 2018 after it sells the

un-used land/building at the A7 industrial zone.

Teco Electric & Machinery Co Ltd. (1504.TW)

Speaker: Andy Chien

Tone: Neutral

Analyst: Jerry Su

Key Takeaways:

12 September 2016


■ Large motor demand and order improving. Teco sees better demand for large

motors in 2H16 and believes the momentum will continue into 1H17 given the power

plant projects it won. Large motor demand from mining is now flattish YoY, while oil

and gas is down single digit YoY. Overall, it thinks large motor sales will decline mid-

single % YoY in 2016 due to weaker 1H.

■ Small motor demand turning soft. Management said it sees softer small motor

demand in 2H given the adoption delay of IE3 in China and weaker economy in Taiwan.

It thinks 2016 small motor sales excluding Motavario will be up flat to up YoY.

■ Automation sales to be flattish in 2016. Teco said automation demand in Taiwan

rebounded in 2H, after YoY decline in 1H. China automation demand also improved

10%+ YoY in Q2 and will be flattish YoY in Q3. It believes 2016 automation sales to be

flattish YoY but GM will improve by 1-2% on mix change.

■ Wind power project nearly finalized. Management said the Vietnam wind power

project is nearly finalized and it should receive orders and bank LC in the next few

months for early 1Q17 shipment.

Internet

Chinasoft International (0354.HK)

Speaker: William Wang, IR Manager

Tone: Positive

Analyst: Sam Li

Key Takeaways

■ Growth from major clients. Chinasoft sees continue growth from major clients

including Huawei and HSBC. Huawei accounted for 52% of 1H16 revenue and the

company targets 90% YoY growth on this client this year. The company sees gaining

orders from major customers supported by their competitive edge in cost advantage,

technology know-how, better relationship and communication with customers.

■ Increasing solution services. Chinasoft addressed three major services to

customers: 1) outsourcing, 2) solution and 3) emerging services. They see increasing

solution business which requires more customized software support to customers

including China Railway.

■ Slowing salary increase. The company sees 6-8% YoY in salary increase this year vs

industry average of 10% and two years ago of 15%.

■ Long receivable cycle. According to management, day of account receivable in 1H

reached 180 days, still lower than industry average of 190 days. Given the long project

cycle, Chinasoft needs short-term debt from banks to manage its cash flow issue as it

pays salary on time; however, bad debt is very low.

Naver Corp (035420.KS)

Speaker: Kiseon Cho, Director of IR/Asset Management; Jiyeon Jung, IR Manager

Tone: Positive

Analyst: Eric Cha

Key Takeaways

12 September 2016


■ E-commerce related ad revenue growing nicely. Naver stressed that it is not an e-

commerce player per se. Rather, the online shopping platforms are its clients and

Naver acts as a facilitator of traffic acquisition and payment solution. Beyond the big

online shopping platforms that have been Naver's clients such as Gmarket and 11st

Street, the company is attracting offline giants such as department stores and premium

outlets which are making efforts to gain more online presence. SME merchants also

continue to increase on Naver's shopping ecosystem due to search/payment integrated

service.

■ SNOW, yet another growing global platform for Naver. SNOW is a Snapchat-like

photo/video messaging app which currently has 50mn+ registered users and is

especially popular among younger generation. Main geographical targets are Korea,

Japan, Taiwan, Thailand, China, and Vietnam. The company’s current focus is to

strengthen the offerings on SNOW.

■ Differentiated approach to O2O. Compared to competitors and some of the global

peers, Naver has similar aspirations to monetize from O2O phenomenon but has a

different approach to it. Naver aims to facilitate offline business leveraging its online

traffic dominance and tech prowess rather than positioning itself against the offline

players as a competitor. As a result, Naver does not foresee any margin deterioration

(for its parent business) going forward. Moreover, with steady cash flow, the

management is open to inorganic growth as well.

■ Contents: another potential pillar of growth. Naver believes video to be crucial area

of ads going forward. Naver highlighted that its domestic video service (Naver TV Cast)

user engagement is growing nicely (accumulated number of views recorded 3.4bn in

1H16 and mobile views quadrupled since Jan-15) based on professional contents

provided by top domestic media companies. Naver Webtoon is also a meaningful

platform with 17mn/18mn MAUs in domestic/overseas market.

12 September 2016


Companies Mentioned (Price as of 09-Sep-2016) ASM Pacific Tech. (0522.HK, HK$63.4) ASpeed Technology Inc (5274.TWO, NT$406.5) AU Optronics (2409.TW, NT$11.75) Advantech Co., Ltd. (2395.TW, NT$277.5) Airtac (1590.TW, NT$245.5) Amkor Technology Inc. (AMKR.OQ, $8.72) Asustek (2357.TW, NT$274.0) CHPT (6510.TWO, NT$1190.0) Casetek Holdings Limited (5264.TW, NT$113.5) Catcher Technology (2474.TW, NT$241.5) Chicony (2385.TW, NT$78.6) Chinasoft International Ltd (0354.HK, HK$3.61) Chipbond (6147.TWO, NT$43.7) Chroma (2360.TW, NT$84.3) Compal Electronics (2324.TW, NT$18.85) Coolpad Group Limited (2369.HK, HK$1.58) Delta Electronics (2308.TW, NT$170.0) Digital China Holdings Limited (0861.HK, HK$6.73) Egis Technology Inc. (6462.TWO, NT$248.0) Elan Microelectronics Corp (2458.TW, NT$39.2) F-GIS (6456.TW, NT$80.6) FIH Mobile (2038.HK, HK$2.7) FocalTech Corporation, Ltd. (3545.TW, NT$36.7) Himax Technologies, Inc. (HIMX.OQ, $10.06) Hua Hong Semiconductor Limited (1347.HK, HK$9.2) Inari Amertron (INAR.KL, RM3.29) Innolux Corporation (3481.TW, NT$10.95) Inventec Co Ltd (2356.TW, NT$24.1) KYEC (2449.TW, NT$29.3) Kingpak (6238.TWO, NT$246.5) Kinsus Interconnect Tech (3189.TW, NT$70.5) Kulicke & Soffa (KLIC.OQ, $12.09) LandMark (3081.TWO, NT$334.5) Lenovo Group Ltd (0992.HK, HK$5.45) Lite-On Technology (2301.TW, NT$49.3) MPI (6223.TWO, NT$85.4) Merry Electronics Co. Ltd (2439.TW, NT$117.5) Nanya Technology (2408.TW, NT$38.8) Naver Corp (035420.KS, W847,000) Novatek Microelectronics Corp Ltd (3034.TW, NT$110.5) Parade Technologies (4966.TWO, NT$335.0) Pegatron (4938.TW, NT$76.4) Powertech Technology (6239.TW, NT$81.4) President Chain Store (2912.TW, NT$261.5) Primax (4915.TW, NT$46.2) Quanta Computer (2382.TW, NT$62.0) Radiant Opto-Electronics (6176.TW, NT$52.2) Realtek Semiconductor (2379.TW, NT$122.0) SZS (3376.TW, NT$103.5) Semiconductor Manufacturing International Corp. (0981.HK, HK$0.88) Silergy (6415.TW, NT$458.0) Silicon Mtn Tec (SIMO.OQ, $51.8) THEIL (6271.TW, NT$122.0) TPK Holdings (3673.TW, NT$58.4) Teco (1504.TW, NT$27.25) Tokyo Electron (8035.T, ¥9,205) Tongda Group Holdings Ltd (0698.HK, HK$1.7) Toshiba (6502.T, ¥336) Transcend (2451.TW, NT$90.2) Tripod Technology (3044.TW, NT$68.0) United Microelectronics (2303.TW, NT$11.65) Vanguard International Semiconductor (5347.TWO, NT$58.7) Visual Photonics Epitaxy Co., Ltd (2455.TW, NT$42.7) Voltronic (6409.TW, NT$481.0) Win Semiconductors Corp (3105.TWO, NT$59.0) Wistron (3231.TW, NT$22.95) eMemory (3529.TWO, NT$336.0)

Disclosure Appendix

Important Global Disclosures Manish Nigam, Randy Abrams, CFA, Pauline Chen, Keon Han, Jerry Su, Sam Li, Thompson Wu, Derrick Yang, Evan Zhou, Kyna Wong and Sang Uk Kim each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

12 September 2016


3-Year Price and Rating History for Naver Corp (035420.KS)

035420.KS Closing Price Target Price

Date (W) (W) Rating

24-Sep-13 543,000 570,000 O

30-Sep-13 557,000 700,000

13-Jan-14 670,000 700,000 N

07-Feb-14 751,000 750,000

20-Jun-14 787,000 850,000

31-Oct-14 754,000 1,000,000 O

04-May-15 603,000 900,000

30-Jul-15 518,000 840,000

29-Oct-15 592,000 800,000 *

28-Jan-16 631,000 910,000 *

29-Jan-16 628,000 890,000

29-Apr-16 677,000 870,000

10-Jun-16 720,000 R

23-Aug-16 806,000 NR

05-Sep-16 850,000 1,060,000 O

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N EU T RA L

REST RICT ED

N O T RA T ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 20 12 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 54% (55% banking clients) Neutral/Hold* 29% (21% banking clients) Underperform/Sell* 17% (47% banking clients) Restricted 0% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on inves tment objectives, current holdings, and other individual factors.

12 September 2016


Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names The subject company (5264.TW, 0861.HK, HIMX.OQ, 2324.TW, 1590.TW, 2303.TW, 4938.TW, 035420.KS, 3105.TWO, 3231.TW, 3545.TW, 3673.TW, 3034.TW, 2357.TW, 6502.T, 2408.TW, 2038.HK, 0992.HK, 3481.TW, AMKR.OQ, 2455.TW) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (0861.HK, 035420.KS, 0992.HK) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (035420.KS) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (0861.HK, 035420.KS, 0992.HK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (KLIC.OQ, 1504.TW, 2395.TW, 2308.TW, 5264.TW, 6239.TW, 0861.HK, HIMX.OQ, 2474.TW, 2301.TW, 2385.TW, 2324.TW, 1590.TW, 0522.HK, 2303.TW, 4938.TW, 035420.KS, 3105.TWO, 3231.TW, 5347.TWO, 3545.TW, 2912.TW, 3044.TW, 2458.TW, 3673.TW, 8035.T, 3034.TW, 2357.TW, 0981.HK, 2379.TW, 6502.T, 2408.TW, 2038.HK, 0992.HK, 3481.TW, AMKR.OQ, 2455.TW, 2409.TW) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (6502.T). As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (1504.TW, 2395.TW, 2308.TW, 5264.TW, 6462.TWO, 6239.TW, 2474.TW, 2301.TW, 2385.TW, 2324.TW, 2303.TW, 4938.TW, 6176.TW, 2382.TW, 3231.TW, 5347.TWO, 2356.TW, 2912.TW, 3044.TW, 2458.TW, 3673.TW, 3034.TW, 2357.TW, 6147.TWO, 0981.HK, 2379.TW, 3481.TW, 2455.TW, 2409.TW). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (2324.TW, 035420.KS).

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683. For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to https://rave.credit-suisse.com/disclosures/view/report?i=246052&v=-74t5m4jkfokwhzfqqj0lkz16u .

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (2303.TW, 035420.KS, 0992.HK) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. This research report is authored by: Credit Suisse (Hong Kong) Limited ............................................................................................ Manish Nigam ; Sam Li ; Evan Zhou ; Kyna Wong Credit Suisse Securities (Europe) Limited, Seoul Branch .............................................................................................. Keon Han ; Sang Uk Kim Credit Suisse AG, Taipei Securities Branch .................................Randy Abrams, CFA ; Pauline Chen ; Jerry Su ; Thompson Wu ; Derrick Yang To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse (Hong Kong) Limited ............................................................................................ Manish Nigam ; Sam Li ; Evan Zhou ; Kyna Wong Credit Suisse Securities (Europe) Limited, Seoul Branch .............................................................................................. Keon Han ; Sang Uk Kim Credit Suisse AG, Taipei Securities Branch .................................Randy Abrams, CFA ; Pauline Chen ; Jerry Su ; Thompson Wu ; Derrick Yang

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

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12 September 2016


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