2012 nov 29 — 10 for ’13

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Berenberg Capital Markets

Equity Research10 for 13

Adnaan Ahmad

Analyst

+44 20 3207 7851

[email protected]

Jean Beaubois

Specialist Sales

+44 20 3207 7835

[email protected]

29 November 2012

Technology Hardware

Tammy Qiu Daud Khan Ali KhwajaAnalyst Analyst Analyst+44 20 3465 2673 +44 20 3465 2638 +44 20 3207 [email protected] [email protected] [email protected]

Sebastian GrabertAnalyst+44 20 3207 [email protected]

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For our disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG)and our disclaimer please see the end of this document.

Please note that the use of this research report is subject to the conditions and restrictions set forth in the disclosures andthe disclaimer at the end of this document.

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Table of contents

10 for 13 4Prediction #1: Wireless semi industry goes through furtherconsolidation and potential exits 8Prediction #2: Intel licenses ARMs Cortex technology 10Prediction #3: Samsung goes captive in modems 11Prediction #4: Apple launches a MacBook AIR with iOSfunctionality 12Prediction #5: Telco infrastructure industry will undergo furtherrestructuring, exits and consolidation 13Prediction #6: Huawei signs an enterprise distributionagreement with IBM 15Prediction #7: Handset industry sees further exits, M&A andrestructuring 16Prediction #8: Apple to launch tailored mini iPhone in mid-2013 18Prediction #9: Windows 8 and Windows Phone 8 stutter 20Prediction #10: Apple launches smart TVs in H213 22What is working 23

ARM 23Imagination 24Infineon 25STM 26MediaTek 27Samsung 28HTC 29Cisco 30Ericsson 31Juniper 32Alcatel-Lucent 33Hon Hai 34Catcher 35Foxconn Technology 36

What is not working 37

Motorola Solutions 37Apple 38RIM 39TPK 40Foxconn International 41ZTE 42Qualcomm 43Nokia 44

Price target and valuation changes 45Disclosures in respect of section 34b of the German Securities

Trading Act (WertpapierhandelsgesetzWpHG) 46Contacts: Investment Banking 53

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Global TechnologyTechnology Hardware

5

Pair trades-return between inception and 23/11/2012

Pair trades-return between 03/09/2012 and 23/11/2012

Long Short Return

Incepted in Sep 2011:

AAPL HTC 116.6%

QCOM MTK 10.9%

CSCO JNPR 39.7%

ERIC ALU 49.2%

QCOM STM 11.5%

IFX STM -3.7%

ARM STM 22.4%

AAPL NOK 86.8%

AAPL RIMM 112.8%

ERIC ZTE 31.6%

Incepted in Jun 2012:

Samsung HTC 47.1%

Samsung NOK -1.3%

ARM IMG 61.4%

TPK FIH -13.6%

CATCHER TPK -46.1%

Long Short Return

AAPL HTC -9.1%

QCOM MTK 5.4%

CSCO JNPR 4.8%

ERIC ALU 0.0%

QCOM STM 2.7%

IFX STM 10.2%

ARM STM 39.5%

AAPL NOK -35.8%

AAPL RIMM -90.8%

ERIC ZTE -19.3%

Samsung HTC 24.2%

Samsung NOK -2.5%

ARM IMG 70.7%

TPK FIH -56.8%

CATCHER TPK -13.3%

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6

Berenberg versus consensus estimates

Source: Berenberg estimates, Bloomberg for consensus

Change in EPS estimates

Source: Berenberg estimates, Company Data

Companies erenberg Est. Consensus Delta Berenberg Est. Consensus Delta

Nokia -0.11 -0.04 -164% 0.03 0.12 -76%

Ericsson 3.22 4.86 -34% 4.20 5.89 -29%

Alcatel Lucent -0.09 -0.06 -41% 0.00 0.04 -100%

Apple 51.06 49.79 3% 63.70 58.94 8%

Research in Motion -1.64 -1.30 -26% -0.89 -0.57 -56%

Infineon 0.17 0.18 -4% 0.33 0.34 -2%

STMicro 0.04 0.08 -47% 0.19 0.34 -43%

ARM 0.21 0.18 22% 0.25 0.21 17%

HTC 7.06 14.42 -51% 5.20 15.60 -67%

ZTE 0.32 0.68 -53% 0.37 0.81 -54%

Motorola Solution 3.22 3.67 -12% 3.55 4.41 -20%

Cisco 1.94 1.96 -1% 1.99 2.10 -5%

Juniper 0.88 1.11 -21% 1.10 1.30 -15%

Qualcomm 4.25 4.30 -1% 4.54 4.76 -5%

Mediatek 12.27 18.45 -33% 11.93 22.28 -46%

Catcher 12.69 13.04 -3% 13.58 13.71 -1%

Hon Hai 8.50 9.30 -9% 9.63 10.67 -10%

TPK Holdings 37.58 40.85 -8% 37.25 42.97 -13%

Foxconn Technology 6.94 8.89 -22% 6.87 10.15 -32%

Foxconn International Holding -0.01 0.00 -108% -0.01 0.01 -197%

Imagination 12.12 13.70 -12% 13.06 17.00 -23%

Samsung Electronics 200,766 178,814 12% 217,239 196,702 10%

2013 EPS 2014 EPS

Change in EPS estimates

NEW OLD NEW OLD

1 ARM Holdings (GB) 0.21 0.19 0.25 0.23

2 Qualcomm (US$) 4.25 4.06 4.54 3.94

3 Apple (US$) 51.1 55.9 63.7 64.5

4 Alcatel Lucent () -0.09 0.03 0.00 0.03

5 ZTE (HK$) 0.32 0.44 0.37 0.23

6 Ericsson (SEK) 3.22 4.16 4.20 4.56

7 Infineon () 0.17 0.43 0.33 0.498 HTC (NT$) 7.06 10.4 5.20 8.00

9 Motorola Solutions(US$) 3.22 3.11 3.55 3.46

10 Juniper (US$) 0.88 0.93 1.10 0.96

11 STMicro () 0.04 0.04 0.19 0.05

12 RIM (US$) -1.64 -1.72 -0.89 -1.86

13 Cisco (US$) 1.94 1.91 1.99 1.80

14 Mediatek (NT$) 12.27 13.35 11.93 11.64

15 Nokia () -0.11 -0.12 0.03 -0.12

16 Catcher (NT$) 12.69 14.10 13.58 15.04

17 Hon Hai (NT$) 8.50 7.47 9.63 8.40

18 TPK Holdings (NT$) 37.58 35.75 37.25 26.06

19 Foxconn Technology (NT$) 6.94 6.30 6.87 6.76

20 Foxconn International Holding (US$) -0.01 -0.02 -0.01 -0.0221 Imagination (GBP) 12.12 12.35 13.06 13.63

22 Samsung (KRW) 200,766 169,256 217,239 182,398

2013 EPS 2014 EPS

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Stock selectionorder of preference

Source: Berenberg estimates, Bloomberg for consensus

1 Apple ($) Buy 800.0 589.5 36% 9.7 iPhone5 drive earnings momentum in the next six

months1.1 Gross margins bottom in near term as greater iPhone

mix and better iPad yields

1.2 iPAD units to grow to 75m in FY 2013 or 25% of

addressable market (Netbook/Notebooks).

2 Samsung (KRW) Buy To 1650000.0 1404000.0 18% 8.1 Duopoly smartphone position with AAPL at mid/high-

end

2.1 From 1450000.0 Subsidise low-end with high-end profits

2.2 Leverage captive components and differentiate around

displays

3 ARM Holdings () Buy To 10.0 7.4 35% 42.4 Royalty rate to increase given Cortex platform mix.

Smartphone/tablet volumes drive PD royalties

3.1 From 7.2 Expansion into Networking and Server markets

3.2 Intel becomes irrelevant

4 Infineon () Hold 6.0 5.8 3% 30.1 Pure macro play dependent on Eurozone situation

4.1 Quality end market exposure with secular growth.

4.2 Qimonda overhang persists

5 Hon Hai (NT$) Hold 80.0 92.8 -14% 9.9 45% of revenues from Apple and over 75% of Hon

Hai's growth from Apple.

5.1 Apple won't subsidise forever

5.2 Apple concentration a double-edge sword

6 Catcher (TWD) Hold 150.0 144.5 4% 10.9 Potential MacBook share loss to Foxconn tech

HTC, RIMM and Dell exposure a concern

6.1 Not concerned in short term on light metal casing

7 Qualcomm ($) Sell 50.0 62.5 -20% 14.7 TAM for chips less than what analysts believe given

captive market (AAPL, Samsung and Huawei)

7.1 Mediatek aggressive at low-end

7.2 BRCM, NVDA, Intel et al fight-back for share

8 Imagination() Sell To 3.6 4.2 -14% 30.6 Move to dual and multi core GPUs positive for royalty

rate

8.1 From 4.0 Apple position is stable for the foreseeable future

8.2 Competition from Nvidia, QCOM, ARM, BRCM and

Vivante holds back major market share shift.

9 Ericsson (SEK) Sell To 51.0 59.9 -15% 12.3 Gross margin pressure to remain in 2013

9.1 From 53.0 LTE cycle could be cannibalised by WiFi investment

mid-term. Chinese vendors to get lion's share of China

4G deals.

10 Cisco ($) Sell 14.0 19.1 -27% 9.6 Gross margins to come under mid-term pressure given

## Huawei now has 20K Enterprise employees - focus on

Emerging markets and Europe initially

11 Motorola Solutions ($) Sell 40.0 54.6 -27% 14.9

##

12 MediaTek (TWD) Sell 210.0 325.0 -35% 16.7 3G in China an opportunity but also a threat from

Qualcomm on price

## 2G competition tough: Spreadtrum, RDA and both

coming out with smartphone products

13 Foxconn Tech Sell 85.0 99.5 -15% 11.6 Apple casing opportunity is positive

## (TWD) But 60% of revenues from Nintendo

## Do not see Game console market as structural grower

14 TPK (TWD) Sell 320.0 436.5 -27% 9.8

##

15 STMicro () Sell 3.5 4.6 -24% 42.1 Difficult to see a a long-term solution for the wireless

asset

## MEMS technology could face comp pressure from

InvenSense

## Spread in too many end markets with customers under

pressure (Nokia/HP) exposure

16 ZTE (HKD) Sell 8.5 11.5 -26% 19.1 Margin pressure in handset business from Chinese

OEMs such as Huawei

## Accounting questions as DSOs remain elevated even

with greater handset mix

17 Foxconn Intl Sell To 3.0 4.0 -26% n/a Headwinds for Nokia, Motorola and Sony## (HKD) From 2.0 Nokia may outsource more assembly to Foxconn but

that is in price

18 Juniper ($) Sell 14.0 16.8 -17% 15.0 Increased competition in Edge routing from mobile

## Need to invest in Enterprise impacting margin

structure

## Gross margins have downward bias on price and mix

19 Alcatel Lucent () Sell 0.7 0.9 -22% n/a

20 HTC (TWD) Sell 150.0 251.0 -40% 15.0 "One" Series will only provide short term relief.

## Samsung, Apple into mid-range smartphones. HTC

margins will be under pressure

## New markets at an investment cost e.g China

21 RIMM ($) Sell 5.0 12.0 -58% n/a Increase in competitive intensity in US market.

## New BB10 pla tform not a game changer. Playbook

dying a slow death

## Services revenues to come under attack

22 Nokia () Sell 1.5 2.7 -44% n/a Lumia - too little too late. NSN in harvest mode a

positive.

## Samsung + Android (China Inc) big threat to

## Nokia's mid-to-low-end emerging market position

.

Buys - 35

Holds - 14

Sells - 2

Buys - 23

Holds - 8

Sells - 7

Buys - 13

Holds - 4

Sells - 6

Buys - 9

Holds - 10

Sells - 2

Buys - 3

Holds - 11

Sells - 21

Buys - 11

Holds - 28

Sells - 3

Buys - 11

Holds - 15

Sells - 8

Buys - 3

Holds - 13

Sells - 14

Buys - 15

Holds - 12

Sells - 22

Buys - 4Holds - 7

Sells - 3

Buys - 6

Holds - 16

Sells - 5

Investment thesis

Buys - 17

Holds - 8

Sells - 5

Buys - 55

Holds - 6Sells - 2

Buys - 11

Holds - 14

Sells - 3

Buys - 47

Holds - 0

Sells - 1

Buys - 6

Holds - 28

Sells - 16

Buys - 21

Holds - 2

Sells - 4

% Implied

upside/

downside

Company Rating Price*PT

Toxic, high risk and balance sheet concerns. IP

business strong but competition intensifying Cost

savings will be given back in pricing

P/E 2013E Consensus

In-cell technology should replace glass on glass in mid-

term. Apple (55% of TPK revs) is likely to go down this

path in the next 18 months

Buys - 20

Holds - 6

Sells - 3

Buys - 11

Holds - 19

Sells - 6

Government business to face challenges given catch up

spend fall off in next 12 months. Enterprise biz under

pressure given retail capex concerns

Buys - 9

Holds - 6

Sells - 4

Buys - 20

Holds - 2

Sells - 8

Buys - 42

Holds - 5

Sells - 2

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Prediction #1: Wireless semi industry goes throughfurther consolidation and potential exits

The winners: Samsung, Qualcomm and MediaTek (but long-term)

The losers: ST-Ericsson, Renesas, Marvell, Broadcom andSpreadtrum

The wireless semi industry is not becoming any less competitive. ST-Ericsson isstruggling to survive (~$400m quarterly revenue run-rate and $100m-150moperating losses), even after its restructuring earlier this year. Qualcomm is in take-market-share mode. Broadcom (with Samsung and Nokia exposure), Marvell(TDS-CDMA chips and Research in Motion), Renesas (Nokia and Japanese),

Intel/Infineon (Samsung and Nokia low-end), Nvidia, Advanced Micro Devices(AMD), FreeScale, MediaTek/M-Star, Spreadtrum, RDA/Coolsands and Hi-Silicon (Huaweis in-house semi team) are all competing to win business in wirelesssemis. Texas Instruments has decided to de-emphasise the wireless vertical.

Wireless semi R&D ($bn)

Source: Berenberg estimates

Scale is important, given the R&D needed to invest in next-generation

technologies, integration and processes. However, the bigger issue is that Appleand Samsung are also important captive vendors. Apple has its Aseries chips,which it deploys on the iPad and iPhone. We think that this could also shift to itsMac line-up in the next 24 months, as described above.

In addition, the patent battles between Samsung and Apple are leading to a rethinkin the foundry relationship between the two vendors. We think that Apple hasalready given the nod and wink to Taiwan Semiconductor ManufacturingCompany (TSMC) to start build-out of capacity to transition Apples internal Aseries line over to TSMC in the next 24 months. A precursor to this is that TSMChas decided not to hike its dividend in the near term. This leaves Samsung with agaping hole in capacity to fill, given that Apple ships 150m-200m iPhones and60m-80m iPads annually and that the Samsung chips which go into its own

products only account for 35% of capacity currently.

We think that Samsung will a) start to waterfall down its Exynos chip platformto the mid- and low-end over time, b) aggressively start to build more modems in-house as per its recently launched home-grown modem with HSPA and LTE

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Qualcomm

ST-Ericsson

Mediatek

Texas

instruments

Broadcom

Nvidia

Intel+Infineon

Marvell

Renesas

Spreadtrum

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functionality, and c) open up to act as a foundry to other third-parties, such as itsrecent deal with STMicroelectronics. Long-term, if this strategy proves to be a

success, there is no reason why Samsung would not push into the merchantwireless semi market, further increasing competitive intensity. Samsung is verygood at making chips that go into its own products and then selling them on to themerchant marketit has done this in DRAM and NAND memory and in the non-semi world in LCD/display technologies. This is not good news at all for theindustry.

As stated above, we have already seen Texas instruments de-emphasise its appsprocessor portfolio relevant to the wireless segment. MediaTek has joined forceswith its former foe, M-Star. ST-Ericsson has shunted its application processorbusiness back up to its parent, STMicroelectronics. There will be morerestructurings, JVs and exits in 2013. Qualcomm is calling for its margins toimprove in 2013 to the 19-20% range from 16% last quarter, driven by higher

ASPs on its modems and efficiencies and yield improvements at 28nm. But it isstill in take share mode, as is MediaTek, which will deliver quad-core products inH113.

The Chinese smartphone market is growing strongly as telcos subsidise, usersupgrade to 2G and 3G smartphones and vendors entice with a plethora of verygood Android-based products. Spreadtrum and RDA (Coolsands) will also jointhis volume growth party during 2013, but this is not going to be good for pricing.However, it begs the question: what is the future of Marvell in wireless semis? ItsCFO has recently resigned, and its TDS-CDMA presence is waning, givenupcoming products from Qualcomm, MediaTek and Spreadtrum, which all have alower cost structure and greater scale. In addition, its former prized customer

Research in Motion, is in transition, and even if its BB10 software platform startsto gain traction, it is probably going to be with Qualcomm chips inside.

The recent announcement that Intels CEO will retire in May 2013 is also, in ourview, a direct result of its absence from any serious debate in the wireless chipworld. As we describe in Prediction #2 (see next page), Intel has a few choices tomake. Broadcom, through its Beceem acquisition, should have integrated solutionsout in H113 and Nvidia should also have similar products out through the Iceradeal in the same timeframe. We think that Renesas will de-emphasise theapplication processor business and focus on the strength of its single die-basedmodem/baseband.

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Prediction #2: Intel licenses ARMs Cortex technology

The winners: ARM

The losers: Intel, AMD, Qualcomm, Broadcom, ST-Ericsson andNvidia

Intel has made a huge bet to ramp up capital spend and R&D in order to introducetri-gate technology on 2x and 1x process nodes in the next two years, in order toleap ahead of the ARM ecosystem and join the tablet and smartphone/post-PCworld party on equal (if not better) power consumption/efficiency terms.

At the beginning of 2012, there was hope that these investments would start tobear fruit, as at CES in Las Vegas and at MWC in Barcelona, Intel showed off itsnew application processors and announced LAVA, ZTE, Orange and Google(MMI) as customers. The issue is that there has been really no volume follow-through of these products. In addition, as we have stated ad nauseum, theapplication processor market is extremely competitive given a) the number ofvendors but also b) the captive semi presence of Samsung and Apple. This meansthat for Intel to realistically carve out a decent market share, it needs to back loss-making entities such as Nokia, Research in Motion, LG Electronics, Japan Inc,China Inc and Sony Mobile. We think that Intels CEO and managementboardhave realised this and the task in front of them, and we think that this is the mainreason for its current CEO to cut his tenure, three years earlier than anticipated.All is not well on the Intel front!

As per our tech titans theme, we believe that Intel has been in a state of denial

with respect to its prospects in this post-PC world. With tablets cannibalising PCsand tablet prices being lowered, the shift away from PCs (and Intels bread andbutter chips) can only accelerate. The key question now is who will replace itscurrent CEO, Paul Otellini? Traditionally, Intel leadership succession occursinternally. If that were to happen again, then there would still be too much weightbehind the stay-the-existing-course approach. On the other hand, if Intel were tolook outside the firm and approach candidates such as Sanjay Jha (ex-Qualcommand Motorola), then that is a potential strategic positive in terms of companydirection. Why? Well, an external leader will very quickly understand that thearchitecture battle has been lost in the post-PC domain. It is going to be based onARM. Period. Hence, Intel has a choice to make:

1. it can continue along its capex and R&D ramp-up path on X86-based

technologies and try to catch up with the ARM ecosystem (a non-starter,in our view);

2. it can license ARMs Cortex platform and 64bit technology and leverageits manufacturing prowess to compete against ARM-based fables models(such as Qualcomm, Nvidia, Broadcom);

3. it can use its vast manufacturing resources and become a foundrycompeting with TSMC, Samsung and the like in the mid- to long term.

The issue with all three of these strategies is that the margin structure of amonopoly in the PC world will be no longer. Margins are likely to fall by at least1,500-2,000bp as it shifts to any of these models. The other concern is if Intel wereto switch to ARMs technology, would its manufacturing advantage erode, given

that its whole process and tools are based on x86 technologies? This is alsoobviously an important question for margin development.

Finally, as we have predicted, we think 2013 is the year in which we will see aMacBook AIR with iOS. This is now going to be based on Apples own A serieschip (ARM-based). That is probably the straw that will break the camels back.

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Prediction #3: Samsung goes captive in modems

The winners: Samsung

The losers: Qualcomm, Broadcom, ST-Ericsson, Via and Intel(Infineon)

As we have stated in our research over the past three years, we see the TAM (totaladdressable market) for applications processors shrinking as OEMs such as Apple,Samsung and Huawei increasingly use their own captive silicon versus merchantsolutions, limiting the market for Qualcomm and peers. The question now is: doesthe modem/baseband market go down this same captive path? We do not thinkthat Apple will pursue such a strategy given its focus on how technology affectsthe end-user experience. Applications processors obviously act as a big point of

differentiation at the end-product level given the linkage with ease of applicationusage. Modems are like connectivity solutions, allowing the device to join aparticular network. On the other hand, however, we feel that now is the time forSamsung to make an aggressive push into its own modem manufacturing. Why?Here are a few reasons.

1. As Apple transitions its foundry business away from Samsung to TSMC,Samsung will be left with capacity to fill.

2. ST-Ericsson talked about IP licence income of $35m in Q312 for non-4Gmodem technology, but also stated that this did incorporate HSPA. Sowhich company was the licensee? We think it was Samsung.

3.

Samsung already has LTE modem expertise, but recently started using itsown HSPA/LTE chip in phones in South Korea.

4. Samsung acquired CSRs connectivity IPR as well as 300 engineers. Wethink Samsung is making a play at becoming a platform wireless semisshop.

This is obviously not good news for the modem market size, or for pricing. Inaddition, LTE modem competition is heating up as ST-Ericsson, Broadcom (via itsBeceem deal), Nvidia (via the Icera deal), Renesas, Intel (via the Infineon deal),MediaTek and Spreadtrum (both more at the low end and Spreadtrum with a TD-LTE bias) bring out solutions in the next six to 12 months. Qualcomm was sittingat the OEM table all alone when discussing pricing on these modems before, and

now it will be accompanied by a few desperate peers.

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Prediction #4: Apple launches a MacBook AIR with iOSfunctionality

The winner: ARM

The losers: Intel and AMD

Given that 85-90% of Apples revenues are based on the iOS operating system(iPhone, iPad and iPod), it has to make business sense for the company at somepoint to shift its iOS to its MacBook range. We think it is highly likely that Applewill start this shift in 2013 with an iOS version of the MacBook Air. That is not tosay that it will not continue to support an OSX version, but we feel that Apple acompany that prides itself on simplicitywill in the mid-term want to consolidate

onto a single platform: i.e. Apple will aim to merge both operating systemenvironments over time. Recent management changes at Applei.e. iOS and OSXare now under one executive and there is now a team focused on semiconductorspoint to this potential.

In addition, a move away from Intels platform to more of its own , custom-designed processors would further distinguish its products from those runningMicrosofts software and Intels chip technology. Should Apple uses its ownprocessors, the power savings from the ARM architecture could free up morespace for graphics and battery life differentiation for the MacBook AIR versusIntel and Microsofts Ultrabook push.

The new iPhone5 houses Apples own ARM-based CPU core. Note that Apple is

an ARM architecture licensee, hence Apple semi engineers have been working onfinding ways to make the A series products more and more powerful. As Appletakes on board ARMs newest and more powerful techno logy (64bit architecture),this could lead to a departure from the Intel platform altogether. Obviously,commercial availability of products based on 64bit is probably not going to bethere until H114.

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Prediction #5: Telco infrastructure industry will undergofurther restructuring, exits and consolidation

The winners: Telcos

The losers: Ericsson, Huawei, Nokia-Siemens, ZTE and Alcatel-Lucent

As we stated in our infrastructure industry initiation back in January 2010, there istoo much capacity in this industry, even though we have had Ericsson-Marconi-Redback-Nortel-LG Electronics, Alcatel-Lucent-Nortel and Nokia-Siemens-Motorola deals.

In the last 10 years, first Huawei and then ZTE leveraged government and bankfunding to gain market share. Huawei is aiming to increase its revenues from$25bn today to $100bn by 2020. ZTE had until recently been the price spoiler,with DSOs in the 200-day range and negative cash margins for its Networksbusiness, but recently it has started to focus on profitability as well as on certaingeographic regions (Asia-Pacific and Latin America) for its networks wares.Similarly, Alcatel-Lucent is retrenching from certain regions/products, but themajor issue confronting the Franco-American behemoth is its very existence as agoing concern. It is losing money, not generating sufficient cash, has a weakbalance sheet and a ~2bn under-funded pension.

On the flip side, Samsung wants to be a top three LTE infrastructure supplier bythe end of 2015 through organic growth and leveraging its end-to-end solutions

from chipsets through to base stations and smartphones. Samsung has won dealswith Sprint, KDDI and 3UK (which could act as a beachhead into other Europeantelcos) in South Korea and the Middle East. The 3UK deal is the most interestingas it is Samsungs first network deal in Europe and Samsung was very aggressiveon price i.e. as ZTE leaves its price spoiler tag behind, Samsung has beenpicking up the baton. Nokia-Siemens impressive margin improvement to the 9%level in Q312 could also give it ammunition to be more price-aggressive than it hasin the last two years, placing further pressure on industry structure.

Hence, given industry overcapacity, (still) coupled with slower end-marketdynamics due to operator consolidation and macro concerns, we predict that 2013will bring further exits and/or consolidation in the industry. We have alwaysthought that the Chinese should acquire Nokia Siemens Networks (NSN) orAlcatel-Lucent assets for their installed base, customer relationships and mostimportantly services/maintenance expertise. The issues here are a)political/security concerns on such deals, and b) whether or not Asian vendorshave learnt from the BenQ-Siemens debacle i.e. if Asian vendors acquire theseassets, they would want cash-in from the acquired parties and government-backedguarantees that they can reduce headcount drastically.

The alternative solution is a European solution i.e. an Alcatel-Lucent-NSNcombination. What a mess that would be! But it would also be good news for therest of the industry. The key question really is what is the end-game for Alcatel-Lucent and NSN. NSN management continues to talk about a potential exit via anIPO. We just do not know who would want to touch that paper, and yes, its all

about price, but if investors want exposure to wireless infrastructure they can gainthat via the global leader in Ericsson.

On Alcatel-Lucent, 2013 is likely to be the year in which the company continues totry to offload assets to shore up its balance sheet. We believe its submarine,enterprise and vertical industry businesses are up for sale, but these three are

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unlikely to fetch more than 750m-1bn combined. Another option for thecompany is to file for voluntary bankruptcy (a last resort): this would enable the

company to then stop paying creditors, given the 837m debt maturing in 2013,the 462m in 2014 and the1bn in 2015. In doing so, the company could then tryto crystallise value for some of its parts. A less radical option is to use some of thecompanys assets as collateral for new financing. The question here is, structurally,will this refinancing solve the companys revenue and margin profile prospects?We think not. Alcatel-Lucent needs to earn a 6-7% operating margin to be cash-flow-neutral. The street estimates 1% for 2013.

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Prediction #6: Huawei signs an enterprise distributionagreement with IBM

The winners: Huawei

The losers: Cisco, HP and Juniper

Cisco commands a near-monopoly share in the enterprise data networking marketsthat it serves. History is littered with vendors that have tried to unseat Ciscosdominant position. Wellfleet (Ciscos main routing rival) merged with Synoptics(enterprise switch vendor) in 1994 to create Bay Networks. Cabletron (enterpriseswitch) re-invented itself into Enterasys (which was taken private in 2006) andRiverstone Networks (which filed for bankruptcy in 2006). Xylan (enterprise

switch) was acquired by Alcatel in the technology bubble. Certain point vendorshave survived, such as Extreme Networks (which is losing share), Riverbed (whichis focusing on network traffic optimisation/management) and F5 Networks (loadbalancing), but many have ceased to exist or have been acquired by enterprisewannabees (i.e. HPs acquisition of 3Com). The one constant has been Cisco,which we believe is primarily due to its scale advantage compared to peers and thefact that Cisco has used M&A to incorporate new adjacent markets andtechnologies into its sizable installed base.

However, Huawei has already started to make inroads into the corporate market(outside of the US) with decent product, improved channel partners and its abilityto offer extreme discounts. But more importantly, it has an ambition to grow its

corporate revenues from $2bn in 2010 to $15bn in 2015 i.e. a 7.5x increase infive years. We think it hit $3.8bn in 2011. Its intention is crystal clear. In addition,in order for Huawei to achieve its lofty ambitions to increase group revenues from$25bn in 2010 to $100bn in 2020, it needs to be successful in handsets andcorporate networks.

Now, we have never believed that the company is going to make inroads into theUS corporate vertical. However, outside the US, we think Huawei can leverage itsrelationships with telcos and the Chinese government to secure enterprise deals. Ithas already built relationships with some system integrators and distributors inthese markets (for example, SDG, ANS and Micro-P). We note that Huawei hasalso used the Chinese governments strong relationships in Asia and Africa tosecure enterprise contracts in these markets. More significantly, though, we think

that 2013 will mark the year in which Huawei signs a distributor/systemsintegration deal with IBM. We highlight that IBM has been working with Huaweisince its inception, on management consultancy and more recently branding andmarketing projects. We think the next step between the two will be the start of thedownfall of Ciscos and Junipers margin structure.

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There is also a shift in business models by certain vendors. Amazon is likely (asstated above) to enter the smartphone space with its hardware-at-a-loss strategy.

In China, Tencent, Baidu and others are leveraging this model as they have internetservice revenues to cross-subsidise. But with most handset vendors globally eitherlosing money or only slightly breaking even, the future is not bright. Apple andSamsung account for ~50% of smartphone volumes and over 100% of industryprofits.

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Prediction #8: Apple to launch tailored mini iPhone inmid-2013

The winners: Apple and ARM

The losers: Research in Motion, Nokia, HTC, LG Electronics, MMI(part of Google) and Sony Mobile

The Android ecosystem has a dominant share of the smartphone market, primarilydriven by the success of Samsungs Galaxy portfolio. In the last 12 months, thesmartphone has started to gain big momentum in China and some emergingmarkets, as well as in the pre-paid population in developed economies. Most of themass market is either on cheap monthly post-paid contracts or (the majority) pre-

paid.In order to address this market opportunity, Samsung and China Inc have alllaunched lower-priced smartphones in the $100+ category. HTC, LG Electronicsand Nokia (via its S40 platform) are also addressing the sub-$200 smartphonecategory. In response, Apple has segmented its price points along age of portfolio,so you can now obtain an Apple 4 for free on a two-year contract or for around$250 wholesale. But the issue here is that the iPhone4, albeit a decent phone, isover two years old. We think that it is inevitable that Apple launches a tailored,low-cost iPhone in 2013 to address the burgeoning mass market opportunity. Wenote that there are over 150m subscribers in Europe on pre-paid contracts whomApple is not really addressing today.

Also, ZTEs gross margins on its $150Android handsets are in the 15-20% range.ZTE uses TFT-LCD displays versus the latest and greatest Retina displays ofApple and Samsungs AM-OLED. It also uses a 700MHz processor fromQualcommi.e. for many users in emerging markets, the smartphone is the firstwindow on the internet, given the low PC and broadband penetration. ConsideringApples supply chain relationships and its ability to leverage its $100bn+ in cash aspre-payments, it can surely source components more cheaply and charge apremium, given its brand. However, we do expect gross margin dilution with thesetailored low-cost devices.

The issue that Apple faces is one of growth. Given that the high-end is a maximum20-25% of the market and that Apples global smartphone share is in the 15-20%range, it can only grow by another 5% in this market category unless it prices itsexisting product cheaper (read lower margins) or develops a completely newtailored solution. The China Mobile opportunity is the last real bastion ofsignificant growth for the iPhone and timing on that is uncertain. We think at theearliest H213, but more likely to be in 2014 when the TD-LTE service is launched.Given China Mobiles subscriber base, ~700m subscribers and that in the first yearafter introduction at AT&T, Apple hit about a 5% penetration of the subscriberbase and if that were to occur on the China Mobile base, that would be anincremental 35m units!

In the tablet space, Apple has tailored a product for a different price point, themini i.e. priced at $329 versus the iPad4 starting at the $499 range. In ouropinion, that is not done for market growth reasons but more to counteract the

Google Nexus 4 and Amazons Kindle Fire. Now, obviously, there is going to besome substitution effect given the lower pricing, but from an Apple perspective, itis better that that substitution is to an Apple product versus its peers.

Assuming that the mini iPhone is priced in the $250 range and has a 25%operating margin structure versus the higher-end iPhone in the 35-40% range,

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every additional 50m units sold would add approximately 5% to Apples earnings.But this does not assume any substitution effect. If one in five potential Apple

iPhone purchasers decide to buy the mini versus the iPhone, then that would meanthat Apple would need to sell 85m-86m minis annually for this to be earnings-neutral. In a bullish scenario, with a 20% substitution rate and 250m minis soldannually, earnings should be 15-20% higher than we are currently modelling. Inthis scenario, there would be 150m iPhones sold, hence a total volume of ~400m(iPhones plus minis) in a smartphone unit base of 1.3bn, i.e. a 30% market share inunit terms.

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Prediction #9: Windows 8 and Windows Phone 8 stutter

The winners: Apple and Google

The losers: Microsoft, PC value chain (i.e. Intel, Dell, HP), Nokiaand HTC

Windows 8 is Microsofts comeback strategy, its bet the farm moment tobecome relevant in the post-PC world. It allows for touch to be introduced onall its hardware platformsPCs, tablets and smartphones. Microsoft has labouredby living in the PC world, as Apple has created a totally new category of product,the iPad, and as Google has become (via Android) the global platform of choice.This is Microsofts response, and with it, it launched its very own Surface tablet.

The issue for Microsoft is in the PC world, where it had a defined role as thesoftware and OS provider, whereas Intel would provide the brains (chips) and thelikes of Dell, HP and Lenovo would provide the hardware. The Surface isMicrosofts hardware, integrated with software and Microsoft-based servicesi.e.with this product, Microsoft is either showing the hardware industry how productsshould look in the Windows8 world or it is replicating Apples vertically integratedmodel.

Time will tell, but we think one of the main reasons behind a Microsoft hardwaresolution is price. So here is the dilemma: Apples iPad (larger versions) have pricepoints ranging from $399 up to $829 with a bill of material (BoM) of $300-450.Hence, if any hardware vendor wants to compete head-on with Apple on a

specification-by-specification basis, it must have a similar BoM. The issue in theMicrosoft ecosystem is that there are incremental costs: a) the cost of the operatingsystem; b) the cost of an office licence, and c) depending if it is an Intel orARM-based chip, the cost of that chip. All in, we estimate that an ARM-basedMicrosoft solution is ~$60-80 more expensive than the equivalent iPad i.e.~20% more expensive.

Herein lies the rub, with Apple commanding 30-35% gross margins on its iPad (itleverages its $100bn+ net cash pile as well for favourable supply price terms), it isno wonder that many hardware OEMs (Dell, HP, Toshiba, LG, Asus, Acer) wantto price at the same range as the iPad. That is the problem, given that mostconsumers right now want to consume applications, and the iPad is still the bestproduct for consumption purposes.

Now, if consumers interests shift to create and consume, then the installed base ofMicrosoft users could be swayed by similar pricing for a Surface-type product. Butthey could also very well choose iPads or Android-based tablets given thatMicrosoft will in H113 offer office to these two platforms. Taking the argumenta step further, there is only one company globally that can compete with Apple ona pound-for-pound basis on component supply and pricing, and that is Samsung.Samsung already sells its wares to Apple at cost plus. From a Microsoftperspective, Samsung is the hardware vendor to back, if it wants its ecosystem tothrive (assuming users want this). From a Samsung perspective, it gives thecompany air-cover versus the Android-driven IPR infringement cases with Appleas well as a chance to be a dominant player in the post-PC world as it candifferentiate on displays (AMOLED), touch and applications processors, which itcould not in the WINTEL-driven PC world.

The other issue is that both Windows 8 tablets have setbacks, which obviously canbe overcome but could limit accelerated take-up. First, Windows 8, which ispowered by Intel, is being positioned for its performance capabilities as well as

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backward compatibility to legacy applications. Intel has an Ivy Bridge chip insidethat is its laptop chip in tablet form factor! Hence, it is going to be heavier, need

more power and an extra fan! It will also be more expensive, given that Intels chipcosts ~$100 versus the ARM-based solutions in the $20-25 range. Second, theWindows RT, powered by ARM, will not be backward-compatible to all thesoftware that has been written historically on Windows platforms, and it will noteven support Outlook in its initial version. Hence, we do not think it is going togain much corporate traction.

We think the recent departure of Steven Sinofsky (Microsofts software guru) hasto be related with early disappointment at the acceptance of this platform.

At the same time, the Windows Phone 8 is now out in the market, with decentproduct from Nokia and HTC. The question is, are they too late to the party?Once again, key for us is what does Samsung do with its Windows Phone 8

platform offering? The issue for Samsung is that it commands a share of between50-60% in the Android smartphone market globally, which is approximately 50munits+ from Samsung on a quarterly basis versus probably less than 4m totalWindows Phones sold each quarter. If Samsung moves aggressively to theWindows Platform, then that will aid the platforms development as more volumestranslates into more developer interest and better applications. We just think thatthe Apple-Samsung IPR spat is going to be resolved (as all these suits are) at apoint in time, and that Samsungseconomies of scale in Android and the lead andleverage it has in key components will mean that Windows Phone 8 is just ahedge opportunistic, not strategic.

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Prediction #10: Apple launches smart TVs in H213

The winners: Apple and ARMThe losers: Sony, LG Electronics, Sharp, Panasonic, Vizio and othermajor TV manufacturersalso negative for Samsung

Since our sector initiation in January 2010, we have talked about the opportunity forApple to own the home experience. Handsets had not really changed much apart from size and the shift from black-and-white to colouruntil Apple came outwith the iPhone in 2007 and invented the smartphone segment. Apple TV has beena hobby for management for a while, but incorporating an iOS type platform tothe TV screen and content management coupled with the Apple brand and itsrenowned ease of use could create a similar opportunity for Apple (and the

industry) with a shift from TVs to smart TVs. The global volume of TVs shipped isestimated at 250m in 2012. We think smart TVs could account for 15-20% or 50munits in 2014. Assuming that over time Apple takes a 5% market share in the entireTV market (or 30% of the smart TV market in 2014), that would equate to 15munits, probably priced at a premium as the Mac/iPhone/iPod and iPad have beenrelative to the category. Assuming $2,000/unit, this would equate to ~$30bn in newincremental revenue for Applei.e. a 15% uplift to its 2012 group revenue run-rate!

In addition, Bang & Olufsen in the luxury TV market had been able to achieve 40-45% gross margins and 10%+ operating margins in a positive product cycle. Applehas a strong brand appeal, will integrate software via iOS as well as SIRI/Facetimeand can leverage its volume supply chain (memory, displays) as well as its $100bn+net cash position for preferred supplier pre-payments. Hence, on the back of this,

it should be able to achieve near corporate average gross and operating margins.

Apple has had much success with iTunes with respect to its music content andservices, given that the music industry has a set way for being paid, in a controlledmanner, versus the free peer-to-peer services of yesteryear. Herein lies the rub:the cable and TV network market is not undergoing the same death spiral thatthe music industry was 10 years ago, when Apple came along and said we willsave the industry with our iTunes business model. Yes, over-the-top services arehappening, but looking at the cable and TV network profitability and subscriberbase, all is healthy.

How is Apple going to differentiate? It can obviously implement some of itsdifferentiated design characteristics to the TV, but the latest Samsung, LG and even

Sony TVs are very appealing. So differentiation could come through a combinationof hardware, software and servicesi.e. the existing iOS subscriber base is obviouslythe targeted initial market for such a product, but to gain lots of traction, asubscription-based services model with differentiated or unique to user/adjusted touser/ la carte content is the way to go. The underlying issue here is that if userswant to subscribe to a channel-by-channel service, they have to pay a high price forthat subscription given the bundling economics of content, and given the profitprofile of cable and TV networks that currently may be a tough ask. This is thegreatest challenge that faces Apple in the TV space. Having said that, there are twofactors in its favour: a) Robert Iger (Walt Disneys CEO) sits on Apples board andpotentially understands how Apple can gain access to favourable content deals(which the industry at the moment is repelling), and b) cable and media companies

are starting to feel some pressure from services like Netflix and other digitaldistribution channels.

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What is working

ARM

Source: Berenberg Bank estimates

Drivers 2010 2011 2012E 2013E 2014E 2015E

PD ( '000)

Licence revenues 107,613 149,300 172,152 202,532 221,519 250,000

Royalty revenues 188 ,065 222,200 261,570 353,389 457,595 581,215

PIPD ( '000)

Licence revenues 26,645 31,200 31,962 32,911 33,544 34,810

Royalty revenues 28,32 3 30,200 34,494 34,810 35,443 37,342

Group

Revenues ( '000) 407,290 491,826 561,570 684,402 809,494 966,658

Gross margins (IFRS) 94.0% 95.1% 95.0% 95.2% 95.8% 96.0%

Gross margins (ex. special items) 94.0% 95.1% 95.0% 95.2% 95.8% 96.0%

Gross margin (ex. special items ex. SBC) 93.5% 94.4% 94.7% 95.0% 95.6% 95.8%

R&D (ex. special items) 132,765 153,663 157,239 177,944 206,421 231,998

R&D (as % of sales) 32.6% 31.2% 28.0% 26.0% 25.5% 24.0%

SG&A (ex. special items) 125,330 146,481 152,747 164,256 190,231 202,998

SG&A (as % of sales) 30.8% 29.8% 27.2% 24.0% 23.5% 21.0%

Operating margin (IFRS) 26.3% 30.3% 38.2% 44.4% 46.1% 50.4%

Operating margin (ex. special items ex. SBC) 40.3% 45.1% 45.7% 50.4% 51.2% 54.7%

Operating margin (ex. special items) 26.3% 30.3% 38.2% 44.4% 46.1% 50.4%

EPS (IFRS) (pence) 6.39 8.66 12.00 18.35 22.10 28.64

EPS (ex. special items ex SBC) (pence) 9.45 13.16 14.98 21.30 25.05 31.60

EPS (ex. special items) (pence) 7.17 9.49 12.48 18.80 22.55 29.10

Other Financials

FCF ( '000) 170,896 181,696 177,655 256,860 298,614 391,104

Capex ( '000) 6,036 12,112 32,977 24,008 15,785 18,850

Working capital ( '000) 31,098 11,235 5,644 8,670 7,461 9,213

Working capital as % of sales 7.6% 2.3% 1.0% 1.3% 0.9% 1.0%

DSO 94.7 88.8 84.2 84.0 84.0 84.0

DSI 25.0 32.5 21.0 26.0 26.0 26.0

DPO 60.3 114.2 78.9 80.0 75.0 75.0

Total assets ( '000) 1,084,662 1,299,790 1,361,860 1,638,397 1,906,431 2,276,341

Net debt ( '000) -275,101 -345,891 -337,142 -587,404 -823,720 -1,152,527

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Imagination


Drivers FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

Royalty revenues

Revenues (m) 24 41 64 83 102 122

Licensing revenues

Revenues (m) 23 28 34 40 44 48

Total units & ASPs

Total units 126 245 325 426 519 619

ASPs 0.19 0.17 0.20 0.20 0.20 0.20

Group

Revenues (m) 81 98 127 153 177 204

Gross margins 69.1% 78.8% 83.5% 82.0% 81.5% 81.0%

R&D (m) 35 45 60 74 85 98

R&D (as % of sales) 43.7% 45.6% 46.8% 48.0% 48.0% 48.0%

SG&A (m) 10 16 18 24 28 33

SG&A (as % of sales) 12.9% 16.6% 14.5% 15.5% 15.7% 16.0%

Operating margin (reported) 12.5% 16.6% 22.2% 18.5% 17.8% 17.0%

EPS (reported) 5.99 7.47 7.93 8.24 9.18 10.06

EPS (adjusted) 7.44 10.44 11.93 12.12 13.06 13.94

Other Financials

FCF (m) 8 (22) 17 36 38 44

Capex (m) 1 12 12 14 14 14

Working capital (m) 14 16 20 20 22 24


Days receivables 93 103 118 110 110 110Days payable 174 309 458 440 440 440

Days in inventory 73 109 94 92 92 92

Total assets (m) 81 175 213 251 291 334

Net debt/(cash) (m) (28.9) (43.8) (60.7) (89.9) (119.8) (155.5)

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Infineon


Drivers 2010 2011 2012 2013E 2014E 2015E

Automotive

Revenues ( m) 1,268 1,552 1,660 1,557 1,557 1,588


Industrial Power Control (IPC)

Revenues ( m) - - 728 604 574 557


Power management & Multimarker (PMM)

Revenues ( m) - - 929 873 847 847


Chip card and Security

Revenues ( m) 407 428 457 480 504 529


Group

Revenues ( m) 3,295 3,997 3,904 3,514 3,482 3,521

Gross margins (reported) 37.5% 41.4% 36.6% 31.5% 33.5% 35.0%

R&D ( m) 399 399 455 415 331 352

R&D (as % of sales) 12.1% 10.0% 11.7% 11.8% 9.5% 10.0%

SG&A ( m) 386 386 475 404 338 352

SG&A (as % of sales) 11.7% 9.7% 12.2% 11.5% 9.7% 10.0%


EPS (reported) (from continuing ops) 0.27 0.60 0.38 0.17 0.33 0.35

Other Financials

FCF ( m) 650 407 (189) 183 437 634

Capex ( m) 322 845 832 659 527 418

Working capital ( m) 536 365 484 408 422 420


Days receivables 76 54 50 50 52 52


Days payable 118 115 92 94 92 92

Total assets ( m) 4,993 5,873 5,898 5,998 6,087 6,338

Net debt/(cash) (inc. pension liab) ( m) (1,331) (2,387) (1,940) (1,973) (2,079) (2,366)

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STM


Drivers 2010 2011 2012E 2013E 2014E 2015E

APG

Revenues ($ m) 4,107 3,534 1,560 1,622 1,768 1,945


AMM

Revenues ($ m) 2,663 2,974 3,063 3,124 3,374 3,644


Wireless

Revenues ($ m) 2,220 1,552 1,335 1,268 1,268 1,306

Operating margin (reported) -21.8% -52.4% -62.0% -55.0% -55.0% -50.0%

Group

Revenues ($ m) 9,049 9,735 8,350 8,343 8,853 9,458

Gross margins (reported) 30.0% 36.7% 33.2% 32.0% 35.0% 35.0%

Gross margins (adjusted) 30.0% 32.7% 33.2% 32.0% 35.0% 35.0%

R&D (ex. special items) 2,350 2,351 2,380 2,378 2,479 2,459

R&D (as % of sales) 26.0% 24.1% 28.5% 28.5% 28.0% 26.0%

SG&A (ex. special items) 1,174 1,210 1,119 1,035 1,151 1,229

SG&A (as % of sales) 13.0% 12.4% 13.4% 12.4% 13.0% 13.0%


Operating margin (adjusted) -7.9% -2.8% -7.7% -7.9% -5.1% -3.2%

EPS (reported) -0.51 0.29 0.01 0.04 0.26 0.42

EPS (adjusted) -0.11 -0.02 -0.36 0.06 0.28 0.44

EPS (reported) () -0.38 0.21 0.01 0.03 0.18 0.29

EPS (adjusted) () -0.08 -0.01 -0.29 0.04 0.19 0.30

Other FinancialsFCF ($ m) 760 (180) 252 364 382 520

Capex ($ m) 1034 1060 598 600 550 500

Working capital ($ m) 1,494 1,921 1,655 1,641 1,701 1,817


DSO 50 39 42 42 42 42

DSI 85 89 89 91 90 90

DPO 71 39 45 48 48 48

Total assets ($ m) 13,349 12,094 10,998 11,839 13,493 13,000

Net debt/(cash) (incl. pension l iab) ($ m) (925) (439) (891) (2,204) (1,401) (1,921)

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MediaTek


Drivers 2010 2011 2012E 2013E 2014E 2015E

Group

Revenues (TW$m) (GAAP) 113,522 86,858 105,265 119,329 138,375 172,797

Gross margins (GAAP) 53.7% 45.3% 41.3% 40.0% 38.0% 38.0%

R&D (TW$m) 23,311 21,185 23,685 27,446 31,826 39,743

R&D (as % of sales) 20.5% 24.4% 22.5% 23.0% 23.0% 23.0%

SG&A (TW$m) 6,518 5,815 6,421 7,398 8,302 10,368

SG&A (as % of sales) 5.7% 6.7% 6.1% 6.2% 6.0% 6.0%

Operating margin (GAAP) 27.4% 14.2% 12.7% 10.8% 9.0% 9.0%

EPS (GAAP) 28.53 12.54 12.62 12.27 11.93 14.40

Other Financials

FCF(TW$m) 27,069 12,302 12,341 15,440 16,472 20,192

Capex(TW$m) 2,147 2,585 2,372 3,580 4,843 6048

Working capital(TW$m) -5,236 -5,334 -13,830 -17,923 -21,735 -27,142

Working capital as % of sales(TW$m) -4.6% -6.1% -13.1% -15.0% -15.7% -15.7%



Days payable 61 69 82 69 69 69

Total assets(TW$m) 140,293 147,746 173,880 507,353 521,504 544,434

Net Cash (TW$m) 101,474 96,359 98,368 439,952 443,831 451,745

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Samsung


Drivers 2010 2011 2012E 2013E 2014E 2015E

Revenue(won bn)

Semiconductor 37,640 36,993 35,180 38,662 43,211 45,103

DP 29,912 29,232 33,892 35,083 36,866 37,056

IM 40,830 55,545 108,138 142,623 168,061 191,623

Digital media 57,613 59,004 46,532 46,608 49,583 52,587

Smartphones

Units in million 24 98 218 314 424 572

ASP($) 343 304 309 287 264 232

Operating Margin in %

Semiconductor 26.8% 26.5% 14.0% 15.0% 12.0% 12.0%

DP 6.7% 4.4% 9.0% 9.5% 8.0% 8.0%

IM 10.6% 8.4% 19.2% 19.5% 18.0% 18.0%

Digital media 0.8% 0.1% 4.0% 2.0% 4.0% 4.0%

Group

Group Revenues(won bn) 154,630 165,002 202,728 242,976 277,722 306,369

Gross margins 33.6% 35.9% 37.0% 37.3% 35.5% 35.0%

R&D (won bn) 9,099 9,391 12,164 14,579 15,275 16,850

R&D (as % of sales) 5.9% 5.7% 6.0% 6.0% 5.5% 5.5%

SG&A (won bn) 26,243 26,493 35,275 42,764 46,102 50,857

SG&A (as % of sales) 17.0% 16.1% 17.4% 17.6% 16.6% 16.6%

Operating margin 11.2% 14.5% 14.0% 14.0% 13.7% 13.2%

EPS 106,577 96,386 162,175 202,310 218,910 233,356

EPS - diluted 105,755 95,645 160,937 200,766 217,239 231,575

Other Financials

FCF(won bn) 2,206 150 10,850 18,468 13,497 17,906

Capex(won bn) -21,621 -21,963 -24,287 -22,171 -29,994 -32,169

Working capital (won bn) 7,408 9,989 15,916 22,310 29,165 32,656

Working capital as % of sales(won bn) 4.8% 6.1% 7.9% 9.2% 10.5% 10.7%



Days payable 33 34 38 33 33 33

Total assets(won bn) 134,289 155,631 186,462 224,726 247,280 267,445

Net Cash (won bn) 13,416 13,541 23,792 36,028 50,102 64,974

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HTC


Drivers 2010 2011 2012E 2013E 2014E 2015E

Global smartphone market (m units) 281 461 603 911 1,200 1,400

HTC market share 8.8% 9.9% 4.9% 3.0% 2.1% 1.6%

Handsets

Units shipped (m) 24.6 45.5 29.6 27.2 25.0 22.8

ASP (NT$) 11,003 10,000 9,000 8,370 7,952 7,554

Revenues (NT$ m) 270,680 455,000 266,175 227,739 199,044 172,074

Group

Revenues (NT$ m) 278,761 465,795 274,175 235,739 207,044 180,074

Gross margins 30.1% 28.3% 24.6% 21.5% 19.0% 17.0%

R&D (NT$ m) 12,940 15,961 13,709 14,144 10,352 9,004

R&D (as % of sales) 4.6% 3.4% 5.0% 6.0% 5.0% 5.0%

SG&A (NT$ m) 26,796 47,049 36,191 30,646 24,845 21,609

SG&A (as % of sales) 9.6% 10.1% 13.2% 13.0% 12.0% 12.0%


EPS 47.89 73.76 19.19 7.06 5.20 0.81

Other financials

FCF (NT$ m) 41,057 80,096 2,000 3,008 4,800 (191)

Capex (NT$ m) 4,991 8,411 6,140 3,682 2,692 1,801

Working capital (NT$ m) 24,895 15,127 5,998 4,966 3,201 2,728


Days receivables 82 50 49 46 47 45Days in inventory 49 31 30 30 29 31

Days payable 120 84 85 79 80 78

Total assets (NT$ m) 190,382 254,592 174,881 174,423 173,724 167,273

Net debt (NT$ m) 75,355 90,656 52,681 60,298 65,098 64,907

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Cisco


Drivers 2011 2012 2013E 2014E 2015E

Product

Revenues($m) 34,526 36,326 37,850 37,900 38,200

YoY growth 6.5% 5.2% 4.2% 0.1% 0.8%

Service

Revenues($m) 8,692 9,735 9,950 10,300 10,500

YoY growth 5.6% 12.0% 2.2% 3.5% 1.9%

Group

Revenues ($m) (GAAP) 43,218 46,061 47,800 48,200 48,700

YoY growth 7.9% 6.6% 3.8% 0.8% 1.0%

Gross margins 63.3% 62.4% 62.1% 61.3% 60.4%

R&D ($m) 5,257 5,066 5,640 5,736 5,649

R&D (as % of sales) 12.2% 11.0% 11.8% 11.9% 11.6%

SG&A ($m) 10,773 10,961 11,568 11,664 11,883

SG&A (as % of sales) 24.9% 23.8% 24.2% 24.2% 24.4%

Operating margin (GAAP) 20.2% 21.9% 21.7% 20.8% 20.0%Operating margin (adj. Non-GAAP) 26.2% 27.7% 26.1% 25.2% 24.4%

EPS (GAAP) 1.16 1.49 1.61 1.64 1.72

EPS (adjusted non-GAAP) 1.54 1.85 1.94 1.99 2.09

Other Financials

FCF($m) 8,905 10,365 9,117 9,725 9,469

Capex($m) -1,174 -1,126 -983 -1,012 -1,023

Working capital($m) 5,308 5,173 4,880 5,088 5,105

Working capital as % of sales($m) 12.3% 11.2% 10.2% 10.6% 10.5%

Deferred revenues($m) 12,207 12,880 12,478 12,532 12,662

Deferred CoGS($m) 73.2% 72.1% 67.5% 65.8% 64.2%

Days receivables 40 35 32 33 33

Days in inventory 33 34 32 32 31

Days payable 19 18 18 18 18

Total assets($m) 87,095 91,759 91,126 94,545 97,810

Net Cash ($m) 28,351 32,419 28,582 32,307 35,776

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Ericsson


Drivers 2010 2011 2012E 2013E 2014E 2015E

Networks

Revenues (SKr bn) 112,708 132,395 116,508 115,343 116,496 119,991

Operating margin (adjusted) 14.5% 14.3% 5.5% 7.0% 8.0% 8.5%

Professional Services

Revenues (SKr bn) 58,529 58,834 69,424 79,143 88,641 97,505


Multimedia

Revenues (SKr bn) 10,517 10,642 14,047 14,750 15,487 16,262

Operating margin (adjusted) -4.1% -3.4% 8.3% 5.0% 5.0% 5.0%

ST Ericsson

Revenues (US$ m) 2,292 1,650 1,353 1,353 1,380 1,449

Operating margin (adjusted) -19.0% -44.3% -45.0% -30.0% -15.0% -8.0%

Group

Revenues (SKr bn) 203.3 226.9 230.3 235.8 241.6 253.0

Gross margins 38.2% 35.7% 33.0% 32.0% 33.0% 33.0%

R&D (SKr bn) 29.9 30.1 32.7 32.5 32.6 33.4

R&D (as % of sales) 14.7% 13.2% 14.2% 13.8% 13.5% 13.2%

SG&A (SKr bn) 25.3 27.3 26.7 25.9 25.9 26.1SG&A (as % of sales) 12.4% 12.0% 11.6% 11.0% 10.7% 10.3%

Operating margin (adj.) 11.7% 9.5% 5.2% 6.3% 8.1% 8.8%

EPS reported 3.48 3.97 2.45 2.97 4.04 4.70

EPS (adjusted) 5.09 4.82 2.50 3.22 4.20 4.81

Other Financials

Restructuring charges (SKr bn) 7.3 3.7 4.0 3.0 3.0 3.0

FCF (SKr bn) 23.0 5.9 0.6- 32.6 20.4 21.7

Capex (SKr bn) 3.6 4.6 5.2 3.6 3.5 3.7

Working capital 18.3 29.0 44.8 31.4 33.8 37.0




Days payable 72 63 61 62 62 62

Total assets (SKr bn) 282 280 283 315 350 388

Net debt (SKr bn) ex. Pensions 56- 50- 38- 82- 113- 146-

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Juniper


Drivers 2010 2011 2012E 2013E 2014E 2015E

Product

Revenues ($'000) 3,258,700 3,478,200 3,329,650 3,551,900 3,761,285 4,015,627

Gross Margin 69.6% 67.6% 64.0% 61.5% 60.0% 59.0%

Service

Revenues ($000) 834,600 967,200 994,571 1,060,957 1,253,762 1,410,896

Gross Margin 59.7% 57.8% 59.5% 58.0% 58.5% 59.0%

Group

Revenues ($'000) 4,093,300 4,445,400 4,324,221 4,612,857 5,015,047 5,426,523

Gross margins 68% 65% 63% 61% 60% 59%

R&D ($'000) 837,188 925,711 1,016,192 1,014,829 1,003,009 976,774

R&D (as % of sales) 20.5% 20.8% 23.5% 22.0% 20.0% 18.0%

SG&A ($'000) 945,970 1,071,465 1,145,919 1,143,989 1,178,536 1,275,233

SG&A (as % of sales) 23.1% 24.1% 26.5% 24.8% 23.5% 23.5%

Operating margin (GAAP) 21.1% 16.4% 6.2% 9.7% 12.3% 14.0%


EPS (GAAP) 1.15 0.78 0.35 0.62 0.85 1.04

EPS (adjusted) 1.32 1.19 0.73 0.88 1.10 1.30

Other Financials

FCF($'000) 492,717 918,275 365,495 664,771 561,562 663,928

Capex($'000) 185,291 266,314 322,731 322,731 351,053 379,857

Working capital($'000) 705,542 733,095 816,656 1,095,085 1,132,590 1,215,998

Working capital as % of sales($'000) 17.2% 16.5% 18.9% 23.7% 22.6% 22.4%


Days payable 79 75 61 59 60 60

Total assets($'000) 8,467,851 9,983,820 10,198,989 2,151,686 11,788,440 12,660,047

Net Cash ($'000) 2,286,401 3,551,743 3,281,895 3,315,452 4,571,764 5,235,692

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Alcatel-Lucent


Drivers 2010 2011 2012E 2013E 2014E 2015E

Carrier

Revenues (mn) 9,603 9,654 8,608 7,834 7,562 7,403

Operating margin (ex. restructuring) 1.9% 2.7% -5.0% -4.0% -3.5% -2.0%

Application Software

Revenues (mn) 1,917 498 483 498 512 528

Services

Revenues (mn) 3,733 3,963 4,201 4,411 4,631 4,863

Group

Revenues (bn) 16.00 15.33 14.40 13.95 13.97 14.10

Gross Margins (pro-forma) 34.8% 36.3% 29.0% 28.0% 27.5% 27.6%

R&D (pro-forma) (bn) 2.5 2.4 2.4 2.0 2.0 1.9

R&D (as % of sales) 15.6% 15.4% 16.8% 14.5% 14.0% 13.5%

SG&A (pro-forma) (bn) 2.8 2.7 2.3 2.1 1.9 1.8

SG&A (as % of sales) 17.4% 17.4% 16.0% 15.0% 13.5% 13.0%

Operating margin (pro-forma ex. restructuring) 1.8% 3.4% -2.9% -1.5% 0.0% 1.1%

EPS (pro-forma) excl restruct. pension & discont. ops. 0.09 0.45 -0.16 -0.09 0.00 0.05

Other Financials

Free cash flow (m) 818- 477- 1,002- 1,087- 581- 420-

Capex (m) 692 570 542 502 489 480

Working capital (m) 1,634 1,490 1,320 1,243 1,246 1,261

as % of sales 10.2% 9.7% 9.2% 8.9% 8.9% 8.9%

Days receivable 84 81 89 87 85 85


Days payable 151 145 163 158 150 150

Total assets (m) 24,876 24,203 24,426 23,081 22,261 21,881

Net debt -311 146 197 1,284 1,865 2,284

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34

Hon Hai


Market share (of COGS in %) 2010 2011 2012E 2013E 2014E 2015E

Apple

53.1% 56.0% 60.0% 60.0% 60.0% 62.0%

HP

15.1% 15.5% 15.5% 15.5% 15.5% 15.5%

Sony

77.7% 78.0% 78.0% 78.0% 78.0% 78.0%

Group

Revenues (NT$m) 2,997,205 3,452,681 3,879,514 4,254,214 4,834,982 5,236,216

Gross margins 8.1% 7.7% 8.3% 8.4% 8.2% 7.7%

R&D (NT$m) 38,791 40,847 47,718 55,305 62,855 68,071

R&D (as % of sales) 1.3% 1.2% 1.2% 1.3% 1.3% 1.3%

SG&A (NT$m) 119,265 142,691 182,337 195,694 212,739 178,031SG&A (as % of sales) 4.0% 4.1% 4.7% 4.6% 4.4% 3.4%


EPS (basic) 8.01 7.72 7.28 8.50 9.63 12.45

EPS (diluted) 7.75 7.44 7.18 8.37 9.49 12.27

Other Financials

FCF (NT$m) (10,260) 14,036 27,856 66,753 49,577 92,191

Capex (NT$m) 72,716 87,170 54,313 51,051 58,020 62,835

Working capital (NT$m) 234,889 308,077 365,748 399,313 453,429 489,981



Days payable 57 63 60 56 55 55


Total assets (NT$m) 1,380,532 1,730,311 1,834,669 1,928,710 2,092,667 2,275,185

Net debt /(cash) (NT$m) (12,064) (15,671) (33,931) (91,090) (131,073) (213,670)

Hon Hai market share of COGS

(in %)


(in %)


(in %)

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36

Foxconn Technology


Drivers 2010 2011 2012E 2013E 2014E 2015E

Apple

Apple revenues 22,234 30,161 34,971 37,035 42,111 48,865

% of total revenues 16.3% 22.9% 29.0% 26.7% 30.7% 32.7%

Nintendo

Nintendo revenues 90,330 76,186 59,400 70,035 57,190 54,825

% of total revenues 66.1% 57.9% 49.2% 50.5% 41.6% 36.7%

Group

Revenues (NT$m) 136,724 131,498 120,781 138,761 137,331 149,326

Gross margins 10.8% 9.0% 10.2% 11.2% 11.0% 11.0%

R&D (NT$m) 1,290 1,132 1,208 1,110 1,099 1,195

R&D (as % of sales) 0.9% 0.9% 1.0% 0.8% 0.8% 0.8%

SG&A (NT$m) 4,070 3,612 3,503 4,024 3,708 4,032

SG&A (as % of sales) 3.0% 2.7% 2.9% 2.9% 2.7% 2.7%


EPS (basic) 6.85 6.84 6.12 6.94 6.87 7.45

EPS (diluted) 6.81 6.80 6.12 6.94 6.87 7.45

Other Financials

FCF (NT$m) 8,037 3,675 6,895 7,415 8,608 7,297

Capex (NT$m) 3,662 3,851 10,870 6,938 6,867 7,466

Working capital (NT$m) 14,872 17,932 13,143 14,071 13,839 15,048



Days payable 55 64 64 64 64 64


Total assets (NT$m) 92,552 97,723 102,118 112,069 119,229 129,096

Net debt/(cash) (NT$m) (15,032) (23,472) (29,197) (35,443) (42,883) (49,011)

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What is not working

Motorola Solutions


Drivers 2010 2011 2012E 2013E 2014E 2015E

Government

Revenues ($bn) 5.1 5.4 6.1 6.4 6.5 6.6

Enterprise Mobility Solutions

Revenues ($bn) 2.7 2.9 2.6 2.6 2.7 2.7

Group

Revenues ($bn) 7.9 8.3 8.7 9.0 9.1 9.3

Gross margins 50.2% 50.7% 50.5% 50.0% 50.0% 50.0%

R&D ($bn) 1.0 1.0 1.0 1.1 1.1 1.1

R&D (as % of sales) 13.1% 12.2% 11.8% 12.3% 12.3% 12.3%

SG&A ($bn) 1.8 1.8 1.9 1.9 1.9 1.9

SG&A (as % of sales) 22.5% 21.8% 21.5% 21.3% 21.2% 21.0%

Operating margin (adj.) 14.7% 16.6% 17.2% 16.4% 16.5% 16.7%

EPS (reported) 1.88 1.87 2.72 3.13 3.45 3.55

EPS (adjusted) 2.34 2.60 3.05 3.22 3.55 3.64

Other Financials

FCF ($m) 2,120 687 1,156 1,002 962 984

Capex ($m) 192 167 183 180 183 185

Working capital ($m) 1,487 1,701 1,822 1,857 1,888 1,914




Days payable 68 60 54 55 55 55

Total assets ($ bn) 19 14 13 14 15 16

Net debt ($ bn) (6.2) (3.6) (2.5) (3.5) (4.4) (5.4)

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Apple

Source: Company data, Berenberg Bank

Drivers 2010 2011 2012 2013E 2014E 2015E

MacUnits ('000)

Desktops 4,627 4,669 4,656 4,609 4,563 4,563

Portables 9,035 12,066 13,502 14,852 16,040 17,003

ASP ($)

Desktops 1,340 1,379 1,297 1,220 1,159 1,101

Portables 1,248 1,272 1,272 1,247 1,222 1,210

Revenue ($m) 17,479 21,783 23,221 24,146 24,893 25,597

iPOD

Units 50,342 42,620 35,165 28,000 22,000 20,000

ASP ($) 164 175 160 144 132 124

Revenue ($m) 8,274 7,453 5,615 4,024 2,909 2,486

iPhone

Global Smartphone shipments (units m) 281 461 603 911 1200 1400

iPhone shipments (units m) 40 72 125 169 219 263

Apple's market share 14% 16% 21% 19% 18% 19%

ASP ($) 630 651 644 642 635 629

Revenue ($m) 25,179 47,057 80,477 108,318 139,405 165,613

iPhone gross margins 52.6% 52.8% 56.7% 52.0% 49.0% 49.0%

iPAD

Units 7,458 32,394 58,310 75,000 95,000 105,000

ASP ($) 665 628 556 473 425 404Revenue ($m) 4,958 20,358 32,424 35,449 40,412 42,432

Group

Revenues ($bn) 65.2 108.2 156.5 191.9 251.2 282.1

Gross margins 39.4% 40.5% 43.9% 40.5% 39.0% 39.0%

R&D ($bn) 1.8 2.4 3.4 4.6 5.5 6.2

R&D (as % of sales) 2.7% 2.2% 2.2% 2.4% 2.2% 2.2%

SG&A ($bn) 5.5 7.6 10.0 12.5 16.3 18.3

SG&A (as % of sales) 8.5% 7.0% 6.4% 6.5% 6.5% 6.5%


EPS (non-GAAP) 16.41 29.79 47.86 51.06 63.70 71.48

Other financials

FCF ($m) 16,590 33,269 42,561 57,305 62,759 62,541

Capex ($m) 2,005 4,260 8,295 12,766 16,708 18,765

Working capital ($m) -5,454 -8,487 -9,454 -12,922 -17,791 -19,981

Working capital as % of sales -8.4% -7.8% -6.0% -6.7% -7.1% -7.1%



Days payable 111 83 88 90 90 90

Total assets ($m) 75,183 116,371 176,064 243,616 319,644 394,243

Net debt ($m) -51,011 -81,570 -121,251 -178,556 -241,014 -303,255

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RIM


Drivers 2010 2011 2012 2013E 2014E 2015E

CY 2009 2010 2011 2012E 2013E 2014E

Global smartphone market 172 281 461 603 911 1,200

(m units)

RIMM's market share 21.4% 18.6% 10.6% 4.2% 2.0% 1.2%

Hardware

Units shipped (m) 36.7 52.3 49.0 25.5 17.8 14.3

ASP ($) 331 305 282 225 191 163

Revenues ($m) 12,154 15,956 13,794 5,738 3,414 2,322

Services

Subscriber base 41,300 60,900 77,850 76,850 75,650 74,350

Net additions 16,917 19,600 16,950 -1,000 -1,200 -1,300

ARPU ($) 5.2 5.0 4.7 4.1 3.8 3.6

Revenues ($m) 2,159 3,197 4,086 3,849 3,498 3,240

Group

Revenues ($m) 14,953 19,907 18,400 10,308 7,577 6,273

Gross margins 44.0% 44.3% 35.6% 28.0% 30.0% 31.0%

R&D ($m) 965 1,351 1,559 1,546 1,137 1,066

R&D (as % of sales) 6.5% 6.8% 8.5% 15.0% 15.0% 17.0%

SG&A ($m) 1,811 2,400 2,604 1,835 1,288 1,255

SG&A (as % of sales) 12.1% 12.1% 14.2% 17.8% 17.0% 20.0%

Operating margin 21.7% 23.3% 7.9% -10.8% -8.0% -11.0%

EPS (reported) 4.41 6.36 2.22 -1.64 -0.89 -1.01

EPS (adjusted) 3.63 6.36 1.54 -1.64 -0.89 -1.01

Other financials

FCF ($m) 2,025 2,970 2,010 985 (612) (104)

Capex ($m) 1,009 1,039 902 471 364 282

Working capital ($m) 2,600 3,741 3,345 1,862 1,773 1,461




Days payable 27 27 23 32 33 33

Total assets ($m) 10,204 12,875 13,731 11,904 10,919 10,356

Net cash ($m) 1,911 2,121 1,774 2,153 1,542 1,437

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TPK


Drivers 2010 2011 2012E 2013E 2014E 2015E

SFF touch module

Revenue from SFF touch module 14,771 17,128 12,987 16,173 17,664 19,416

LFF touch module

Revenue from LFF touch module 19,305 49,790 56,025 77,675 86,760 104,652

Touch display

Revenue from touch display 25,623 68,867 85,500 89,100 82,800 86,400

Apple market share 60.0% 55.0% 45.0% 45.0% 45.0% 45.0%

Group

Revenues (NT$m) 59,699 135,784 154,512 182,948 187,224 210,468

Gross margins 16.8% 16.9% 16.3% 15.0% 14.5% 14.0%

R&D (NT$m) 1,574 3,491 4,635 5,854 5,991 6,735

R&D (as % of sales) 2.6% 2.6% 3.0% 3.2% 3.2% 3.2%

SG&A (NT$m) 2,210 4,751 4,867 5,488 5,617 6,314

SG&A (as % of sales) 3.7% 3.5% 3.2% 3.0% 3.0% 3.0%


EPS (basic) 22.69 48.22 36.84 37.58 37.25 39.37

EPS (diluted) 21.93 48.22 36.84 37.58 37.25 39.37

Other Financials

FCF (NT$m) (4,770) (5,482) (3,460) (2,297) (2,909) (2,024)

Capex (NT$m) 10,711 23,458 23,177 27,442 28,084 31,570

Working capital (NT$m) 1,128 (6,370) (7,478) (11,278) (11,669) (13,262)

Working capital as % of sales 1.9% -4.7% -4.8% -6.2% -6.2% -6.3%


Days payable 103 80 75 78 78 78


Total assets (NT$m) 41,929 92,953 105,479 124,426 137,584 152,736

Net debt /(cash) (NT$m) 1,697 12,838 16,300 18,597 21,506 23,530

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Foxconn International


Market share (of COGS in %) 2010 2011 2012E 2013E 2014E 2015E

Nokia

FIH market share of COGS (in %) 15.6% 14.0% 12.0% 12.0% 12.0% 12.0%

Motorola


Sony Ericsson


Group

Revenues (USDm) 6,626 6,354 5,528 5,086 4,831 4,590

Gross margins 4.3% 5.3% 2.2% 4.5% 4.3% 4.0%

R&D (USDm) 220 194 171 147 140 133

R&D (as % of sales) 3.3% 3.1% 3.1% 2.9% 2.9% 2.9%

SG&A (USDm) 279 275 238 209 198 188

SG&A (as % of sales) 4.2% 4.3% 4.3% 4.1% 4.1% 4.1%


Operating margin (adj.)

EPS (basic) -0.03 -0.01 -0.03 -0.01 -0.01 -0.01

EPS (diluted) -0.03 -0.01 -0.03 -0.01 -0.01 -0.01

Other Financials

FCF (USDm) (360) 310 (61) (9) (19) (24)

Capex (USDm) 254 178 210 193 184 174

Working capital (USDm) 995 805 683 640 607 575



Days payable 81 74 74 74 74 74Days in inventory 43 37 37 37 37 37

Total assets (USDm) 6,017 5,612 4,863 4,657 4,512 4,365

Net debt (USDm) (762.1) (1,439.0) (968.1) (959.6) (941.1) (917.4)

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ZTE


Drivers 2010 2011 2012E 2013E 2014E 2015E

Networks

Revenues (CNY '000) 41,990 46,522 44,661 46,894 49,239 50,224

YoY growth 5.0% 10.8% -4.0% 5.0% 5.0% 2.0%

Handsets

Revenues (CNY '000) 17,927 26,934 32,051 34,615 38,076 41,884

YoY growth 37.1% 50.2% 19.0% 8.0% 10.0% 10.0%

Others

Revenues (CNY '000) 10,346 12,799 14,591 14,883 15,329 15,789

YoY growth 24.5% 23.7% 14.0% 2.0% 3.0% 3.0%

Group

Revenues (CNY '000) 70,263 86,254 91,303 96,392 102,644 107,897

Gross margins 30.8% 30.3% 26.5% 26.0% 26.0% 26.0%

R&D 7,092 8,493 8,309 8,675 9,238 8,632

R&D (as % of sales) 10.1% 9.8% 9.1% 9.0% 9.0% 8.0%

SG&A 11,414 13,385 13,376 13,495 14,370 15,106

SG&A (as % of sales) 16.2% 15.5% 14.7% 14.0% 14.0% 14.0%



EPS (reported) CNY 1.17 0.61 0.05 0.26 0.30 0.56

EPS (adjusted) CNY 1.25 0.66 0.05 0.26 0.30 0.56

EPS (reported) (HK$) 1.35 0.70 0.06 0.32 0.37 0.69

EPS (adjusted) (HK$) 1.44 0.76 0.06 0.32 0.37 0.69

Other Financials

FCF (CNY '000) (2,125) (5,877) (3,625) (75) (198) 1,075

Capex (CNY '000) 3,067 4,065 2,283 2,410 2,566 2,697

Working capital (CNY '000) 19,668 15,135 19,025 20,166 21,474 22,573




Days payable 192 198 170 170 170 170

Total assets (CNY '000) 85,509 105,368 102,072 104,998 108,263 112,172

Net debt (CNY '000) (1,530) 1,039 6,699 6,774 6,972 5,896

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Nokia


Drivers 2010 2011 2012E 2013E 2014E 2015E

Global handset market size 1,427 1,511 1,600 1,887 2,000 2,200

(m units)

Global smartphone market (m units) 281 461 603 911 1,200 1,400

Nokia Device and Services

Nokia's market share 31.7% 27.6% 21.1% 17.4% 15.6% 13.4%

Units shipped (m) 453 417 338 328 311 296

ASP () 62.8 56.9 45.5 41.9 39.8 37.8

Revenues (m) 29,137 23,943 15,383 13,724 12,386 11,178

Operating margin (adjusted) 10.9% 6.6% -8.0% -9.0% -8.0% -7.0%

NSN

Revenues (m) 12,661 14,041 13,300 13,500 13,300 13,300


Location & Commerce

Revenues (m) 1,003 1,050 1,100 1,300 1,400 1,500


Group

Revenues ( bn) 42.5 38.7 29.4 28.5 27.1 26.0

Gross margins (adjusted) 30.6% 29.4% 23.8% 24.0% 24.0% 23.0%

R&D (adjusted) (bn) 5.3 5.2 4.4 3.7 3.3 2.9

R&D (as % of sales) 12.5% 13.4% 15.0% 13.0% 12.0% 11.0%

SG&A (adjusted) ( bn) 4.5 4.4 3.9 3.4 3.0 2.9

SG&A (as % of sales) 10.6% 11.5% 13.4% 12.0% 11.0% 11.0%

Operating margin (IFRS) 6.0% -2.7% -8.7% -3.1% -1.2% -1.3%

Operating margin (adjusted) 7.5% 4.7% -4.6% -1.0% 1.0% 1.0%

EPS (IFRS) 0.50 0.15- 0.73- 0.28- 0.15- 0.15-

EPS (adjusted) 0.61 0.29 0.40- 0.11- 0.03 0.03

Other Financials

FCF (bn) 4.10 0.54 (0.54) (1.92) (0.82) (0.75)

Capex (m) 679 597 395 391 325 312

Working capital (bn) 4.0 4.0 2.4 3.2 3.0 2.9




Days payable 75 73 78 73 73 73

Total assets (bn) 39.1 36.2 29.5 27.4 24.8 23.2

Net debt (bn) (7.0) (5.8) (4.9) (3.1) (1.4) (0.6)

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Price target and valuation changes

On Samsung, we take our price target up to KRW1,650,000 from KRW1,450,000.Our new price target is based on a 8x P/E multiple on our FY14 EPS ofKRW217,239.

On ARM, we take our price target up to 10.0 from 7.2. Our new price target isbased on a 40x P/E multiple on our FY14 EPS of 0.25.

On Imagination, we take our price target down to 3.6 from 4.0. Our new pricetarget is based on a DCF model assuming a 3% terminal growth rate, a 8.5%WACC and a 25% terminal EBIT margin.

On Ericsson, we take our price target down to SKR51.0 from SKR53.0. Our newprice target is based on a 12x P/E multiple on our FY14 EPS of SKR4.2.

On Foxconn International, we take our price target up to HKD3.00 fromHKD2.0. Our new price target is based on a sum-of-the-parts valuation.

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Please note that the use of this research report is subject to the conditions and restrictions set forth in theGeneral investment-related disclosuresand the Legal disclaimerat the end of this document.

For analyst certification and remarks regarding foreign investors and country-specific disclosures, pleaserefer to the respective paragraph at the end of this document.

Disclosures in respect of section 34b of the German Securities Trading Act(WertpapierhandelsgesetzWpHG)

Company Disclosures

ARM Holdings no disclosuresAlcatel-Lucent no disclosuresApple 5Catcher Technology no disclosures

Cisco 5Ericsson no disclosuresFoxconn International no disclosuresFoxconn Technology no disclosuresHTC no disclosuresHon Hai Precision no disclosuresImagination Technologies no disclosuresInfineon Technologies no disclosuresJuniper Networks no disclosuresMediaTek no disclosuresMotorola Solutions no disclosuresNokia no disclosuresQualcomm no disclosuresResearch in Motion no disclosuresSTMicroelectronics no disclosuresSamsung Electronics no disclosuresTPK Holding no disclosuresZTE no disclosures

(1) Berenberg Bank or its affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of apublic offering of this company.

(2) Berenberg Bank acts as Designated Sponsor for this company.(3) Over the previous 12 months, Berenberg Bank and/or its affiliate(s) has effected an agreement with this

company for investment banking services or received compensation or a promise to pay from this companyfor investment banking services.

(4) Berenberg Bank and/or its affiliate(s) holds 5% or more of the share capital of this company.(5) Berenberg Bank holds a trading position in shares of this company.(6) Berenberg Bank and/or its affiliate(s) holds a net short position of 1% or more of the share capital of this

company, calculated by methods required by German law as of the last trading day of the past month.

Historical price target and rating changes for ARM Holdings in the last 12 months (full coverage)

Date Price target - GBP Rating Initiation of coverage16 March 12 7.20 Buy 06 January 1029 November 12 10.00 Buy

Historical price target and rating changes for Alcatel-Lucent in the last 12 months (full coverage)

Date Price target - EUR Rating Initiation of coverage

16 March 12 1.20 Sell 06 January 1008 June 12 1.00 Sell04 September 12 0.70 Sell

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Historical price target and rating changes for Apple in the last 12 months (full coverage)

Date Price target - USD Rating Initiation of coverage16 March 12 750.00 Buy 06 January 1004 September 12 800.00 Buy

Historical price target and rating changes for Catcher Technology in the last 12 months (full coverage)

Date Price target - TWD Rating Initiation of coverage09 December 11 190.00 Buy 09 December 1116 March 12 250.00 Buy08 June 12 180.00 Hold04 September 12 150.00 Hold

Historical price target and rating changes for Cisco in the last 12 months (full coverage)Date Price target - USD Rating Initiation of coverage

07 June 10

Historical price target and rating changes for Ericsson in the last 12 months (full coverage)

Date Price target - SEK Rating Initiation of coverage08 June 12 53.00 Sell 06 January 1029 November 12 51.00 Sell

Historical price target and rating changes for Foxconn International in the last 12 months (full coverage)

Date Price target - HKD Rating Initiation of coverage09 December 11 3.72 Sell 09 December 1116 March 12 4.70 Sell08 June 12 2.50 Sell04 September 12 2.00 Sell29 November 12 3.00 Sell

Historical price target and rating changes for Foxconn Technology in the last 12 months (full coverage)

Date Price target - TWD Rating Initiation of coverage09 December 11 86.00 Hold 09 December 1116 March 12 100.00 Sell08 June 12 85.00 Sell

Historical price target and rating changes for HTC in the last 12 months (full coverage)

Date Price target - TWD Rating Initiation of coverage08 June 12 150.00 Sell 06 January 10

Historical price target and rating changes for Hon Hai Precision in the last 12 months (full coverage)

Date Price target - TWD Rating Initiation of coverage09 December 11 96.00 Buy 09 December 1116 March 12 125.00 Buy08 June 12 80.00 Hold

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Historical price target and rating changes for Imagination Technologies in the last 12 months (fullcoverage)

Date Price target - GBp Rating Initiation of coverage14 December 11 580.00 Buy 20 October 1112 January 12 580.00 Hold16 March 12 660.00 Hold08 June 12 400.00 Sell29 November 12 360.00 Sell

Historical price target and rating changes for Infineon Technologies in the last 12 months (full coverage)

Date Price target - EUR Rating Initiation of coverage16 March 12 8.00 Hold 06 January 1008 June 12 6.50 Hold04 September 12 6.00 Hold

Historical price target and rating changes for Juniper Networks in the last 12 months (full coverage)

Date Price target - USD Rating Initiation of coverage08 June 12 14.00 Sell 07 June 10

Historical price target and rating changes for MediaTek in the last 12 months (full coverage)

Date Price target - TWD Rating Initiation of coverage03 September 10

Historical price target and rating changes for Motorola Solutions in the last 12 months (full coverage)

Date Price target - USD Rating Initiation of coverage

16 March 12 43.00 Sell 24 January 1108 June 12 40.00 Sell

Historical price target and rating changes for Nokia in the last 12 months (full coverage)

Date Price target - EUR Rating Initiation of coverage16 March 12 3.20 Sell 06 January 1008 June 12 1.80 Sell04 September 12 1.50 Sell

Historical price target and rating chang

2012 nov 29 — 10 for ’13

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