27 march 2017 regional powers strive for industry ... · pdf fileregional powers strive for...

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

Regional Powers Strive for Industry

Dominance Korea’s strength in memory and OLED

27 March 2017

Research Analyst, +82-2-3707-3740, [email protected]

Keon Han, Head of Korea Research & Technology

mailto:[email protected]



Global DRAM M/S: Korea dominates

Relative to 15 years ago, only three meaningful

DRAM companies have survived to enjoy the higher

profits post consolidation.

Samsung remains the

dominant DRAM producer, but the suppliers are more

balanced in terms of impacting price.

Korea’s domination of the DRAM industry has grown

from 45% in 2005 to 75% in 2016.

DRAM profitability is the highest in over a decade.

2

Global DRAM market share trend

Global DRAM market share as of 4Q16

KR chipmakers gaining global m/s (%)

30%

40%

50%

60%

70%

80%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F

Korea chipmakers m/s (SEC + Hynix, %)

Samsung48%

SK Hynix27%

Micron Group19%

Others6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F

Samsung SK Hynix Micron Group Micron MMJ(Elpida) ProMOS Winbond Powerchip Nanya Others

Source: DRAMeXchange based on sales

Global M/S in Specialty DRAM dominated by Top 3

Samsung’s higher DRAM profitability stems from the

ability to dominate the specialty segments such as

the Mobile and Server DRAMs

DRAM domination has become more concentrated

for Mobile DRAMs (85%) and Server DRAMS (81%)

3

Global mobile DRAM market share trend Global mobile DRAM market share as of 4Q16

Global server DRAM market share trend as of 4Q16 (revenue base)

SEC61%

SK Hynix24%

Micron group13%

Others2%

47% 44% 50%61%

23% 29% 24%24%

30% 25% 24%12%

0%

20%

40%

60%

80%

100%

2013 2014 2015 2016

SEC SK Hynix Micron group Others

SEC51%SK Hynix

30%

Micron (+Elpida)16%

Others3%

Source: IDC, IHS Suppli

Mobile surpasses PC: Growth rate remains high

Content growth in mobile DRAM has led to rising

portion of mobile DRAM production to total

Mobile DRAM demand growth rate is significant

and drives the overall DRAM industry demand

2016 acceleration of the

mobile DRAM growth rate

helped to bring the DRAM industry back into balance

in mid-2016

4

Global DRAM production by application and mobile growth YoY

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017E

PC Server Mobile Graphics Others Mobile YoY (RHS)

Source: DRAMeXchange

Servers also surpassing PC DRAM demand PC DRAM will only take 17% of total DRAM production while mobile/server DRAM portion continues to rise (mobile: 44% / server: 25% in 2017E)

This is a major change as PCs and secondary market

DRAM module sales accounted for over 80% of industry demand in the past

High volumes in the smartphone industry and the capability of each smartphone unit consuming as much DRAM as an average PC keeps the market growing and attractive

5

Global DRAM production by application

2Gb equiv. Mn 2013 2014 2015 2016 2017E

PC 6,408 7,491 7,358 7,212 7,580

Server 3,409 4,372 6,487 9,026 11,465

Mobile 5,816 8,330 11,126 15,465 20,256

Graphics 1,230 1,785 1,967 2,239 2,632

Others 1,721 2,086 2,430 2,965 3,645

Total 18,585 24,064 29,367 36,908 45,577

% of total 2013 2014 2015 2016 2017E

PC 34% 31% 25% 20% 17%

Server 18% 18% 22% 24% 25%

Mobile 31% 35% 38% 42% 44%

Graphics 7% 7% 7% 6% 6%

Others 9% 9% 8% 8% 8%

Total 100% 100% 100% 100% 100%

Source: DRAMeXchange

DRAM pricing power fully swings to producers

6

DRAM spot vs contract price trend (2016) Hynix—record quarterly OP trend (DRAM + NAND)

20%

30%

40%

50%

60%

70%

80%

90%

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

Spot/Contract (%, RHS) DRAM spot px(2Gb) DRAM contract px(2Gb)

US$

-500

0

500

1,000

1,500

2,000

2,500

3,000

1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17E 3Q17E

DRAM NAND

Wbn

Source: DRAMeXchange, Credit Suisse estimates

DRAM industry revenue in record territory

7

DRAM industry revenues (US$mn)

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010 2011 2012 2013 2014 2015 2016 2017F

DRAM Revenue ($millions) YoY % (DRAM Revenue, RHS)

Source: Gartner, DRAMeXchange, Credit Suisse estimates

Korea chipmakers: Historical DRAM OPM (%)

Profitability through the recent cycle

Higher-highs, higher-lows in terms of profit margins

8

Korea chipmakers - historical DRAM OPM(%)

-60%

-40%

-20%

0%

20%

40%

60%

80%

1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17E 1Q18E

Samsung - DRAM OPM(%) SK Hynix - DRAM OPM(%)


DRAM cycle: In the midst of a strong upcycle 2017 is headed for the strongest recovery since 2010.

Biggest surprise in 2016 was the

pace of Chinese smartphone

DRAM density increase (66% YoY

vs. 35% expected).

This unexpected surge in Mobile

DRAM demand, led the capacity shifts away from the PC/Sever

DRAM, driving the sharp DRAM

industry turnaround.

Along with more 8GB loads in

PCs, DRAM density competition

among smartphone makers, and

wait-and-see attitude on increasing

capacity are the key areas to

monitor in 2017.

With record low FG inventory, any

softness in prices will be met with

strong demand on both customer

and producer’s FG inventory

replenishment.

9

DRAM investment cycle

2%

54%

171%

31%

-25%

4%

29%

55%

77%74%

-38%-21%

-29%

48%40%

-61%

36%

9%

61%

-5%

32%

-7%-23%

-7%

75%

-25%-11%

33%35%

-4%-10%

63%

-100%

-50%

0%

50%

100%

150%

200%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

Revenue Growth (YoY) Capex Growth (YoY) DRAM Capex/ Revenue

Source: WSTS, DRAMeXchange, Gartner, Credit Suisse estimates

Tight supply conditions despite slowing demand

Globally, DRAM wafer processed has been on a

declining trend and stabilised to a new normal

Despite the rising capex dollars, the YoY DRAM

supply bit growth has been on a decline – diminishing

marginal returns on capex dollars invested

There is little incentive to engage in capex war as

demand end-market has diversified and M/S is no longer a key competitive weapon

10

WW DRAM Wafer Starts Have Been Stable As… ….No Surges in Global DRAM Capex Cycle…

YoY DRAM Demand Growth Rate Continues to Slow

-

5,000

10,000

15,000

20,000

25,000

1995 1998 2001 2004 2007 2010 2013 2016

USD mn

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2003 2005 2007 2009 2011 2013 2015 2017E

27%

-4%

-9%

-1%1%

-4%

1%4%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

10,000

11,000

12,000

13,000

14,000

15,000

16,000

2010 2011 2012 2013 2014 2015 2016 2017E

WW DRAM wafer starts 12" equiv. (lhs) YoY (%, RHS)

Kpcs

OPM(%) by DRAM makers

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Samsung SK Hynix Micron


DRAM capex muted, investment focus in NAND

11

Global Foundry, DRAM and Flash CAPEX (forecasts from 2016)

DRAM 2010 2011 2012 2013 2014 2015 2016E 2017E

Samsung $5,220 $2,484 $1,694 $2,779 $4,501 $5,975 $2,316 $3,752

Hynix $2,358 $1,757 $1,705 $1,937 $3,195 $3,972 $3,624 $2,900

Elpida (Includes PSC and Rexchip) $2,070 $1,812 $920 $973 $0 $0 $0 $0

Micron $856 $604 $998 $692 $1,846 $3,789 $2,204 $2,250

Others $2,889 $985 $314 $264 $474 $379 $1,029 $1,233

Total $13,393 $7,642 $5,630 $6,644 $10,015 $14,114 $9,172 $10,134

Y/y Change 201% -43% -26% 18% 51% 41% -35% 10%

Flash 2010 2011 2012 2013 2014 2015 2016E 2017E

Samsung $3,533 $3,516 $3,952 $4,456 $4,120 $4,366 $7,947 $9,142

Hynix $688 $1,317 $1,705 $1,291 $1,369 $2,046 $1,553 $2,900

Toshiba+SNDK $2,753 $3,049 $2,094 $2,170 $3,153 $3,236 $4,073 $4,913

Micron $214 $2,416 $665 $1,112 $1,760 $1,106 $2,556 $1,750

Intel $1,500 $1,500

Others $1,426 $1,148 $69 $103 $168 $343 $355 $918

Total $8,614 $11,446 $8,484 $9,131 $10,570 $11,096 $17,985 $21,123

Y/y Change 88% 33% -26% 8% 16% 5% 62% 17%

Logic 2010 2011 2012 2013 2014 2015 2016E 2017E

Intel $5,200 $9,418 $11,027 $10,711 $10,105 $7,326 $8,000 $8,000

TI $1,079 $734 $446 $371 $347 $496 $464 $479

Infineon $121 $1,287 $913 $467 $719 $780 $874 $906

STM $776 $1,258 $486 $531 $496 $467 $615 $615

Sony $474 $1,563 $1,280 $686 $661 $1,681 $1,271 $1,600

Fujitsu $482 $550 $450 $300 $300 $300 $300 $300

Others $1,652 $1,839 $1,265 $1,211 $1,416 $1,476 $1,649 $1,989

Total $9,783 $16,648 $15,866 $14,277 $14,044 $12,526 $13,173 $13,889

Y/y Change 38% 70% -5% -10% -2% -11% 5% 5%

Foundry 2010 2011 2012 2013 2014 2015 2016E 2017E

TSMC $5,788 $7,286 $8,322 $9,688 $9,522 $8,123 $9,600 $9,800

Samsung $2,648 $5,700 $6,645 $4,382 $4,880 $2,695 $3,316 $3,001

GF/Chartered $2,700 $4,700 $3,800 $3,700 $3,800 $2,300 $1,900 $2,300

UMC $1,800 $1,600 $1,750 $1,103 $1,367 $1,892 $2,700 $3,000

SMIC $619 $765 $499 $770 $1,014 $1,573 $2,650 $2,200

Other $888 $559 $498 $527 $924 $768 $868 $868

Total $14,441 $20,610 $21,514 $20,170 $21,508 $17,351 $21,034 $21,169

Y/y Change 205% 43% 4% -6% 7% -19% 21% 1%

Source: Credit Suisse estimates

China LT threat: Roadmap on DRAM/NAND

China’s memory semiconductor investment

announcement

Mostly lagging technology,

which would result in significant cost gap

Announced capacity would

only ramp up in phases after yield success

12

China roadmap on DRAM/NAND

Status Company Location Tech-node

Designed

capacity

(kwpm)

Products

Total

investment

(US$,bn)

Total investment

(Rmb,bn)MP Remark

Existing SK Hynix Wuxi 20nm 130 DRAM 0.8 5.5 2005

Existing Samsung Xian 30nm 100 3D NAND 1.1 7.5 2014

Existing YMTC (XMC) Wuhan 45nm 20 NOR 0.1 0.4 2007

Existing Intel Dalian 30nm 30 3D NAND 0.8 5.5 2016 With Dalian gov

Building YMTC (XMC) Wuhan 30nm 200 3D NAND 3.5 24 2018 With Wuhan gov, Tsinghua Unigroup, SMIC; Fab 1 and 2 each 100kwpm

Building Tsinghua Unigroup Nanjing TBC 100 DRAM 4.4 30 2018 With Nanjing gov

Building Jinhua Fujian 32nm 60 DRAM 0.8 5.3 2018 With Fujian gov and UMC; May have phase 2 to expand to 120k

Building Changxin Hefei TBC 125 DRAM 1.0 7.2 2018 With Hefei gov and GigaDevice

Building Tsinghua Unigroup Shezhen TBC TBC DRAM TBC TBC TBC

Existing 280 2.7 18.9

Building 485 9.7 66.5

Source: Credit Suisse estimates, company data

DRAM/NAND: Technology roadmap

13


NAND M/S: Industry more fragmented vs. DRAM

NAND industry has more supplier but the industry

growing at a much faster rate.

Korea continues to dominate. Samsung and

Hynix combine for nearly 50% global M/S.

14

Source: DRAMeXchange based on sales

Global NAND market share trend KR chipmakers NAND m/s recovering(%)

Global NAND market share as of 4Q16

Samsung37%

Toshiba18%

WDC(SanDisk)18%

Micron10%

SK Hynix10%

Intel7%

39% 38% 38% 31% 30% 32% 36%

34% 31% 28%22% 22% 20%

20%

19% 19% 15%17%

11%12% 14%

10% 13% 14%11%

9% 12% 12% 11% 10% 11% 10%6% 8% 8% 6% 7% 8% 7%

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014 2015 2016

Samsung Toshiba WDC(SanDisk) Micron SK Hynix Intel

30%

35%

40%

45%

50%

55%

2010 2011 2012 2013 2014 2015 2016

Korea chipmakers m/s (SEC + Hynix, %)

NAND industry revenues

15

NAND industry revenues (US$mn)

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

Global NAND Flash Market Sales (US$bn) YoY % (RHS)


Samsung benefits from early 3D NAND transition

SEC’s NAND profitability will

improve further on rising

48L/64L 3D NAND penetration

with a better cost structure

Our estimates suggest 24L 3D

NAND has c80% better

productivity over 1xnm planar

NAND while 48L has c50%

more over 32L 3D NAND

With more 48L 3D NAND

production, upcoming new

technology (64L/96L) would

support further margin expansion

for Samsung

Despite SEC’s dominance in

global 3D NAND, the penetration

into total NAND market is just

taking off

That said, Samsung will enjoy

better NAND profitability on

technology leadership and

economies of scale for the next

couple of years

16

Samsung's NAND technology roadmap

Productivity comparison (2D vs. 3D / 32L vs. 48L vs. 64L) Samsung's OPM accelerates on 3D NAND

Samsung dominates 3D NAND, but penetration only beginning

-20%

-10%

0%

10%

20%

30%

40%

Samsung - OPM(%) Toshiba - OPM(%)Micron - OPM(%) SK Hynix - OPM(%) 0

20

40

60

80

100

120

140

160

180

200

1xnm planar NAND (TLC) 24L 3D NAND (TLC)

0

20

40

60

80

100

120

140

160

180

200

Samsung 32

layer (TLC)

Samsung 48

layer (TLC)

Samsung 64

layer (TLC)

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

50

100

150

200

250

300

2013 2014 2015 2016 2017E

Samsung 3D NAND capacity % of SEC's 3D NAND to global total(RHS)

Unit: '000 wafers per month,12" equiv.

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

3D NAND proliferation driving earnings growth

Samsung is currently the only

mass scale 3D NAND producer

in the world on technology

leadership and capacity.

NAND becomes one of the

strongest growth drivers with

rising contribution (20% as a %

of total OP by 2020 vs. 11% in

2015) based on rising 3D NAND

penetration

Key catalysts are (1) AAPL’s

iPhone 7/7 Plus doubling its

storage memory with 256GB

equipped with SEC’s 3D NAND;

(2) Solid SSD market expansion

Rising 48L/64L 3D NAND

production should lead to better

profitability on productivity

enhancement

64L 3D NAND ramp up has

begun and should scale in 2H17

17

NAND profit contribution set to rise into 2018E Samsung NAND OPM rising on 3D penetration

0%

10%

20%

30%

40%

50%

60%

70%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

2013 2014 2015 2016 2017E 2018E

Samsung - NAND OPM(%) 3D NAND wafer capacity as % to total (RHS)

Unit: '000 wafers per month,12" equiv.

0%

10%

20%

30%

40%

50%

60%

2011 2012 2013 2014 2015 2016 2017E 2018E

Samsung

Yield penalties at the beginning of 3D NAND

48L 3D NAND taking off amid better 32L yield

Source: Credit Suisse estimates, company data Source: Credit Suisse estimates, company data

Mobile and SSD demand for 3D NAND

Not only from AAPL, NAND demand from data

center/enterprise SSD should remain solid

Global 3D NAND capacity unlikely to expand rapidly

given (1) fully-ramped SEC’s Xian; (2) yield

penalty at major competitors and (3) lead

time requirement for new Pyungtaek or 2D capacity

conversions

18

Solid demand from data centre/enterprise SSD

Sensitivity to NAND shortage (4Q16E/2017E) AAPL’s all iPhone NAND demand requirement

-50%

0%

50%

100%

150%

200%

250%

300%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1Q1

02Q

10

3Q1

04Q

10

1Q1

12Q

11

3Q1

14Q

11

1Q1

22Q

12

3Q1

24Q

12

1Q1

32Q

13

3Q1

34Q

13

1Q1

42Q

14

3Q1

44Q

14

1Q1

52Q

15

3Q1

54Q

15

1Q1

62Q

16E

3Q1

6E4Q

16E

Bit

grow

th (

YoY

%)

NA

ND

dem

and

(mn

GB

/qua

rter

)

NAND demand from iPhone YoY %

0

5

10

15

20

25

30

35

2014 2015 2016E 2017E 2018E

Enterprise Data center

Million TB

8.4x

4Q16 Base Case Bull Base

ASP assumption (QoQ) -3% 0%

Bit growth (QoQ) 13% 15%

NAND OP (Wbn) 1,462 1,632

Total OP (Wbn) 7,539 7,709

NAND OPM (%) 32% 34%

% of NAND OP chg 12%

% to Total OP chg 2%

2017 Base Case Bull Base

ASP assumption (YoY) -24% -15%

Bit growth (YoY) 53% 53%

NAND OP (Wbn) 6,001 8,168

Total OP (Wbn) 33,513 35,680

NAND OPM (%) 32% 39%

% of NAND OP chg 36%

% to Total OP chg 6%

Source: Company data, Credit Suisse estimates

Source: IDC, Credit Suisse Estimates Source: Credit Suisse estimates

DRAM/NAND applications

DRAM demand is no longer dominated by PCs. Rather,

Mobile is the biggest demand driver and Servers

have surpassed PCs in terms of demand volume

Therefore, the ability to improve the performance of

the specialty products and applying the leading edge

nodes to specialty products are the competitive

differentiators

Mobile and SSDs are primary demand drivers

19

DRAM by Usage – Balanced Convergence

NAND Flash Demand: SSD Takes Off

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 1Q17F2Q17F3Q17F4Q17F

WW NAND Flash Demand (16Gb M Equiv.)

Handsets Tablet PC PMP USB DSC SSD Others

Unit: 16Gb M. Equiv.

0%

10%

20%

30%

40%

50%

60%

70%

1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17E3Q17E

PC Server & workstation Handsets


Total memory semiconductor market growth (YoY)

With faster growth rate, NAND industry should

surpass DRAM industry in size in a few years

20

Total memory industry revenues (US$mn)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

DRAM NAND YoY (%, RHS)

US$bn


Samsung/LGD TFT-LCD market share trend

21

Samsung/LGD LCD market shares trend

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17E

Samsung LG Display


TFL-LCDs: China supply is competitive threat

As an industrial policy, China wants to become

more self-reliant on key tech components

China has been aggressively adding

capacity since 2012

China is now 19% of global large-size panel supply,

rising from 9% in 2013 and

13% in 2014

Korea needs to move up

the value chain

22

China’s Gen 6 and above TFT ramp-up schedule – new Gen 8.5/10.5 fabs under construction in 2015-18


Company 2013 2014 2015 2016 2017 2018

BOE

CSOT

CEC-Panda

CEC-IRICO

HKC

Samsung

LGD

AUO

Innolux

Beijing Gen 8.5 120K/month -> 135K/month

Hefei Gen 8.5 30K/month -> 70K/month (4K for white OLED) -> 100K/month

Chongqing Gen 8.5 60K/month - > 90K/month -> 120K/month

Hefei Gen 10.5 90K/mth

Shenzhen Gen 8.5 120K substrates/month -> 145K/month

Shenzhen Gen 8.5 100K/month

Hefei Gen 6 90K substrates/month -> 105K/month (10K: Oxide TFT)

Nanjing Gen 6 83K/month

Nanjing Gen 8.5 30K/m -> 60K/m -> 90K/m -> 120K/m

Suzhou Gen 8.5 65K/month -> 130K/month

Guanzhou Gen 8.5 90K/month -> 120K/month

Gen 5.5 (LTPS & OLED) 30K/month -> 25K/month -> 58K/month

Gen 8.5 60K/month -> 80-90K/month

Gen 8.5/8.6 60K/month -> 100K/month

Gen 6 350K/month -> 400K/month

Fuqing Gen 8.5 50K -> 120K/month =>140K/mth

Chengdu Gen 8.6 60K/month

Xianyang Gen 8.6 120K/month

Chengdu Gen 8.6 60K/month

Korea’s head-start in OLED

23

Total glass inputs area by vendor (mobile only, TOP 7)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E

(K m²)

Samsung Display LG Display AUO BOE GoVisionox EverDisplay JDI


Samsung’s OLED capacity investment plans Various methods of controlling

the supply chain include the

equity investment and full

acquisition

Samsung A1: This fab is the

world's first OLED facility. All

lines depreciated, making it a

cost-efficient fab in producing

mid-range rigid OLED

Samsung A2: This fab is world's

first 5.5G OLED facility and also

houses Samsung's first flexible

OLED lines. Initial hybrid TF

encapsulation for flexible OLED

was set up here

Samsung A3: This is Samsung's

first 6G OLED production line

dedicated to flexible OLEDs. We

believe this will be manufacturing

majority of AAPL-related OLED

displays. A3 fab could reach

maximum(120K) by end-2017

driven by APPL.

24

Samsung Display OLED panel capacity

Equity investment and acquisition of OLED supply chain

Factory Target product Capacity (k sheet/month) Production status

4.5 Gen OLED Glass Rigid OLED 56 Mass production

5.5 Gen OLED Glass Rigid OLED/Flexible OLED 121 Mass production

6 Gen OLED Flexible OLED 15 Mass production (Expand to 120K 2017-end)

8 Gen or above OLED OLED TV 8 V1 RGB TV R&D

Source: Company data, Credit Suisse research

Source: Company data

LG Display’s OLED capacity investment plans

Through 2018, LGD plans to

invest about $8.5 bn primarily

into OLED displays

LGD plans to expand OLED

applications to signage and

automobiles

Paju P10: It will likely be a mega

facility with production expected

to commence in 1H18

Paju P9: It is running 26K 8.5G

substrates with plans to ramp up

to 49K by the end of 2016 and

expand up to 60K by 2017

Kumi P6: It is currently being

retrofitted to convert into 6G

OLED fab. OLED production will

begin in 1H17

Paju AP2: The facility makes

plastic OLED panels for AAPL

watches, LGE's G-flex screens

and some auto display

25

LG Display’s OLED capacity next to take off (Total)

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

(K m²)

Samsung Display LG Display AUO

BOE GoVisionox EverDisplay

JDI

LG Display’s OLED capacity next to take off (mobile only)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

(K m²)

Samsung Display LG Display AUO

BOE GoVisionox EverDisplay

JDI

LGD OLED panel capacity

Factory Location Target product Capacity (k sheet/month) Production status

4.5 Gen OLED Wearables, smartphones 14 Mass production

8.5 Gen OLED OLED TV 49 Mass production

6 Gen OLED Wearables, smartphones, automotive 15 1H17

6 Gen OLED Wearables, smartphones, automotive 15 1H18

9 Gen or above OLED OLED TV, wearables, automotive NA 1H18

Source: Company data

Source: Company data, Credit Suisse research

AAPL and China to drive OLED demand two-fold

We expect AAPL to adopt OLED display in 2H17

starting with iPhone 8. AAPL’s early OLED

demand likely all supplied by Samsung

Hence, Samsung increases OLED CAPEX by more

than 2x YoY in 2016 to W9.0 tn, AAPL’s OLED

requirement can grow as large as Samsung’s by

2020

Within next couple of years, Samsung should benefit the most given the rising

demand along with the dominant market share, in particular for mobile-usage

26

Samsung’s OLED CAPEX rose sharply in 2016 Forecast of AAPL’s OLED penetration (2017 to 2020)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2010 2011 2012 2013 2014 2015 2016 2017E

Samsung's OLED CAPEX

Unit: Wtn

0%

20%

40%

60%

80%

100%

2017E 2018E 2019E 2020E

OLED based devices Others

Source: Company Data, Credit Suisse estimates Source: Company Data, Credit Suisse estimates

AAPL and China to drive OLED demand two-fold

China demand is also rising. More Chinese smartphones adopt OLEDs (18 models in 1H16, 15 more models in 2H16)

More internal OLED usage in mid-to-low end smartphones create additional demand (Galaxy A, J series)

Rigid OLED cost structure has declined as its older fabs are becoming fully depreciated. Conventional OLED is now cheaper to use than high quality LCD displays

Our sensitivity analysis for Samsung shows 4% upside to total OP if OLED penetration in global smartphones reaches 42% by 2018E

27

Global smartphone OLED penetration (%)

Cost advantage to drive faster penetration of OLED panel Chinese smartphone models using OLED growing

OLED earnings sensitivity to smartphone penetration(%)

Base case

(mn units) 2016E 2017E 2018E

Global smartphones 1,504 1,559 1,645

OLED smartphones 178 329 436

OLED pentration (%) 12% 21% 26%

Samsung OLED total output (K m2) 2,048 2,608 3,675

Samsung OLED OP (Wbn) 2,169 3,117 3,763

Bull case

Global smartphones 1,504 1,559 1,645

OLED smartphones 286 546 691

OLED pentration (%) 19% 35% 42%

OLED smartphones (additional) 107 216 255

Samsung OLED total output (K m2) 2,109 3,156 5,035

% chg to total OLED output 3% 21% 37%

Samsung OLED OP (Wbn) 2,234 3,772 5,156

% chg to OLED OP 3% 21% 37%

% chg to total OP 0% 2% 4%

90%

95%

100%

105%

110%

115%

120%

125%

130%

5.5" Smartphone 7" Tablet PC

LCD LCD with QD film AMOLED

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2015 2016E 2017E 2018E 2019E

(mn unit)

Total units (lhs) OLED penetration rate



Global smartphone volume & penetration rate

Smartphone volume is still growing, but at a slower

growth rate

Faster volume growth from

low and mid-end price segments inherently

pressures margins

Due to the sheer volume of smartphone growth for the

next several years, earnings

can still be driven by components

Smartphone volume growth = more components sales

28

Smartphone shipment vs YoY growth Smartphone as a % of total handset

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2009 2011 2013 2015 2017E 2019E

Global smartphone units ('000) % change yoy

mn

12.9%19.1%

28.8%

41.8%

55.2%

66.3%72.6% 72.7%

79.4%85.8%

91.1%95.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E

% of global handset market

Source: Gartner, Credit Suisse estimates

Smartphone BOM cost breakdown

29

AAPL – iPhone 7 (32GB)

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

iPhone 7 (32GB)

Manufacturing cost

Box Contents

Mechanical/Electro-Mechanical/Glue Logic

Battery

Power Mgmt

BT/WLAN

UI & sensors

Wireless Section(BB/RF/PA)

Cameras (Main/Sub)

Processor

Display & Touchscreen

Memory (DRAM+NAND)

Samsung – Galaxy S7 (32GB)

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

Galaxy S7(32GB)

Conversion cost

Others

Box contents

BT/WLAN

Battery

Sensors

User interface IC

Power Mgmt

RF/PA

Sub Camera

Main Camera

Processor + BB

Display & Touchscreen

Memory (NAND+DRAM)

Source: IHS Technology, Credit Suisse estimates

Samsung: 3D NAND and OLED driving growth So what?

Earnings are becoming much more balanced and now growing on an annualised basis

Earnings and FCF will be going up. We are more confident capital returns will rise in 2H and into 2018. Samsung is currently under-

delivering its FCF target of 30% to 50% at 27%.

30

Core profits becoming more balanced

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E

DRAM NAND OLED Handsets CE

Source: Company Data, Credit Suisse estimates

Korea technology universe valuation chart

31

Mkt cap TP Price Up/

Company Ticker Rating CCY (US$mn) (local ccy) (local ccy) Down(%) 2016E 2017E 2018E 2016E 2017E 2018E 2016E 2017E 2018E

Large Cap (Keon Han)

Samsung Electronics 005930.KS OUTPERFORM KRW 266,025 2,900,000 2,120,000 37% 11% 16% 15% 1.4 1.2 1.1 13.1 8.1 7.5

SK Hynix 000660.KS OUTPERFORM KRW 30,358 71,000 46,750 52% 13% 29% 25% 1.3 1.0 0.8 11.1 4.0 3.6

SEMCO 009150.KS OUTPERFORM KRW 4,417 78,600 66,300 19% 0% 6% 7% 1.2 1.1 1.0 327.7 17.8 15.4

LG Display 034220.KS NEUTRAL KRW 8,937 27,000 28,000 -4% 7% 8% 6% 0.8 0.8 0.8 12.3 9.8 13.6

LG Electronics 066570.KS NEUTRAL KRW 10,057 59,000 68,900 -14% 2% 8% 7% 0.9 0.8 0.7 45.7 10.5 11.2

Samsung SDI 006400.KS NEUTRAL KRW 8,342 99,000 136,000 -27% 2% 4% 5% 0.9 0.9 0.9 42.6 23.3 18.0

Seoul Semiconductor 046890.KQ NEUTRAL KRW 866 16,000 16,650 -4% 6% 6% 6% 1.5 1.4 1.3 25.1 24.5 22.9

Mid/small cap (Sang Uk Kim)

LG Innotek 011070.KS OUTPERFORM KRW 2,787 135,000 132,000 2% 0% 13% 12% 1.8 1.6 1.4 631.8 12.7 12.5

Soulbrain 036830.KQ OUTPERFORM KRW 708 72,000 47,900 50% 15% 16% 15% 1.4 1.2 1.0 9.8 8.1 7.2

SK Materials 036490.KQ OUTPERFORM KRW 1,609 210,000 171,000 23% 28% 30% 29% 4.3 3.2 2.6 16.6 12.0 10.2

Wonik Materials 104830.KQ OUTPERFORM KRW 344 82,500 61,800 33% 8% 11% 14% 1.8 1.6 1.4 24.5 15.5 11.0

DNF 092070.KQ OUTPERFORM KRW 134 21,000 13,950 51% 15% 18% 17% 2.1 1.7 1.4 14.4 10.5 9.1

PER(X)ROE(%) PBR(X)

Source: Credit Suisse estimates

Companies Mentioned (Price as of 22-Mar-2017)

AU Optronics (2409.TW, NT$11.9) Alphabet (GOOGL.OQ, $849.8) Apple Inc (AAPL.OQ, $141.42) Asustek (2357.TW, NT$290.5) BOE Technology Group Co. Ltd (000725.SZ, Rmb3.32) DNF (092070.KQ, W13,100) Intel Corp. (INTC.OQ, $35.37) Japan Display (6740.T, ¥263)

Jinhua Marine (JNMB.PK, $0.1) LG Display Co Ltd. (034220.KS, W29,500) LG Electronics Inc (066570.KS, W69,200) LG Innotek (011070.KS, W137,000) Lenovo Group Ltd (0992.HK, HK$4.91) Micron Technology Inc. (MU.OQ, $26.06) Motorola Solutions (MSI.N, $83.59) Nanya Technology (2408.TW, NT$47.15) SK Hynix Inc. (000660.KS, W48,650) SK Materials (036490.KQ, W160,800) Samsung Electro-Mechanics (009150.KS, W67,600) Samsung Electronics (005930.KS, W2,123,000) Samsung SDI (006400.KS, W135,000) SanDisk Corp. (SNDK.OQ^E16) Seoul Semiconductor Co Ltd (046890.KQ, W16,900) Soulbrain (036830.KQ, W47,800) TCL Corporation (000100.SZ, Rmb3.53) Toshiba (6502.T, ¥194) Tsinghua Unigroup (Unlisted) Wonik Materials (104830.KQ, W60,400) ZTE Corporation (0763.HK, HK$14.52)

Disclosure Appendix

Analyst Certification

I, Keon Han, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for DNF (092070.KQ)

092070.KQ Closing Price Target Price

Date (W) (W) Rating

21-Jul-16 13,800 12,000 N *

05-Oct-16 14,650 18,500 O

04-Jan-17 15,800 21,000

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for LG Display Co Ltd. (034220.KS)

034220.KS Closing Price Target Price

Date (W) (W) Rating

23-Apr-14 29,000 26,000 N *

15-Oct-14 32,250 26,000 U

04-Dec-14 34,500 27,000

28-Jan-15 36,050 29,000

18-Jun-15 26,450 27,000 N

23-Jul-15 22,950 26,000

31-Aug-15 23,050 25,800

22-Oct-15 23,550 25,600

06-Jan-16 23,100 25,300

27-Jan-16 22,800 24,000

17-May-16 24,400 23,700

27-Jul-16 30,450 25,800

24-Jan-17 31,750 27,000


N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for LG Electronics Inc (066570.KS)


Date (W) (W) Rating

29-Apr-14 71,700 83,000 N *

24-Jul-14 77,000 87,000

29-Oct-14 67,800 78,000

29-Jan-15 62,600 75,000

29-Apr-15 61,200 68,000

02-Jun-15 55,400 62,000

09-Jul-15 45,750 53,500

29-Jul-15 43,800 49,000

25-Aug-15 40,850 45,500

30-Oct-15 49,100 46,200

26-Jan-16 54,800 49,000

16-Mar-16 61,900 54,000

28-Apr-16 58,200 57,000

19-May-16 54,000 50,000

25-Jan-17 54,200 52,000

16-Mar-17 68,100 59,000


N EU T RA L

3-Year Price and Rating History for LG Innotek (011070.KS)


Date (W) (W) Rating

27-Jun-14 143,000 NR

04-Nov-16 77,300 105,000 O *

06-Jan-17 90,800 110,000

24-Jan-17 91,700 120,000

22-Feb-17 120,000 135,000


N O T RA T ED

O U T PERFO RM

3-Year Price and Rating History for SK Hynix Inc. (000660.KS)


Date (W) (W) Rating

25-Apr-14 40,750 49,000 O

23-Jun-14 48,900 64,000

29-May-15 51,100 R

01-Jun-15 51,100 64,000 O

06-Jul-15 40,750 59,000

23-Jul-15 39,000 57,000

19-Aug-15 33,000 56,000

22-Oct-15 31,950 49,000

26-Jan-16 27,850 45,000

26-Apr-16 29,150 42,000

20-Sep-16 39,250 46,000

03-Oct-16 40,200 55,000

13-Jan-17 50,300 65,000

26-Jan-17 53,300 71,000


O U T PERFO RM

REST RICT ED

33

3-Year Price and Rating History for SK Materials (036490.KQ)


Date (W) (W) Rating

21-Jul-16 142,700 180,000 O *

19-Jan-17 187,400 210,000


O U T PERFO RM

3-Year Price and Rating History for Samsung Electro-Mechanics (009150.KS)


Date (W) (W) Rating

28-Apr-14 69,000 72,000 N

02-Jul-14 58,700 44,000 U

30-Oct-14 47,000 44,000 N

02-Dec-14 59,700 53,000

30-Jan-15 67,000 58,000

27-Apr-15 67,900 60,000

10-Jun-15 57,300 58,000

14-Oct-15 61,500 80,000 O

25-Jan-16 54,100 70,000

26-Apr-16 53,400 65,000

25-Jul-16 55,800 68,000

27-Oct-16 48,000 60,000

25-Jan-17 56,600 66,000

15-Mar-17 62,700 78,600


N EU T RA L

U N D ERPERFO RM

O U T PERFO RM

3-Year Price and Rating History for Samsung Electronics (005930.KS)


Date (W) (W) Rating

06-May-14 1,346,000 1,760,000 O

07-Jul-14 1,292,000 1,740,000

08-Jul-14 1,295,000 1,720,000

28-Aug-14 1,242,000 1,700,000

07-Oct-14 1,162,000 1,680,000

03-Sep-15 1,122,000 1,630,000

29-Oct-15 1,325,000 1,785,000

11-Jan-16 1,152,000 1,690,000

28-Jan-16 1,145,000 1,550,000

01-Jun-16 1,333,000 1,702,000

28-Jul-16 1,507,000 1,790,000

15-Dec-16 1,759,000 2,400,000

24-Jan-17 1,908,000 2,650,000

09-Mar-17 2,010,000 2,900,000


O U T PERFO RM

3-Year Price and Rating History for Samsung SDI (006400.KS)


Date (W) (W) Rating

27-Apr-14 150,000 142,000 N

28-Apr-15 126,000 132,000

30-Jul-15 94,600 105,000

31-Aug-15 84,500 88,000

02-Nov-15 111,000 91,000

26-Jan-17 116,000 99,000


N EU T RA L

3-Year Price and Rating History for Seoul Semiconductor Co Ltd (046890.KQ)


Date (W) (W) Rating

02-May-14 39,950 53,000 O

30-Jul-14 34,000 37,000 N

03-Nov-14 16,200 21,000

11-Feb-15 17,400 13,000 U

27-Jul-15 16,000 12,800

26-Oct-15 16,350 15,400 N

24-Nov-15 18,800 16,800

02-Feb-16 15,650 16,600

25-Apr-16 15,500 14,300

03-Feb-17 16,600 16,000


O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Soulbrain (036830.KQ)


Date (W) (W) Rating

21-Jul-16 62,700 90,000 O *

14-Nov-16 61,000 87,000

03-Feb-17 53,300 72,000


O U T PERFO RM

3-Year Price and Rating History for Wonik Materials (104830.KQ)


Date (W) (W) Rating

21-Jul-16 68,100 80,000 O *

16-Aug-16 69,600 82,500


O U T PERFO RM

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

34

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.

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Restricted 2%

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See the Companies Mentioned section for full company names

The subject company (2408.TW, 034220.KS, AAPL.OQ, 000660.KS, 6502.T, 005930.KS, MU.OQ, INTC.OQ, 066570.KS, 046890.KQ, 011070.KS, 006400.KS, 009150.KS, 0763.HK, 2357.TW, MSI.N, 0992.HK, 6740.T, GOOGL.OQ) 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 (034220.KS, AAPL.OQ, 005930.KS, MU.OQ, INTC.OQ, 066570.KS, 011070.KS, 006400.KS, 009150.KS, MSI.N, 0992.HK, GOOGL.OQ) within the past 12 months.

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This research report is authored by:

Credit Suisse Securities (Europe) Limited, Seoul Branch ...................................................................................................................... Keon Han

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 FINRA 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (Europe) Limited, Seoul Branch ...................................................................................................................... Keon Han

Important disclosures regarding companies or other issuers that are the subject of this report are available on Credit Suisse’s disclosure website at https://rave.credit-suisse.com/disclosures or by calling +1 (877) 291-2683.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only

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