The Migration of Memory

Presented by: Tammy Kiely

Investment Banking Division

Goldman, Sachs & Co.

June 1st, 2017

Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable

compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal

income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to

you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.

1

Disclaimer

This presentation has been prepared by the Investment Banking Division of Goldman Sachs and is not a product of

Goldman Sachs Global Investment Research. It should not be used as a basis for trading in the securities or loans of any

companies named herein or for any other investment decision. This presentation does not constitute an offer to sell the

securities or loans of any companies named herein or a solicitation of proxies or votes and should not be construed as

consisting of investment advice.

This presentation has been prepared and is based on information obtained by us from publicly available sources. In

preparing this presentation, we have applied certain assumptions, have performed no due diligence, and have relied upon

and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all

financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by us. We

assume no liability for any such information. This presentation is necessarily based on economic, monetary, market and

other conditions as in effect on, and the information made available to us as of, the dates indicated herein and we assume

no responsibility for updating or revising this presentation. Goldman Sachs does not provide accounting, tax, or legal

advice.

2

The Migration of Memory Observations

Change is a given in the semiconductor industry

Success in the semiconductor industry has largely followed technology, capital, scale, and

customers

Within memory, “we’ve seen this movie before” – but there are some differences that may

influence the ending

— Fundamental industry growth

— End customer demand

— Flow of information

— Technology

— Ecosystem

— Regulation

Looking ahead, it is important to not forget the lessons of the past

3

Setting the Stage We’ve Been in an M&A “Super Cycle”

($ in billions)

Source: Thomson Reuters SDC as of 31-Dec-2016. Excludes share repurchases and solar / photovoltaic transactions, as well as transactions less than $100mm

Note: Microchip / Atmel (2008) and Applied Materials / Tokyo Electron (2013) transactions did not close, and their deal value is not reflected in aggregate deal value for those years.

$61

$18 $11 $11 $11 $12

$53

$19 $24 $21 $17$33

$22 $15$28

$121$133

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

# of Deals 94 33 16 21 26 30 47 44 47 33 43 42 39 31 48 52 32

$2.1

/

$0.7

/

$2.1

/

$1.4

/

$5.0

$3.0

$4.4

/

$6.8

/

$6.5

/

Worldwide

Semi

-conductor

$2.5

/

$2.4

/

$3.2

/

$1.4

/

$1.6

/

$0.8

/

$9.5

$4.4

/

$3.8

/

$18.4

$2.0

$1.0

¹

$2.1

/

$1.1

/

$0.6

/

/

$1.9

$1.3

/

$5.8

/

$5.4

/

$3.3

/ Creditors

$3.1

/ /

$1.4

$1.3

/

/

$4.9

/

$3.7

$3.8

/

$6.5

/

$3.6

/

$4.9

$3.0

/

$2.5

/

$0.9

/

$2.7

/

$1.5

/

$6.4

/

$9.3

/

$2.4

/

$1.6

/

$2.4

/

$1.8

/

/ $36.9

/ $13.7

$16.7

/

/ $4.0

/ $4.3

$10.5

/

$17.6

/

/ $2.3

$2.7

$1.6

/

5-Year aggregate deal size: $115bn

$3.4

/

/ $1.4

/ $0.85

/ $3.1

/ $31.4

/ $4.2

$14.8

/

/ $47.0

/ $1.3

/ $4.5

/ $5.9

4

Outright

consolidation

Memory

consolidation

Mobile cycle

Japan

Setting the Stage Top 15 Players 2005 vs 2016PF

($ in millions)

Source: Gartner, 2017

Note: Revenue figures represent semiconductor-related revenue (all applications).

2005 2016

Company Revenue Company PF Revenue

9,387 $34,590 Intel $53,996

18,347 Samsung Electronics 40,143

Toshiba 10,119 Qualcomm / NXP 24,521

Texas Instruments 8,984 SK hynix 14,267

STMicroelectronics 8,882 Broadcom Ltd. 13,149

8,205 Micron Technology 12,585

Renesas 8,101 Texas Instruments 11,776

Qualcomm 5,959 Toshiba 10,051

Hynix Semiconductor 5,723 MediaTek 8,697

NEC Electronics 5,672 Infineon Technologies 7,160

AMD 5,599 Apple 7,145

4,620 STMicroelectronics 6,890

Micron Technology 4,304 Renesas Electronics 5,784

Broadcom 3,995 Sony 5,396

Sony 3,779 Western Digital (incl.

SanDisk) 5,353

Others 101,412 Others 112,913

Total Market $238,291 Total Market $339,684

Top 15 Players 57% Top 15 Players 67%

Key Themes

5

Setting the Stage

Source: Goldman Sachs Investment Research

Correlation Between GDP and Semiconductor Revenues Increasing

6

So What is Driving Growth?

Source: Gartner 1 CAGRs reflect figures as of Q4 ’16.

Worldwide Semiconductor Revenue Forecast

Mil / Aero

Industrial

Processing

Consumer

Communications

Automotive

2017-2020 CAGRs

as of Q4 ‘16

0.8%

9.5%

1.4%

3.8%

(0.1)%

7.4%

Semiconductor

Revenue Milestones

$50bn 1989

$100bn 1994

$200bn 2000

$300bn 2010

$400bn ?

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

($b

n a

nd

Reve

nu

e G

row

th)

7

China in Focus Headlines

Tsinghua to Build $30 Billion Memory Fab in

China

China’s state-controlling chip vendor Tsinghua Unigroup,

Ltd. Announced plans to build a $30 billion memory chip

in Nanjing, a city in eastern China.

Dylan McGrath, January 20, 2017

UMC’s 12-inch Wafer Venture in China to

Break Ground in July

A 12-inch wafer plant jointly set up by China’s Xiamen

municipal government and state-owned Fujian Electronics

and Information Group will receive technological

assistance from Taiwanese contract chip maker UMC, and

will officially break ground this month.

The Coming Battle On The Yangtze River

Line – The NAND Industry Girds for War

William Tidwell, March 19, 2017

Multiple Chinese Firms to Enter DRAM,

NAND Market in 2018

Sam Chen, November 15, 2015

Plan for $10 Billion Chip Plant Shows

China’s Growing Pull

Paul Mozur, February 10, 2017

8

We’ve Seen this “Movie” Migration in Semiconductors is Not a New Phenomena

Competition for Semiconductor Production

Source: Dataquest, as noted in the Asia Pacific Journal, February 2006; Gartner 2015-2016

US Era Japan Era US / Asia Era

0%

10%

20%

30%

40%

50%

60%

70%

80%

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

15

20

16

Reg

ion

al

Sp

lit

North America Japan Europe Asia / Pacific

NEC Took No.1Place in Total Semi

Intel Took No.1Place in Total Semi

198837%

197572%

200422%

198849%

199540%

195532%

200442%

200426%

Japan-USSemiconductor Friction

9

Migration in Context

Japan Korea China

First

Semiconductor

Activities

1960’s

Early 1970’s – entry into

DRAM

1960’s - assembly for

Fairchild, Motorola

1980’s – entry into DRAM

1970’s - reorganizing for

semiconductor investment

post Cultural Revolution

1990’s – Project 909+

Approach to Entry Follower + incremental

improvement

Lower cost

Follower + incremental

improvement

Manufacturing efficiency

Follower

Source of

Technology

Collaboration with US

Internal

Collaboration with other

companies – e.g. Micron,

Vitelic

Largely external

JVs/Partnerships

Target Customers Export / Japan Export / Korea Domestic

Source of Capital Keiretsus

Banks

Chaebols

Banks

Sovereign funds, SOEs, PE

funds, public market

Other Notables In 1970’s Japan also followed

Intel into MCU/MPU market

In 1976, government

established VLSI Technology

Research Association

DRAM market share peaked in

1987 at 80%

Limited domestic semi

consumption (~7.5% of

Samsung’s sales in 1995)

Samsung and Hyundai started

US companies to source

technology (SST/Tristar and

MEI)

DRAM entry benefitted from

US/Japan trade issues

Domestic efforts initially Mid

1990’s – use of JVs (Shanghai

Bell, Shanghai Phillips,

HHNEC)

Meaningful difference in

trading multiples for A-

share stocks

Importance of returning

entrepreneurs

10

The Importance of Capital Industry Capex Over Time

Source: Goldman Sachs Research, note that regional capex relates to location of parent (e.g. Intel capex displayed as US)

Total Industry Capital Expenditure Over Time ($ in billions)

$3.9

$15.0

$14.3 $20.0

$2.6

$13.3

$10.7 $6.1

$0.7

$3.2

$3.8

$2.1

$0.4

$9.5

$20.2

$31.7

$1.6 $3.6

1985 1995 2005 2016

China

Asia Pacific(excl. China)

Europe

Japan

U.S.

$7.5 $41.0 $50.7 $63.5

Region

1985-2005 CAGR

2005- 2016CAGR

22%

9%

7%

4%

(5)%

(5)%

Total 10% 2%

7% 3%

NM 8%

11

The Importance of Capital Representative China Fab Projects

Sources: SEMI, Gartner, Press Releases

Company Location Product Wafer Size Construction Start Completion Est. Est. WSPM

Alpha & Omega Chongqing Power Discrete 12” TBD 2018 50k

Fujian Jin Hua/JHICC Fujian DRAM 12” 2016 2018/2H 60k

GigaDevice Hefei DRAM/Flash 12” TBD TBD TBD

GlobalFoundries Chengdu Foundry 12” 2017 2018/2019 60k

Hua Li Micro Shanghai Foundry 12” 2016 2018 40k

Powerchip Hefei LCD Drivers 12” 2015 2017/2H 40k

Samsung Xian 3D NAND (Phase 2) 12” TBD TBD TBD

Silan IC Hangzhou Logic 12” NA 2018/2H 50k

SMIC Beijing Foundry 12” 2016 2018 35k

SMIC Shanghai Foundry 12” 2016 2018 20k

SMIC Shenzhen Foundry 12” 2016 2018 40k

Tacomi Semi Nanjing Logic 8” TBD 2018/2H 40k

Tacoma Semi Nanjing CMOS Image Sensor 12” NA 2018/2H 20k

Tsinghua Chengdu Foundry 12” TBD TBD TBD

Tsinghua Nanjing DRAM 12” TBD TBD TBD

TSMC Nanjing Foundry 12” 2016 2018/2H 20k

UMC Xiamen Foundry 12” 2015 2016 50k

Yangtze River

Memory

Wuhan 3D NAND 12” 2016 TBD 300k

By 2019, SEMI expects China to represent the largest market for semiconductor capital

equipment globally

12

Manufacturers 2012 2013 1H14 2H14 1H15 2H15 2016 2017 2018

Yangtze River

Storage

Technology

The Technology Question 3D NAND Roadmaps

Source: TechInsights, Company websites

24 L 32 L 48 L 64 L 96 L

SSD SSD SSD

3D NAND MLC MLC TLC MLC TLC

48 L 64 L

3D NAND MLC TLC

32 L(FG) 48 L 64 L

TLC 3D NAND MLC

32(36) L 48 L 64 L

3D NAND MLC

32 L

3D NAND MLC

13

The Ecosystem Question

Foundry

Source: IC Insights, Gartner

Note: Geographic breakdown based upon headquarters of each Company.

Raw Wafers

OSAT

United States South Korea Japan Europe Taiwan China Israel Singapore Others

Capital Equipment

14

The Regulatory Question CFIUS Observations

Deals Facing Resistance CFIUS Observations

Source: US Treasury, GS estimates for 2017

155

65

93

111 114

97

147

250-300

23 2535

4045 48 52

2008 2009 2010 2011 2012 2013 2014 2017E

CFIUS Notices Progressing to Second Stage

15

Looking Ahead at Memory DRAM and NAND Have Outgrown SRAM, NOR, and Other Memory Segments

Source: Gartner, “Market Share Semiconductor Applications Worldwide” 2003-2020; Gartner, “Semiconductor Memory Forecast Database, Worldwide, March 2017 Update”

Note: Other nonvolatile memory includes EPROM, EEPROM, and Mask ROM. Other memory includes PSRAM and other memory.

Memory Market by Product Segment ($ in billions)

2005 2011 2016 2020E

Emerging Memory

Other Memory

Other Nonvolatile Memory

SRAM

NOR

NAND

DRAM

Segments

16

Looking Ahead at Memory Bit Growth – DRAM vs. NAND

DRAM YoY Demand Growth¹ by End-Market

NAND YoY Demand Growth2 by End-Market

Source: Goldman Sachs Investment Research 1 PC includes traditional notebook and desktop units. Mobile includes tablets, smart phone, and feature phone units. CE incorporates all other categories including networking, auto,

and industrials. 2 SSDs includes PC Client, Enterprise, Commercial, and Consumer SSDs.

12%

28%

114%

34%

3%

46%

89%

32%

6%

47% 51%

26%

(3)%

47%38%

16%

(4)%

30%

67%

14%13%

35%28%

5%

PC Server Mobile CE

118%

76%88%

120%

80%

52%

83%

44%

13%

47%

63%

6%

83%

41%

7%

51%40%

5%

SSDs Smartphones Tablets

2012 2013 2014 2015 2016 2017E

17

Looking Ahead at Memory Incumbents Are Continuing to Spend

($ in millions)

Samsung

Micron / Inotera

SK Hynix

Toshiba + SanDisk / WD

Source: Goldman Sachs Research

DRAM NAND

$5,574

$8,678

2010 2016

55%

45%

38%

62%

$3,018

$4,990

2010 2016

25%

75%

35%

65%

$2,283

$3,800

2010 2016

$3,294

$6,882

2010 2016

15%

85%

58%

42%

18

Looking Ahead at Memory Lessons from DRAM

2000 2016

Source: Gartner, Q4 2016

Samsung Electronics

Micron Technology

Infineon Technologies

NEC Electronics

Toshiba

Hitachi

Mitsubishi

Mosel Vitelic

Winbond Electronics

Other

Hynix Semiconductor

Samsung Electronics

SK Hynix

Micron Technology

Nanya Technology

Winbond Electronics

Zentel Electronics

Toshiba

Other

Integrated Silicon Solution

Elite SemiconductorMemory Technology

Etron Technology

19

Looking Ahead at Memory

Major DRAM Makers’ OPM Trend

DRAM Industry Revenue Trend

DRAM Industry OPM Trend

DRAM Industry Revenue YoY Change and Cycles

Source: GS Research, DRAMeXchange, WSTS, Company data

(64)%

(16)%

23%

(80)%

(60)%

(40)%

(20)%

0%

20%

40%

60%

1Q

06

3Q

06

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

3Q

15

1Q

16

3Q

16

E

Industry DRAM OPM

(40)%

(30)%

(20)%

(10)%

0%

10%

20%

30%

40%

50%

60%

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

E

SEC Hynix MU

DRAM Has Benefitted from Consolidation

20

Looking Ahead at Memory

All-time High DRAM Market Likely

NAND Market Likely to Grow 47% YoY in 2017

DRAM to Remain in Supply-shortage Beyond 2017

NAND Shortage Seems Worse Than DRAM

Source: Wall Street Research

90%

95%

100%

105%

110%

115%

120%

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7E

201

8E

NAND's Sufficiency Ratio (%)

95%

100%

105%

110%

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7E

201

8E

DRAM's Sufficiency Ratio (%)

$8$14

$17$20

$17 $16

$23$27

$24$28

$31 $32 $34

$50

$61

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7E

201

8E

(US

$ b

n)

Global NAND Revenue (US$ bn)

$27 $26

$34$31

$24 $23

$39

$29 $27$32

$46 $44 $42

$62$68

200

4

200

5

200

6

200

7

200

8

200

9

2010

201

1

201

2

201

3

201

4

201

5

201

6

201

7E

201

8E

(US

$ b

n)

Global DRAM Revenue (US$ bn)

Things Look Good Now

21

Looking Ahead at Memory … But We Can’t Forget History – A Hypothetical NAND Oversupply Scenario

Source: Goldman Sachs

Note: Assumes new China capacity phased in 20% in 2019, 50% in 2020, and 100% in 2021.

0% Excess@45% Demand

Growth w/ 600K WSPM addl (4)% (7)% (1)% 3% 7%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2016 2017 2018 2019 2020 2021

1M GB Equivalent - Demand @40% 1M GB Equivalent - Demand @45%

1M GB Equivalent - Supply @40% 1M GB Equivalent - with 600K WSPM by 2021

+7%

THANK YOU