Parade Technologies - Credit Suisse

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11 February 2015

Asia Pacific/Taiwan

Equity Research

Semiconductor Devices

Parade Technologies

(4966.TWO / 4966 TT) INITIATION

Beneficiary of the display resolution migration

■ Initiate coverage with OUTPERFORM. We initiate coverage on Parade, a

display-related and mixed-signal IC supplier, with an OUTPERFORM rating

and a TP of NT$360, based on 18x 12-month forward P/E. We believe

Parade will benefit from Apple's migration into the more power efficient eDP

T-Con v1.3 and the increasing penetration of eDP T-Con among non-Apple

NB models. We model for 14%/16% YoY growth in its earnings in 2015/16,

driven by 13%/13% YoY revenue growth and operating leverage.

■ eDP T-Con ideal for high-resolution displays. eDP T-Con is the timing

controller based on the eDP interface, which is responsible for the

communications between CPU/GPU and display driver ICs. eDP T-Con

offers faster data transmission, better power consumption, less

electromagnetic interference, and easier design layout, which makes it an

ideal choice for high-resolution (FHD+) NB/tablet/monitor displays.

■ Apple’s migration into eDP v1.3 and non-Apple eDP penetration driving

the growth. We expect Apple's adoption rate for the eDP T-Con v1.3 in

iMac/Macbook Pro/Macbook Air to increase to 20%/83%/51% in 2016 from

0%/26%/0% in 2014, as the eDP T-con v1.3 is more power efficient with the

panel self-refresh function. We also expect the eDP T-Con penetration in

non-Apple NBs to rise from 37% in 2014 to 55%/75% in 2015/16, among

which 14%/18% to be eDP v1.3 in 2015/16, mostly for FHD+ displays.

■ TP of NT$360 (18x 12M fwd P/E). Our target multiple of 18x P/E is similar to its LT average in the 11-23x P/E range since its listing in Sep 2011. We regard this as reasonable given that its earnings growth should be more normalised in 2015-16 (14-16% YoY) vs the high volatility in 2013-14 (-53%/+39% YoY in 2013/14, with -2% CAGR). Risks to our view include slower migration to eDP T-Con v1.3 in Apple products, lower penetration of eDP T-Con among non-Apple NBs and the potential competition from peers.

Share price performance

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Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the

TAIWAN SE WEIGHTED INDEX which closed at 9393.7 on

10/02/15

On 10/02/15 the spot exchange rate was NT$31.47/US$1

Performance over 1M 3M 12M Absolute (%) — -1.2 32.5 — Relative (%) -1.9 -6.6 20.6 —

Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Revenue (NT$ mn) 4,212.0 6,223.9 7,004.9 7,911.6 EBITDA (NT$ mn) 798.2 1,365.2 1,583.2 1,838.3 EBIT (NT$ mn) 761.4 1,321.7 1,528.6 1,773.3 Net profit (NT$ mn) 679.2 1,225.6 1,400.9 1,620.0 EPS (CS adj.) (NT$) 11.81 16.37 18.58 21.49 Change from previous EPS (%) n.a. Consensus EPS (NT$) n.a. 16.4 18.1 21.2 EPS growth (%) -53.0 38.7 13.5 15.6 P/E (x) 23.8 17.2 15.1 13.1 Dividend yield (%) 1.2 1.0 1.7 2.0 EV/EBITDA (x) 22.2 12.3 10.1 8.0 P/B (x) 4.0 4.1 3.4 2.9 ROE (%) 18.6 26.7 24.6 23.8 Net debt/equity (%) net cash net cash net cash net cash

Source: Company data, our estimates.

Rating OUTPERFORM* [V] Price (10 Feb 15, NT$) 281.00 Target price (NT$) 360.00¹ Upside/downside (%) 28.1 Mkt cap (NT$ mn) 21,204.4 (US$ 673.8) Enterprise value (NT$ mn) 16,808 Number of shares (mn) 75.46 Free float (%) 76.7 52-week price range 420.0 - 208.5 ADTO - 6M (US$ mn) 14.6

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Derrick Yang

886 2 2715 6367

[email protected]

Jerry Su

886 2 2715 6361

[email protected]

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 2

Focus charts and table Figure 1: Parade—revenue breakdown by segments Figure 2: Parade—quarterly revenue and margin trend

3.3 3.2

5.15.8

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

Figure 3: Parade—eDP T-Con revenues from Apple Figure 4: eDP T-Con v1.3 penetration in Apple products

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iMac Macbook Pro Macbook Air

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

Figure 5: Parade—eDP revenues from non-Apple NBs Figure 6: Parade—12-month forward P/E band

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Figure 7: Valuation comparison—display-related and mixed signal IC vendors Reporting Price Marketcap CS 12mth

Company Currency 2/10/2015 US$ mn Rating Target 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015

Taiwan display-related IC suppliers

4966.TWO Parade TWD 281.0 674 O 360.0 16.37 18.58 17.2 15.1 33.3 35.6 8.4 7.9 26.7 24.6

3034.TW Novatek TWD 168.0 3,248 O 210.0 11.85 13.55 14.2 12.4 46.4 50.9 3.6 3.3 27.3 27.8

HIMX.OQ Himax USD 7.6 1,293 N 8.4 0.39 0.53 19.6 14.4 2.7 3.0 2.8 2.6 14.2 18.4

3545.TW Orise TWD 35.2 157 NC NA 4.42 4.81 8.0 7.3 21.0 23.2 1.7 1.5 22.3 21.7

8016.TW Sitronix TWD 99.0 375 NC NA 5.58 6.39 17.7 15.5 32.4 35.2 3.1 2.8 17.5 19.8

3598.TW Ilitek TWD 69.2 158 NC NA 6.16 7.10 11.2 9.8 46.7 52.0 1.5 1.3 13.6 14.8

International IC suppliers

SYNA.OQ Synaptics USD 76.4 2,805 NC NA 4.25 5.72 18.0 13.3 19.0 19.9 4.0 3.8 25.8 26.0

108320.KQ Silicon Works KRW 32,200.0 481 NC NA 1,838.09 2,376.80 17.5 13.5 18,131.4 20,003.8 1.8 1.6 10.5 12.5

SWKS.OQ Analogix USD 79.1 15,090 NC NA 3.24 4.89 24.4 16.2 13.4 16.0 5.9 4.9 26.9 29.9

6963.T Rohm JPY 7,150.0 6,506 O 9,700.0 278.12 395.36 25.7 18.1 5,580.6 6,460.6 1.3 1.1 5.0 6.1

TXN.OQ Texas Instrument USD 54.3 58,706 N 55.0 2.74 3.12 19.8 17.4 9.6 9.6 5.6 5.6 27.9 32.1

MXIM.OQ Maxim USD 33.7 9,542 N 35.0 1.62 1.50 20.8 22.4 8.4 8.1 4.0 4.2 21.3 20.5

NXPI.OQ NXP USD 81.0 20,384 O 90.0 4.74 5.75 17.1 14.1 2.2 5.6 37.4 14.5 128.1 148.0

Average 17.8 14.6 3.6 3.4 19.9 21.2

ROAE (%)EPS P/E (X) P/B (X)BVPS

Source: Company data, I/B/E/S consensus for non-covered companies, Credit Suisse estimates, Note: average P/B and ROAE exclude NXP

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 3

Beneficiary of the display resolution migration We initiate coverage on Parade, a display-related and other mixed-signal IC supplier, with

an OUTPERFORM rating and a TP of NT$360, based on 18x 12-month forward P/E. We

believe Parade will benefit from (1) Apple's migration into the more advanced eDP T-Con

v1.3 in its iMac/Macbook models for more efficient power consumption, and (2) the

increasing penetration of eDP T-Con among non-Apple NB models due to the exclusive

support from Intel/AMD for the eDP interface. We model for 14%/16% YoY growth in its

earnings in 2015/16, driven by 13%/13% YoY revenue growth and operating leverage.

Apple's eDP v1.3 migration to bolster the growth

As the sole supplier, we expect Parade’s DisplayPort business to continue benefiting from

Apple's migration into eDP T-Con v1.3 in 2015-16, which supports the Panel Self Refresh

(PSR) function to deliver better power efficiency and carry ~3x ASP vs its predecessor.

We expect Apple's adoption rate for the eDP T-Con v1.3 in iMac/Macbook Pro/Macbook

Air models to increase to 11%/39%/19% in 2015 and 20%/83%/51% in 2016 from

0%/26%/0% in 2014, driving Parade’s eDP revenues from Apple growing by 5%/9% YoY

in 2015/16 (vs 3%/3% YoY unit growth in 2015/16).

Penetration into non-Apple NB to be another driver

For the non-Apple NB, we believe that the penetration of eDP T-Con will also continue to

increase given the exclusive support of the eDP interface from Intel and AMD since 2013

and the NB panel resolution migration. We expect the eDP penetration in the non-Apple

NB space to increase from 37% in 2014 to 55% in 2015 and 75% in 2016. Furthermore,

non-Apple NB customers are also gradually migrating to the more power-efficient eDP

v1.3, from 10% penetration in 2014 to 14% in 2015 and 18% in 2016 as the portion of FHD

and above resolution panels is increasing. We expect Parade's eDP revenues from the

non-Apple NB market to grow by 54% YoY in 2015 and 23% YoY in 2016.

Steady growth for the high speed interface business

In addition to the eDP-related business, Parade generates 15-20% of its total revenues

from the high speed interface business, where it provides signal repeaters, multiplexers,

de-multiplexers, etc., to help strengthen the signal and protect the signal integrity during

the high-speed transmission. We expect Parade to see a steady single-digit YoY revenue

growth in this business in the coming few years, supported by its proprietary signal

equaliser technology, better flexibility and competitive pricing.

Valuation and risks

Our target price of NT$360 is based on 18x 12-month forward EPS. Since its listing on the

GreTai market in Taiwan, Parade shares have been trading between 11x and 23x forward

P/E. Our target multiple of 18x forward P/E is similar to its long-term average valuation.

Parade's earnings growth has been quite volatile in the past few years (-53%/+39% YoY in

2013/14, with -2% CAGR), probably reflecting its smaller business scale leading to more

fluctuations along with its major customer's product cycle. We believe its earnings growth

should be more normalised in 2015 and 2016 (+14%/16% YoY for 2015/16), as it will have

a more diversified product base; we thus believe that mid-cycle average is the reasonable

valuation for Parade.

Risks to our positive view toward Parade include: (1) slower-than-expected migration to

eDP T-Con v1.3 among Apple products leading to lower revenue growth, (2) lower-than-

expected penetration of the eDP T-Con among non-Apple NB models, and (3) competition

from peers along with the proliferation of the eDP T-Con.

Initiate coverage on Parade

with OUTPERFORM and a

TP of NT$360

Apple's migration to eDP T-

Con v1.3 to bolster the

growth

eDP T-Con penetration into

non-Apple NB to rise to

54%/75% in 2015/16 from

37% in 2014

Steady single-digit YoY

revenue growth in the high

speed interface business in

the coming few years

Earnings growth to be more

normalised in 2015/16 on

bigger scale and diversified

product lines

Lower penetration of eDP T-

Con and competition being

the major risks

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 4

Parade Technologies 4966.TWO / 4966 TT Price (10 Feb 15): NT$281.00, Rating:: OUTPERFORM [V], Target Price: NT$360.00

Target price scenario

Scenario TP %Up/Dwn Assumptions

Upside 458.11 63.03 23x P/E Central Case 360.00 28.11 18x P/E Downside 219.10 (22.03) 11x P/E

Key earnings drivers 12/13A 12/14E 12/15E 12/16E

eDP (TWD mn) 3,236 5,059 5,818 6,613 High speed (TWD mn) 976 1,165 1,187 1,298 — — — — — — — — — — — —

Income statement (NT$ mn) 12/13A 12/14E 12/15E 12/16E

Sales revenue 4,212 6,224 7,005 7,912 Cost of goods sold 2,380 3,655 4,126 4,678 SG&A 398.0 516.4 588.6 622.5 Other operating exp./(inc.) 635.7 687.0 707.2 772.3 EBITDA 798 1,365 1,583 1,838 Depreciation & amortisation 36.7 43.5 54.6 65.0 EBIT 761 1,322 1,529 1,773 Net interest expense/(inc.) (1.7) (0.8) (0.9) (1.3) Non-operating inc./(exp.) (5.1) 32.3 8.4 (1.6) Associates/JV 1.6 1.6 1.6 1.6 Recurring PBT 760 1,356 1,540 1,775

Exceptionals/extraordinaries — — — — Taxes 80.4 130.8 138.7 154.6 Profit after tax 679 1,226 1,401 1,620 Other after tax income — — — — Minority interests — — — — Preferred dividends — — — — Reported net profit 679 1,226 1,401 1,620 Analyst adjustments — — — — Net profit (Credit Suisse) 679 1,226 1,401 1,620

Cash flow (NT$ mn) 12/13A 12/14E 12/15E 12/16E

EBIT 761 1,322 1,529 1,773 Net interest — — — — Tax paid — — — — Working capital (32.2) (266.5) (159.3) (44.7) Other cash & non-cash items (45.5) (52.6) (73.2) (88.3) Operating cash flow 684 1,003 1,296 1,640 Capex (36.1) (60.0) (60.0) (60.0) Free cash flow to the firm 648 943 1,236 1,580 Disposals of fixed assets — — — — Acquisitions — — — — Divestments — 0.010 — — Associate investments — — — — Other investment/(outflows) (58.3) 2.1 0.6 (1.3) Investing cash flow (94.4) (58.0) (59.4) (61.3) Equity raised 205.9 171.0 — — Dividends paid (181.2) (210.7) (367.7) (420.3) Net borrowings — — — — Other financing cash flow — — — — Financing cash flow 24.6 (39.8) (367.7) (420.3) Total cash flow 614 905 869 1,159 Adjustments — — — — Net change in cash 614 905 869 1,159

Balance sheet (NT$ mn) 12/13A 12/14E 12/15E 12/16E

Cash & cash equivalents 3,491 4,396 5,265 6,424 Current receivables 1,023 1,189 1,431 1,515 Inventories 229.2 474.8 597.1 636.6 Other current assets 75.0 169.6 204.0 216.0 Current assets 4,819 6,230 7,497 8,792 Property, plant & equip. 91.3 109.8 117.9 115.6 Investments — — — — Intangibles 8.0 6.0 6.0 6.0 Other non-current assets 64.5 62.4 59.1 57.7 Total assets 4,983 6,408 7,680 8,971 Accounts payable 486.2 550.3 651.3 694.4 Short-term debt — — — — Current provisions — — — — Other current liabilities 502.5 678.3 815.9 864.0 Current liabilities 989 1,229 1,467 1,558 Long-term debt — — — — Non-current provisions — — — — Other non-current liab. — — — — Total liabilities 989 1,229 1,467 1,558 Shareholders' equity 3,994 5,180 6,213 7,413 Minority interests — — — — Total liabilities & equity 4,983 6,408 7,680 8,971

Per share data 12/13A 12/14E 12/15E 12/16E

Shares (wtd avg.) (mn) 57.5 74.9 75.4 75.4 EPS (Credit Suisse) (NT$)

11.8 16.4 18.6 21.5 DPS (NT$) 3.40 2.80 4.88 5.57 BVPS (NT$) 69.4 69.2 82.4 98.3 Operating CFPS (NT$) 11.9 13.4 17.2 21.8

Key ratios and valuation

12/13A 12/14E 12/15E 12/16E

Growth(%) Sales revenue (11.9) 47.8 12.5 12.9 EBIT (49.9) 73.6 15.7 16.0 Net profit (47.1) 80.5 14.3 15.6 EPS (53.0) 38.7 13.5 15.6 Margins (%) EBITDA 19.0 21.9 22.6 23.2 EBIT 18.1 21.2 21.8 22.4 Pre-tax profit 18.0 21.8 22.0 22.4 Net profit 16.1 19.7 20.0 20.5 Valuation metrics (x) P/E 23.8 17.2 15.1 13.1 P/B 4.05 4.06 3.41 2.86 Dividend yield (%) 1.21 1.00 1.74 1.98 P/CF 23.6 21.0 16.3 12.9 EV/sales 4.21 2.70 2.28 1.87 EV/EBITDA 22.2 12.3 10.1 8.0 EV/EBIT 23.3 12.7 10.4 8.3 ROE analysis (%) ROE 18.6 26.7 24.6 23.8 ROIC 149 186 161 167 Asset turnover (x) 0.85 0.97 0.91 0.88 Interest burden (x) 1.00 1.03 1.01 1.00 Tax burden (x) 0.89 0.90 0.91 0.91 Financial leverage (x) 1.25 1.24 1.24 1.21 Credit ratios Net debt/equity (%) (87.4) (84.9) (84.7) (86.7) Net debt/EBITDA (x) (4.37) (3.22) (3.33) (3.49) Interest cover (x) (446) (1,592) (1,621) (1,404)

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 5

eDP T-Con v1.3 migration to bolster the growth As the sole supplier, we expect Parade’s DisplayPort business to continue benefiting from

Apple's migration into eDP T-Con v1.3 in 2015-16, which supports the Panel Self Refresh

(PSR) function to deliver better power efficiency and carry ~3x ASP vs its predecessor.

We expect Apple's adoption rate for the eDP T-Con v1.3 in iMac/Macbook Pro/Macbook

Air models to increase to 11%/39%/19% in 2015 and 20%/83%/51% in 2016 from

0%/26%/0% in 2014, driving Parade’s eDP revenues from Apple growing by 5%/9% YoY

in 2015/16 (vs 3%/3% YoY unit growth in 2015/16).

eDP T-Con is ideal for high-resolution displays in

portable devices

Timing controller (T-Con) is one of the major IC chips within the TFT-LCD display, which is

responsible for receiving the signal from the CPU/GPU, recoding the signal and then

sending the signal to the driver ICs to determine the timing for the voltage that will be

applied to each subpixel, which will then determine the colour of the pixel along with the

colour filter.

The timing controller designed based on the embedded DisplayPort (eDP) interface is

called eDP T-Con. Embedded DisplayPort (eDP) is a transmission interface developed by

Video Electronics Standards Association (VESA). It is aimed at the high-speed data

transmission for devices with embedded displays, including NB, All-in-one PCs, tablets,

smartphones, etc. It is developed based on DisplayPort (DP), though the latter is the

interface for external displays. eDP can share the GPU interface with DP, so unlike

traditional interface (LVDS; Low-Voltage Differential Signalling), eDP does not need a

dedicated video port on GPU.

Figure 8: eDP—interface between CPU/GPU and T-Con Figure 9: Conceptual illustration of eDP in notebook

Source: VESA, Credit Suisse Source: VESA, Credit Suisse

eDP T-Con has multiple advantages over LVDS T-Con for embedded displays

eDP T-Con is now competing with the existing LVDS T-Con for the embedded displays

and the former has several advantages to make it a better choice for the high-resolution

displays embedded in portable devices.

■ eDP enables higher-speed data transmission and slimmer design: eDP can

support up to 5.4Gbps data transmission compared to 945Mbps supported by LVDS,

so the former is more suitable for the high-resolution displays, where GPU sends

much more information constantly. Due to the higher data transmission rate, eDP only

requires fewer signal wires than LVDS. For a 13.1" NB with 1920 x 1080 (FHD)

display resolution, eDP only needs four signal wires between the GPU and timing

controller, while the traditional LVDS will need 20 signal wires. Fewer signal wires

could lead to a slimmer form factor for the end product.

Apple's adoption rate for the

eDP T-Con v1.3 in

AIO/regular NB/ultra-thin NB

to continue increasing in

2015-16

eDP T-Con is designed

mostly for NB, AIO PC,

tablet, smartphone etc., and

is competing with T-Con

based on other interfaces

such as LVDS

eDP enables higher-speed

transmission and slimmer

product design

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 6

■ eDP has less Electro Magnetic Interference (EMI) and Radio Frequency

Interference (RFI) issue: As mentioned earlier, eDP has fewer signal wires, which

could lead to simplified internal cabling and less chance for interference. This could be

a cost factor because some of the system shielding could be spared.

■ eDP is more power efficient: eDP v1.3 introduces the Panel Self-Refresh (PSR)

function, where the frame buffer in the timing controller could maintain the still image

without receiving video data from GPU. This allows the GPU to power down until the

next image change and save power to extend the battery life for portable devices.

Figure 10: eDP’s advantages over LVDS eDP (Embedded DisplayPort) LVDS (Low Voltage Differential Signalling)

No of data & clock pairs 1-4 data pair, no separate clock pair 8 pairs (dual channels), 2 clock pair (dual channels)

Bit rate (per pair0 1.6, 2.7, 5.4Gbps (fixed clock rate), future

extensible

945 Mbps (135Mhz clock)

Total raw capacity 1.6-21.6 Gbps 7.56 Gbps (dual channels)

Clock Embedded Separate clock pair per channel

Transport type Packetized for uncompressed display,

compressed display and audio

Limited to uncompressed pixel raster scan only

Data channel 1 or 720 Mbps (Bi-directional AUX channel for

data and control)

None

Channel coding ANS18B/10B None

Content protection eDP panel authentication, HDCP optional None

Protocol Micro-packet; extensible format Fixed sequential data stream Source: VESA, Credit Suisse

eDP version 1.3 delivers better power efficiency

eDP was first introduced in December 2008 and the current mainstream eDP v1.2 was

upgraded in May 2010, with an AUX channel added to control the panel backlight and

other display functions. The industry is now migrating to the eDP v1.3, released in

February 2011, as the version adds a Panel Self-Refresh (PSR) function which could help

reduce the power consumption for mobile devices.

Figure 11: eDP standard evolution

Year eDP (Embedded DisplayPort) versions and key changes First system model

2008 eDP v1.0 released (Dec 2008)

- based on DP v1.1a

- defined core functionality (embedded specific protocols and electrical interface)

2009

2009 eDP v1.1 released (Oct 2009)

- based on DP v1.1a

- minor changes and clarification

2010

2010 eDP v1.2 released (May 2010)

- based on DP v1.2

- added AUX channel commands to control panel BLM and other display functions

- added HBR2 5.4Gbs as option

- fast link training by Sink made mandatory

2011

2011 eDP v1.3 released (Feb 2011)

- added Panel Self Refresh (PSR) option as a system power saving feature

2013


- added partial update panel self-refresh option

- added display stream compression option

- added regional backlight control option

- added multi-touch over AUX option

2015

Source: VESA, Credit Suisse

The major reason for the PSR to help in power consumption is because it shuts down the

communication between the CPU/GPU and the eDP T-Con, when the screen image is

static, such as when the user is viewing a picture or reading a document. The frame buffer

within the eDP-T-Con will store the contents of the last screen update sent from the

CPU/GPU and repeat that signal until there is any change to the screen.

eDP causes less EMI and

RFI

eDP is more power efficient

eDP T-Con based on the

v1.3 standard is more power

efficient due to the PSR

function

The communication

between CPU/GPU and T-

Con is shut down when the

PSR function is at work

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 7

Figure 12: GPU constantly sending signals to T-Con

under the normal operation

Figure 13: GPU shuts down the signal transmission to T-

Con when the PSR function is at work

Source: Hardware Secrets, Credit Suisse Source: Hardware Secrets, Credit Suisse

Our research suggests that when the PSR function is working, the NB display could save

the system up to ~70% of the power, compared to the normal condition. The majority of

the power saving is from the shutdown of the graphics processor unit built into the CPU

(40-50%), through the cession of the signal transmission between the GPU and the T-Con

(10-20%) and the lower loading rate of the DRAM module (5%). Although the ~70% power

saving looks massive, this only occurs during the moment when the screen is showing the

static image. To put this into perspective, some experts suggest that the PSR function

could help save up to 30-60 minutes of battery life for a regular NB (6-14% of the normal

NB battery life of 7-9 hours), which nonetheless depends a lot on the tasks that the NB is

performing.

Apple to migrate to eDP v1.3 in 2015-56

Early adopter of the eDP T-Con since 2009

Apple has been the early adopter of the eDP T-Con for various product lines, including the

Macbook, iMac and iPad models. It has started to use the eDP T-Con from Parade for its

ultrabook and AIO PC models since 2009 and further extended the eDP T-Con adoption

into its 9.7" tablet and regular NB models in 2012.

However, when Apple introduced its first 7.9" tablet model in late 2012, it did not choose to

use the eDP T-Con, which led to a 12% YoY revenue decline at Parade as the 9.7" tablet

shipment was cannibalised by the new 7.9" tablet model. One year later, when Apple

brought forth the second generation of the 7.9" tablet, it decided to move to eDP T-Con as

the display was upgraded to the retina-level resolution (2048 x 1536 resolution, 326 ppi vs

1024 x 768 resolution, 163 ppi for its predecessor) and the higher data transmission speed

featured by eDP T-Con became more relevant along with a higher resolution display.

Figure 14: Apple's adoption of eDP in different product lines

Smartphone?

7.9" tablet

Notebook

9.7" tablet

All-in-One PC

Ultrabook

2009 2010 2011 2012 2013 2014 2015 2016 Source: Company data, Credit Suisse

The PSR function might

extend the battery life by 30-

60 minutes, depending on

the usage scenarios

Apple started to adopt eDP

T-Con from 2009 for its NB

and AIO PC models

First generation of iPad mini

did not adopt eDP T-Con,

leading to 12% YoY revenue

decline on the

cannibalisation of the 9.7"

model

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 8

Migration to eDP v1.3 to be the major driver in 2015-16 from Apple

Given that Parade has been the sole supplier for Apple’s eDP T-Con and the eDP T-Con

adoption rate has been very high for its NB, AIO and tablet models, we believe that the

growth for Parade from Apple in 2015 will be driven by the continuous migration from eDP

T-Con v1.2 into eDP T-Con v1.3 for its iMac and Macbook models.

For iMac, Apple unveiled a new 27" iMac model with 5K3K Retina display (5120 x 2880

resolution vs 2560 x 1440 resolution for the existing 27" iMac display) in October 2014. As

the display resolution becomes 4x as much as the existing model, it requires a much faster

signal transmission between the CPU/GPU and T-Con. Our checks suggests that to meet

the demand, the customer worked closely with Parade to come up with a proprietary eDP

T-Con based on the eDP v1.3 standard to support the signal transmission rate of 40Gbps

(vs the 21.6Gbps supported by regular eDP T-Con). This proprietary eDP T-Con is

highlighted by Apple in its introduction of the distinguishing features for the new iMac

model.

Figure 15: Parade's eDP T-Con highlighted by Apple as one of the distinguishing new

features

Source: Company data

For the Macbook Pro models, Apple has been using the eDP T-Con v1.3 for its 13.3"

model since 4Q13. We think one of the reasons may be that it cut back the battery

capacity slightly from 74 watt-hour to 71.8 watt-hour to be accommodated in a slimmer

chassis (18mm vs 19mm for its predecessor). We believe that Apple will probably upgrade

to eDP v1.3 for its 15.4" model in 2015 as well, as the improving performance of CPU and

GPU is likely to consume more power and the PSR function supported by the eDP v1.3

provides a good way for lower power consumption on the display side.

For the Macbook Air models, our checks suggest that Apple's new model scheduled for

release in 1Q15 should adopt the eDP v1.3, as the new model will be equipped with the

Retina display, which could leverage the power advantage of eDP v1.3 to balance the

power consumption from a higher resolution display.

eDP T-Con adoption already

high among Apple's iMac,

Macbook and iPad models

in 2014

Our checks suggest the new

27" iMac with 5K3K display

adopted eDP T-Con v1.3

Apple could increase the

eDP T-Con v1.3 for more

regular NB models in 2015

Apple should adopt eDP T-

Con v1.3 for the new ultra-

thin NB model in 1Q15

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 9

Figure 16: 13" NB models from Parade's major US customer

Macbook Pro (2012) Macbook Pro (2013) Macbook Pro (2014)

Release 10/23/2012 10/22/2013 7/29/2014

Resolution 2560 x 1600 (Retina, 227 ppi) 2560 x 1600 (Retina, 227 ppi) 2560 x 1600 (Retina, 227 ppi)

CPU Intel Core i7 Ivy Bridge 2.9GHz Intel Core i7 Haswell 2.8GHz Intel Core i7 Haswell 3.0GHz

GPU Intel HD Graphics 4000 Intel Iris 5100 Graphics Intel Iris 5100 Graphics

Battery 74 Wh 71.8Wh 71.8Wh

Dimension 314x219x19 314x219x18 314x219x18

Source: Company data, Credit Suisse

We estimate that the eDP v1.3 adoption rate for iMac/Macbook Pro/Macbook Air models

will increase from 0%/26%/0% in 2014 to 11%/39%/19%% in 2015 and 20%/83%/51% in

2016. The ASP for the eDP v1.3 T-Con is around 3x as high as that for the eDP v1.2 T-

Con due to its more advanced design and the embedded DRAM cost. We expect the eDP

T-Con revenues from Apple to grow by 5% YoY in 2015 and 9% YoY in 2016.

Figure 17: eDP adoption is already high among most

Apple devices…

Figure 18: …but the migration to eDP v1.3 could drive the

growth in 2015-16E

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

2014E 2015E 2016E

iMac Macbook Pro Macbook Air iPad iPad mini

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014E 2015E 2016E

iMac Macbook Pro Macbook Air


Figure 19: Parade's revenues on eDP from Apple

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2012 2013 2014E 2015E 2016E

NT$

mn

iPad Macbook iMac Growth (YoY) As % of total revenue

Source: Company data, Credit Suisse estimates

eDP T-Con revenues from

Apple should grow by 5%

YoY in 2015 and 9% YoY in

2016

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 10

Smartphone will take time to bear fruit

Currently, the only major product line from Apple that has not adopted the eDP T-Con is

smartphone. If Apple decides to migrate to the eDP T-Con, we think Parade is in a good

position to win the order, though we think this might be in 2H16 at the earliest, given that

Parade will probably need the eDP v1.4 interface to compete with the existing Mobile

Industry Processor Interface (MIPI) standard. As Parade should have its first eDP v1.4 T-

Con solution in 2H15, we think it might take Parade another one year or more to optimise

the solution and win major projects.

Another hurdle for Parade is that the T-Con and driver IC for the smartphone application

has been integrated on the SoC structure under the MIPI interface, which means Parade

might also need to have competitive driver IC solutions to compete for the smartphone T-

Con and driver IC SoC orders.

To be conservative, we do not include any eDP T-Con revenues from the smartphone

application in 2016, though our sensitivity analysis shows that every 10mn units of eDP T-

Con and driver IC SoC shipment in the smartphone application could add 10% upside to

our 2016 EPS estimate, assuming a similar margin to its existing eDP T-Con products.

Smartphone dominated by

the MIPI interface; maybe

eDP T-Con v1.4 could be

more comparable on power

consumption

To be conservative, we do

NOT include any

contribution from the

smartphone application in

2015-16

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 11

eDP T-Con penetration into non-Apple NB to be another driver For the non-Apple NB, we expect that the penetration of eDP T-Con will also continue to

increase given the exclusive support of the eDP interface from Intel and AMD since 2013

and the NB panel resolution migration. We estimate the eDP penetration in the non-Apple

NB space to increase from 37% in 2014 to 55% in 2015 and 75% in 2016. Furthermore,

non-Apple NB customers are also gradually migrating to the more power-efficient eDP

v1.3, from 10% penetration in 2014 to 14% in 2015 and 18% in 2016 as the portion of FHD

and above resolution panels is increasing. We expect Parade's eDP revenues from the

non-Apple NB market to grow by 54% YoY in 2015 and 23% YoY in 2016.

Both Intel and AMD now only support eDP

The CPU/GPU chipsets from Intel and AMD used to support both the traditional LVDS

interface and the eDP interface for the NB application, but in December 2010, both

companies announced that they would phase out the LVDS interface starting from their

new CPU/GPU models in 2013. This move was supported by major NB brands and NB

panel suppliers and drove up the eDP penetration in non-Apple NB up to 25% in 2013

from 2% in 2012. We expect the trend to persist as eDP does have advantages over the

legacy LVDS interface on faster data transmission, less EMI issue, and less power

consumption, which could help simplify the product layout.

Figure 20: Intel CPUs only support eDP and have phased out LVDS since the Haswell platform in 2013

Spec Intel Intel Intel Intel Intel Intel

Processor number Core i7-2820QM Core i7-3667U Core i7-4600U Core i7-5557U Core i5-5287U Core M-5Y71

Instruction set 64 bit 64 bit 64 bit 64 bit 64 bit 64 bit

Base frequency 2.3GHz 3.2GHz 2.1GHz 3.1GHz 2.9GHz 1.2GHz

Max memory content 32GB 32GB 16GB 16GB 16GB 16GB

Graphics HD Graphics 3000 HD Graphics 4000 HD Graphics 4400 Iris Graphics 6100 Iris Graphics 6100 HD Graphics 5300

Graphics output eDP/DP/HDMI/LVDS eDP/DP/HDMI/LVDS eDP/DP/HDMI eDP/DP/HDMI eDP/DP/HDMI eDP/DP/HDMI

Launch 1Q11 2Q12 3Q13 1Q15 1Q15 4Q14


NB display resolution migration to stimulate the

adoption of the eDP v1.3

We expect to see a gradual migration to FHD and above resolution among NB panels, as

this could be one of the differentiating features, despite the fact that the HD resolution

could stay as the mainstream spec for the NB displays. We think the increasing share of

FHD and above panels will be positive to the adoption of the more advanced eDP v1.3 T-

Con, given that higher resolution panels consume more power to maintain the same

brightness as lower resolution panels and the major value proposition of eDP v 1.3 in the

PSR function could help reduce the power consumption and extend battery life.

We expect Parade's eDP

revenues from the non-

Apple NB market to grow by

54% YoY in 2015 and 23%

YoY in 2016

Both Intel and AMD only

support the eDP interface

since their new models from

2013

The migration to higher

resolution NB displays could

propel the adoption of the

more power efficient eDP T-

Con v1.3

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 12

Figure 21: NB display resolution to help the migration to eDP v1.3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015E 2016E

3840 x 2160 2880 x 1800 2560 x 1600 2560 x 1440 1920 x 1080 1680 x 945

1600 x 900 1440 x 900 1366 x 768 1280 x 768 1024 x 600

FHD and above resolution

Source: DisplaySearch, Credit Suisse estimates

Solid growth from the non-Apple NB eDP T-Con

business for Parade

With the exclusive support in CPU/GPU from Intel and AMD, we expect the eDP T-Con

penetration into the non-Apple NB market to increase from 37% in 2014 to 55% in 2015

and further to 75% in 2016. In addition, due to increasing share of the FHD and above

resolution in NB displays, we expect the eDP v1.3 T-Con penetration rate to increase from

10% in 2014 to 14% in 2015 and further to 18% in 2016. We expect Parade to have 50%

of the market share in the non-Apple NB eDP T-Con shipment in 2015 due to its first

mover advantage in this space, though we assume its market share to decline to 45% in

2016 to factor in the potential competition from peers.

Based on these assumptions and the global NB shipment growth of 2%/0% YoY in

2015/2016, we expect Parade's non-Apple NB eDP T-Con revenues to grow by 54% YoY

and 23% YoY in 2015 and 2016, respectively.

Figure 22: Non-Apple NB eDP penetration forecast Figure 23: Parade's revenues from non-Apple NB eDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

2012 2013 2014E 2015E 2016E

Non-Apple NB eDP T-Con penetration Non-Apple NB eDP T-Con v1.3 penetration

0%

20%

40%

60%

80%

100%

120%

0

500

1,000

1,500

2,000

2,500

2012 2013 2014E 2015E 2016E

NT$

mn

Non-Apple NB eDP T-Con revenues Growth (YoY) As % of total revenue


eDP T-Con penetration into

non-Apple NB to rise to 54%

in 2015 and 74% in 2016

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 13

Limited progress in the non-Apple tablet market

Parade currently only has limited exposure to the non-Apple tablet market, as the majority

of the non-Apple tablet models are powered by ARM-based application processors (AP).

Though some high-end ARM-based AP models also support the eDP interface, the

Mobile Industry Processor Interface (MIPI) standard is the dominant interface in this

space. We think Parade's eDP T-Con may gain more traction in the non-Apple tablet

space when Intel increases its market share in tablet APs or when there are more tablet

displays moving beyond the FHD resolution with display size migration. Before we see a

more favourable competitive landscape for the eDP, we expect the revenue contribution

from the non-Apple tablet to remain at low single digit of Parade's total revenues in 2015-16.

Figure 24: Tablet AP still dominated by the ARM camp Figure 25: Resolution migration could help eDP adoption

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 9M14

x86 AP ARM AP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 9M14

2560 x 1600 2048 x 1536 1920 x 1080 1600 x 900 1440 x 1080 1366 x 768

1280 x 800 1024 x 600 800 x 600 800 x 480 640 x 480

Above FHD

Source: IDC, Credit Suisse Source: IDC, Credit Suisse Note :the data excludes iPad models

X86-based APs might help

Parade gain some traction

in the non-Apple tablet

market, though contribution

should be limited in the near

term

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 14

Steady growth for the high-speed interface business In addition to the eDP-related business, Parade generate 15-20% of its total revenues

from the high speed interface business, where it provides signal repeater, multiplexer, de-

multiplexer, etc., to help strengthen the signal and protect the signal integrity during the

high-speed transmission. We expect Parade to see a steady single-digit YoY revenue

growth in this business in the coming few years, supported by its proprietary signal

equaliser technology, better flexibility and competitive pricing.

A beneficiary of the USB Type C proliferation

Type C is the latest USB connector specification defined by Universal Serial Bus

Implementers Forum (USB-IF) in August 2014. USB Type C will come with the newest

version of USB 3.1 and features several improvement over the existing USB Type A and

Type B connectors (listed below). We will start to see USB Type C connectors showing up

in some electronics products in 2H15, though a more meaningful penetration should be

expected in 2016.

We believe that Parade will be one of the beneficiaries of the USB Type C proliferation as

its expertise in the high speed interface products could help prevent the signal distortion

during the transmission. Parade already has a switch repeater IC product that could help

protect the signal integrity amid the high-speed data transmission. Parade will be

competing with suppliers including ASMedia, Genesys Logic, etc., in this space.

■ 10Gbps data transmission: USB Type C will come with USB 3.1, which could

support up to 10Gbps data transmission, compared with the maximum of 5Gbps

supported by its predecessor USB 3.0 version. This is important as more and more

high-resolution images and videos are available and the demand for inter-device

transmission will increase.

■ Up to 100W power: USB Type C will incorporate the USB Power Delivery (PD)

standard, so it enables higher voltages (up to 20V) and current (up to 5A) to deliver up

to 100W power. This is a significant upgrade from the existing 7.5W power supported

by the USB Battery Charging (BC) 1.2 standard. This 100W charging power will be

sufficient to allow USB Type C replace the existing charger interface for devices

including tablets, NBs, AIO PCs, monitors, etc.

■ Small form factor: USB Type C comes in with the size similar to the existing USB

Micro B, which makes it more suitable for portable devices and could help improve the

design flexibility in those devices always getting thinner.

■ Reversible plug orientation: Unlike the existing Type A or Type B spec, the new

Type C connector is symmetrical, so there is no more confusion over the plug

orientation.

Figure 26: Evolution of the USB version

USB 1.0 USB 1.1 USB 2.0 USB 3.0 USB 3.1

Released Jan-96 Aug-98 Apr-00 Nov-08 Jul-13

Data rate 12Mbps 12Mbps 480Mbps 5Gbps 10Gbps

Current 500mA 500mA 500mA 900mA 1.5/2/3/5A

Voltage 5V 5V 5V 5V 5V/12V/20V

Power delivery 2.5W 2.5W 2.5W 4.5W 10/18/36/60/100W

Source: USB-IF, Credit Suisse

High-speed interface a more

stable business

USB Type C could present

an opportunity for Parade as

it's compatible with the eDP

interface and Parade

already has some solutions

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 15

Figure 27: Different hardware spec for USB connectors

Type A Type B Type Micro A Type Mcro B Type C

Source: Credit Suisse

SIPI driver IC more of a longer-term story

Parade is also tapping into the source driver IC space for the NB, AIO PC and tablet

applications. The major value proposition from Parade is that its source driver IC will be

based on its proprietary Scalable Intra Panel Interface (SIPI) standard. SIPI enables the

point-to-point signal transmission between the T-Con and source driver ICs, compared to

the commonly used mini LVDS (mLVDS) interface, where all signals are sent to all driver

ICs for each one to selectively pick up what it needs. The SIPI interface could enhance the

data transmission rate, reduce the power consumption and have less Electro Magnetic

interference (EMI) and Radio Frequency Interference (RFI) issue. Parade believes that

the SIPI source driver IC will be a good complement to its eDP T-Con.

Parade already had started the shipment of SIPI source driver IC from 3Q14 for the NB

application, though the contribution to its overall revenues is still limited. While we do see

some value in the bundled selling of Parade's eDP T-Con and the SIPI source driver IC,

we believe that it will take time before Parade can secure a foothold in the source drive IC

market, given that (1) the driver IC market is highly competitive and with quite a few

incumbents; (2) most existing driver IC suppliers have good relationship with panel

makers, while Parade's relationship built in its existing business is mostly with system

makers; and (3) other driver IC suppliers also have their own point-to-point interface for

the source drive IC, which makes Parade's product less unique in terms of value added.

Despite the large potential from the driver IC space given the market size, we do not

expect Parade's driver IC business to be a major revenue driver in 2015-16, as the

contribution should stay at low single digit percentage of total revenues. We would turn

more positive on this business if we could see more major project wins in the longer term.

Proprietary SIPI source

driver IC a good fit with eDP

T-Con

SIPI source driver IC

shipment already started in

3Q14, though the

competition is fierce and it

will take time to penetrate

into more panel makers

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 16

Parade's advantages in the eDP T-Con market Parade has been the leading company in providing the eDP T-Con and various high-

speed interface ICs. Parade has been competing with Novatek, Himax, Orise, Analogix,

etc., in the eDP T-Con business and TI, NXP, Maxim, etc., in the high-speed interface

business. We believe that Parade's competitiveness lies in its first mover advantage in the

eDP T-Con market, strong relationship major brand/component players, and the expertise

in the high-speed interface.

First mover advantage from participating in the standard setting

Parade has been the board member of the Video Electronics Standards Association

(VESA), which has more than 200 corporate members worldwide and is the entity that

defines the interface standards including DisplayPort (DP), Embedded DisplayPort (eDP),

etc. Parade has been very active participating in the standard setting process and we

believe its participation gives it an early access to the future industry trend. This could earn

a head-start in developing its solutions in the pipeline. We think this first mover advantage

has been one of the reasons why Parade has always been one of the leaders in bringing

forth the eDP T-Con solution for each generation of the eDP standard.

Figure 28: Major VESA members

VESA Companies

Board members Parade, Intel, AMD, Nvidia, TI, MegaChips, Keysight

Members Apple, Lenovo, HP, Dell, Asus, Samsung, LGE, Novatek, Himax, Orise,

Analogix, Rohm, Mstar, Silicon Works, Renesas, Synaptics, Cypress


Strong relationship with major brand and key component suppliers

Parade has been the sole supplier of the eDP T-Con for Macbook, iMac and iPad models

since 2009 due to its superior expertise in the eDP interface. We think the strong

relationship with this major US customer not only gives Parade the necessary volume to

economies of scale, but also add credits to its reputation as the customer is renowned for

its stringent requirement for its component suppliers. This signalling effect could help

Parade penetrate into other customers in the proliferation of the eDP T-Con. In addition,

Parade also has close relationship with Intel and the latter has been one of the most

aggressive promoter of the eDP T-Con. The partnership with Intel, along with Parade's

accumulated knowledge in the eDP interface, allows Parade to always run ahead of its

competitors on the time to market for the eDP-related products.

Proprietary expertise in high speed data transmission

On top of the eDP-related business, Parade also leverages its capabilities into other IC

products associated with the high-speed data transmission, including the repeater,

multiplexer, de-multiplexer products for the HDMI, DVI, SATA and DP interfaces. Parade's

proprietary equaliser and jitter-cleaning technologies could help remove the signal

distortion and enhance the signal integrity.

Figure 29: Parade's major competitors in different business segment

Business Major competitors

e-DP T-Con Novatek, Himax, Samsung, Orise, Analogix, Rohm, MStar

High-speed interface TI, NXP, AS Media, Pericom, Maxim


First mover advantage for

being one of the standard

definers

Strong relationship with

Apple and Intel help on

scale, reputation and time to

market

Expertise in protecting

signal integrity amid high

speed transmission

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 17

Competition less of an issue for the Apple business

Parade has been the sole supplier to Apple’s eDP T-Con products in 2009, which we

believe is attributable to Parade’s strong knowledge in the eDP interface. When Apple

planned to adopt the eDP T-Con in 2009, there were multiple teams competing for the

order, while Parade was the only team to come up with the solution and take the order.

We believe that Parade’s dedicated focus on the eDP T-Con and its capability in

optimising the offerings will help it sustain as the sole supplier to Apple’s eDP T-Con

orders in the near to medium term, considering its good track record and that the cost for

eDP T-Con (US$1-4, depending on product spec) only accounts for less than 1% of the

manufacturing cost for most Apple products. As any defect in the eDP T-Con could

significantly impact the display quality, we do not think Apple will have strong incentives to

diversify its eDP T-Con supplier, just to save a very small portion of its total cost.

Outside of the Apple business, we do expect more competition to come from companies

such as Novatek, Himax, Samsung, Orise, MStar, etc., when the eDP T-Con penetration

increases in non-Apple NB models. Though we do model for a lower market share of 45%

for Parade in the non-Apple eDP T-Con space in 2016 vs 50% in 2015 to factor in the

potential competition, we believe Parade will stay very competitive with its advantages in

time to market from the comprehensive knowledge in the eDP interface (Parade is the

board member of VESA, the entity defining the eDP interface) and product development

experiences from the Apple business in the past few years.

Business relationship with

Apple should stay solid

More competition in the non-

Apple NB space, though its

expertise in the eDP

interface should help sustain

a relatively high market

share

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 18

Financial analysis Seasonal weakness in 1Q15

We expect Parade's 1Q15 revenues to decline by 16% QoQ, but increase 6% YoY

(guidance of US$45.5-49.5 mn, down 10-17% QoQ), as the order momentum should slow

down for most of its product lines post the sell-through in the year-end holiday season. We

expect the gross margin to trend down to 40.2% (guidance 40-43%) mostly due to the

higher adoption rate of the eDP T-Con v1.3 as it carries higher ASP with some pass-

through cost from DRAM. Its operating margin should also decline to 17.5% in 1Q15 vs

20.1% in 4Q14, as the smaller revenue scale will lead to higher operating expenses ratio

of 22.7% in 1Q15 vs 20.4% in 4Q14 (guidance operating expenses of US$10-11 mn).

eDP business to stay as the major growth driver in 2015

Looking into 2015, we model for the revenues to grow by 13% YoY, driven primarily by its

customers' migration to the more advanced eDP T-Con v1.3 and the continuous

increasing penetration of the eDP T-Con into the non-Apple NB models. On the margin

side, we model for the gross margin to decline to 41.1% in 2015 from 41.3% in 2014 on

product mix shift, as there will be more contribution from the eDP T-Con v1.3 products,

which carry higher ASP on both more advanced product design and pass through DRAM

cost. However, we believe that the operating leverage should help drive down the

operating expense ratio to 19.3% in 2015 from 20.0% in 2014, which should lead to our

operating margin estimate of 21.8% in 2015 from 21.2% in 2014.

We expect the eDP business to grow by 15% YoY and account for 83% of the total

revenues in 2015. The major drivers in this business segment would include (1) Apple's

increasing adoption rate of eDP T-Con v1.3 to 11%/39%/19% for its iMac/Macbook

Pro/Macbook Air models in 2015 from 0%/26%/0% in 2014; and (2) the rising penetration

of the eDP T-Con in the non-Apple NB market to 55% in 2015 from 37% in 2014, among

which the adoption rate of the more advanced eDP T-Con v1.3 will also climb to 14% in

2015 from 10% in 2014.

As for the high speed interface business, we expect the revenues to grow by 2% YoY and

account for 17% of the total revenues in 2015. Though the major application for this

business is the PC market, we expect Parade to outgrow the market with its proprietary

technology in protecting the signal integrity amid high speed transmission, strong

relationship with customers, better business flexibility and competitive pricing.

Figure 30: Parade—quarterly revenue and margin trend Figure 31: Parade—revenue breakdown by segment

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15E 3Q15E

NT

$m

n

Revenues Gross margin Operating margin

68%77% 81% 83% 84%

32% 23% 19% 17% 16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015E 2016E



We expect see 16% QoQ

revenue decline and gross

margin of 40.2% for 1Q15

We expect to see a 13%

YoY revenue growth and

operating margin of 21.8%

for 2015

eDP business revenues to

be up 15% YoY to account

for 83% of the revenues in

2015

High speed interface

business revenues to be up

2% YoY to account for 17%

of the revenues in 2015

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 19

Figure 32: Parade—CS estimates vs consensus

(NT$mn) 1Q15 2Q15 2015E 2016E

CS estimate Consensus CS estimate Consensus CS estimate Consensus CS estimate Consensus

Revenue 1,423 1,471 1,543 1,588 7,005 6,900 7,912 7,898

Sequential growth -16% -13% 8% 8% 13% 11% 13% 14%

Gross profits 572 593 630 648 2,879 2,836 3,233 3,262

Operating profits 249 269 306 313 1,529 1,514 1,773 1,768

Net profits 236 241 275 280 1,401 1,363 1,620 1,596

EPS (NT$) 3.13 3.19 3.65 3.72 18.58 18.08 21.49 21.17

GM 40.2% 40.3% 40.8% 40.8% 41.1% 41.1% 40.9% 41.3%

OPM 17.5% 18.3% 19.8% 19.7% 21.8% 21.9% 22.4% 22.4%

NM 16.6% 16.4% 17.8% 17.6% 20.0% 19.8% 20.5% 20.2%

Source: Company data, Bloomberg, Credit Suisse estimates

Cash flow and balance sheet analysis

We estimate that Parade will generate NT$1.3-1.6 bn free cash flows, or NT$16.4-21.0

free cash flow per share in 2015-16, reflecting a free cash yield of 5.8-7.5%. The

improving free cash flow is reflecting the growth in earnings, given that Parade is not in a

capex intensive industry and capex to sales ratio should stay at below 1% in 2015-16. We

assume Parade to have a 30% dividend payout ratio as management believes that it will

need to preserve enough cash for future business opportunities.

Although Parade's asset turnover ratio has been around 0.8-0.9 in 2013-14, if we exclude

its cash on hand (60-70% of its total assets), the asset turnover ratio would have been 2.8-

3.1, more consistent with its business nature of being a fabless company. Management

believes that it does need a high cash level for continuous investment in R&D and also

some potential M&A targets that will lead to some synergies with its existing business.

Figure 33: Parade—cash flow summary (2010-2016E)

(NT$mn) 2010 2011 2012 2013 2014E 2015E 2016E

Revenues 1,593 2,330 4,781 4,212 6,224 7,005 7,912

Capex 24 54 56 36 60 60 60

Capex / Revenues (%) 1.5 2.3 1.2 0.9 1.0 0.9 0.8

Dep and Amort 17 20 29 37 44 55 65

Dep / Revenues (%) 1.1 0.8 0.6 0.9 0.7 0.8 0.8

Operating cash flow 146 405 1,217 684 1,003 1,296 1,640

Free Cash flow 121 351 1,161 648 943 1,236 1,580

FCF per share 9.4 6.9 22.7 11.3 12.6 16.4 21.0

FCF yield (%) NA 2.5 14.8 4.9 4.5 5.8 7.5

Dividend per share NA 3.5 3.4 2.8 4.9 5.6 6.4

Dividend yield (%) NA 1.3 2.2 1.2 1.7 2.0 2.3


11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 20

Valuation and risks Valuation methodology

We initiate coverage on Parade with an OUTPERFORM rating and a NT$360 target price,

based on 18x 12-month forward EPS. Since its listing on the GreTai market in Taiwan,

Parade shares have been trading between 11x and 23x forward P/E. Our target multiple of

18x forward P/E is similar to its long-term average valuation.

Parade's earnings growth has been quite volatile in the past few years, probably reflecting

its smaller business scale leading to more fluctuations along with its major customer's

product cycle. We believe its earnings growth should be more normalised in 2015 and

2016, as it will have a more diversified product base and the potential impact from any

single product cycle should not be as significant as it was a few years ago.

As of 3Q14, Parade had NT$3.8 bn cash on hand, which represents NT$50 cash per

share. Our target multiple would be 15-16x on the ex-cash basis.

Figure 34: Parade—P/E history Figure 35: Parade—P/B history

0

50

100

150

200

250

300

350

400

450

500

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

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-13

Mar

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-13

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13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

NT$


100

150

200

250

300

350

400

450

500

550

600

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

NT$



Figure 36: Valuation comparison—display-related and mixed signal IC vendors Reporting Price Marketcap CS 12mth

Company Currency 2/10/2015 US$ mn Rating Target 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015

Taiwan display-related IC suppliers

4966.TWO Parade TWD 281.0 674 O 360.0 16.37 18.58 17.2 15.1 33.3 35.6 8.4 7.9 26.7 24.6

3034.TW Novatek TWD 168.0 3,248 O 210.0 11.85 13.55 14.2 12.4 46.4 50.9 3.6 3.3 27.3 27.8

HIMX.OQ Himax USD 7.6 1,293 N 8.4 0.39 0.53 19.6 14.4 2.7 3.0 2.8 2.6 14.2 18.4

3545.TW Orise TWD 35.2 157 NC NA 4.42 4.81 8.0 7.3 21.0 23.2 1.7 1.5 22.3 21.7

8016.TW Sitronix TWD 99.0 375 NC NA 5.58 6.39 17.7 15.5 32.4 35.2 3.1 2.8 17.5 19.8

3598.TW Ilitek TWD 69.2 158 NC NA 6.16 7.10 11.2 9.8 46.7 52.0 1.5 1.3 13.6 14.8

International IC suppliers

SYNA.OQ Synaptics USD 76.4 2,805 NC NA 4.25 5.72 18.0 13.3 19.0 19.9 4.0 3.8 25.8 26.0

108320.KQ Silicon Works KRW 32,200.0 481 NC NA 1,838.09 2,376.80 17.5 13.5 18,131.4 20,003.8 1.8 1.6 10.5 12.5

SWKS.OQ Analogix USD 79.1 15,090 NC NA 3.24 4.89 24.4 16.2 13.4 16.0 5.9 4.9 26.9 29.9

6963.T Rohm JPY 7,150.0 6,506 O 9,700.0 278.12 395.36 25.7 18.1 5,580.6 6,460.6 1.3 1.1 5.0 6.1

TXN.OQ Texas Instrument USD 54.3 58,706 N 55.0 2.74 3.12 19.8 17.4 9.6 9.6 5.6 5.6 27.9 32.1

MXIM.OQ Maxim USD 33.7 9,542 N 35.0 1.62 1.50 20.8 22.4 8.4 8.1 4.0 4.2 21.3 20.5

NXPI.OQ NXP USD 81.0 20,384 O 90.0 4.74 5.75 17.1 14.1 2.2 5.6 37.4 14.5 128.1 148.0

Average 17.8 14.6 3.6 3.4 19.9 21.2

ROAE (%)EPS P/E (X) P/B (X)BVPS

Source: Company data, I/B/E/S consensus for non-covered companies, Credit Suisse estimates, Note: average P/B and ROAE exclude NXP

Our TP of NT$360 is based

on 18x 12-month forward

P/E

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 21

Risks

Risks to our positive view on Parade include:

■ Slower-than-expected migration to eDP T-Con v1.3 among Apple products leading to

lower revenue growth. Our sensitivity analysis indicates that every 5 pp increase in the

eDP T-Con v1.3 adoption among Apple's iMac/Macbook Pro/Macbook Air will lead to

5%/5% earnings upside to our 2015/16 estimates.

■ Lower-than-expected penetration of the eDP T-Con among non-Apple NB model. Our

sensitivity analysis indicates that every 5 pp increase in the eDP T-Con penetration

among non-Apple NBs will lead to 2%/2% earnings upside to our 2015/16 estimates.

■ Apple's component supplier diversification extends into the eDP T-Con space leading

to market share loss for Parade among Apple products. Our sensitivity analysis

indicates that every 10 pp order allocation loss from Apple will lead to 5%/5% earnings

downside to our 2015/16 estimates.

■ Competition from peers along with the proliferation of the eDP T-Con. Our sensitivity

analysis indicates that every 10 pp market share loss from non-Apple NBs will lead to

4%/5% earnings downside to our 2015/16 estimates.

■ Slower progress in the tablet and smartphone applications and the proprietary SIPI

source driver IC to limit its growth opportunities in the longer term. Our sensitivity

analysis indicates that every 10mn units of smartphone T-Con and driver SoC

shipment will lead to 12%/10% earnings upside to our 2015/16 estimates.

■ Macro uncertainties potentially impacting the overall demand for tech products. Our

sensitivity analysis indicates that every 5 pp revenue impact to Parade from the Macro

uncertainties will lead to 5%/5% earnings downside to our 2015/16 estimates.

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 22

Appendix I – Company profile Company background

Headquartered in Santa Clara, California (US) since 2005, Parade has been a fabless IC

design company focusing on eDP T-Con and other high-speed interface IC products for

various interface including eDP, DP, DVI, HDMI, SATA, etc. On 13 September 2011,

Parade was listed on the GreTai securities market in Taiwan (stock code 4966.TWO).

Currently, Parade has its R&D activities in Shanghai (China), Nanjing (China), and Taipei

(Taiwan), as well as sales and customer support in Korea, Hong Kong and Taipei.

Figure 37: Parade—global presence


Two major business segments – eDP and high speed interface

Parade generates around 80% of its total revenues from the eDP business segment,

where it provides timing controllers based on the embedded DisplayPort (eDP) interface

defined by Video Electronics Standards Association (VESA) for application including NB,

AIO PC, tablet, etc. It also provides signal converter ICs to enhance signal compatibility

between different interfaces.

On top of the eDP business segment, Parade also provides signal repeaters, multiplexers,

de-multiplexers, etc., to restore the signal distortion amid the high-speed transmission and

improve the signal integrity. This business segment accounts for around 20% of Parade's

total revenues.

Parade's major foundry partner is UMC and major backend partner is SPIL. As a fabless

company, the majority of its COGS is from the wafer (~60%) and backend (~35%) costs.

Figure 38: Parade—revenue trend by segments Figure 39: Parade—revenue breakdown by segments

3.3 3.2

5.15.8

6.6

1.51.0

1.2

1.2

1.3

0

1

2

3

4

5

6

7

8

9

2012 2013 2014 2015E 2016E

NT$

bn


68%77% 81% 83% 84%

32% 23% 19% 17% 16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015E 2016E



Founded in 2005 in Santa

Clara (US) and listed on the

GreTai market (TW) in Sep

2011

~80% revenue from eDP

related products

~20% revenues from high

speed interface products

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 23

QFII holdings and major shareholders and

The QFII holding in Parade is now around 27.1%, compared to the 77.7% level in Sep

2011 when it was listed on the GreTai market. We think this mostly reflects the disposal of

its major venture capital investors. According to its IPO prospectus back in July 2011, its

major venture capital investor LC Fund II held a 20.1% stake, Asia Vest 16.6%, UMC

Capital 14.2% and Intel Capital 6.9%. At present, only UMC Capital and LC Fund II still

hold meaningful stakes in Parade. Four founders of Parade (Ji Zhao, Ming Qu, Ding Lu

and Jimmy Chiu) now collectively own 13% of the company.

Figure 40: Parade—share price and QFII holdings Figure 41: Parade—top 10 shareholders

0

10

20

30

40

50

60

70

80

90

0

50

100

150

200

250

300

350

400

450

Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14

(%)(NT$)Parade

Share price (LHS)

QFII holding (RHS)

Shareholder Stake

1 Ji Zhao 4.8%

2 Ming Qu 4.7%

3 UMC Capital 2.4%

4 LC Fund II LP 2.3%

5 Wang Chien Chih-E 2.3%

6 Hsu Ching Hsiang-D 2.2%

7 CTCB & Parade Technologies, Ltd. 2.1%

8 Morgan Staley Account 2.1%

9 Ding Lu 1.8%

10 Jing Wu Jimmy Chiu 1.7%

Top 10 26.3% Source: TEJ, Credit Suisse Source: TEJ, Credit Suisse

Figure 42: Parade—management profile Name Title Education Experience

Jack Zhao CEO and Chairman - Ph.D. in EE from the University of California, Irvine - Co-founder

- MS and BS degrees from Shanghai Jiaotong University - VP of Engineering at Cerdelinx, which was acquired by Lattice in 2002

- Various management positions at Cypress, National Semi, and Trident

Mark Qu President - Ph.D. in EE from Texas A&M University - Co-founder

and EVP of Engineering - MS and BS degrees from Shanghai Jiaotong University - CTO at Cerdelinx

- 20 years of semiconductor industry experience in companies including

National Semi and Sandcrsft

Jimmy Chiu EVP of Marketing - MS in EE from Texas A&M University - Co-founder

- BS from National Taiwan University - AVP of Application Engineering at XGI and Trident

- Over 20 years of experiences in the semiconductor industry with a focus

on application, system, product, QA and design for video processing and

NB graphics

Ding Lu EVP of Product Development - Ph.D. in EE from Colorado State University - Co-founder

- MS from Shanghai Jiaotong University - Director of NB Graphics Engineering at XGI and Trident

- More than 18 years of experience in the semiconductor industry with

extensive experience in SOC design for video processing and notebook

graphics

Judy Wang SVP of Finance - MBA from San Jose State University - California CPA

- BA from National Taiwan University - More than 15 years of experience in financial management

- VP of Finance at ApaceWave Technology

- Director of Worldwide Revenue Process at Portal Software

- Corporate Controller at Silicon Storage Technology

Stephen Donovan SVP of Worldwide Sales - BS in EE from John Moores University (UK) - VP of Sales at SiliconBlue

- Corporate VP of World Wide Sales at Lattice

- Director of Sales for AMD

- Sales positions at NCR and Sperry Univac

- Country Sales Manager for MMI Japan


Four founders collectively

hold 13% of the company

now

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 24

Figure 43: Parade—key milestones

Year Key events

2005 Parade founded in November 2005

Established the US subsidiary, Parade (US)

2006 Established Hong Kong Branch Office, Parade (HK)

3-to-1 HDMI switch products for TV applications

DisplayPort 1.1 Transmitter Technology

2007 Established the Taiwan Branch Office, Parade (TW)

DisplayPort 1.1 Receiver Technology

Direct Drive Monitor TCON with 2-lane DisplayPort Receiver

HDMI repeater for TV applications

Second generation HDMI switch with integrated shadow EDID for each port

HDMI level shifter for PC applications

2008 DisplayPort Repeater for PC applications

DisplayPort/HDMI multiplexer & de-multiplexer for PC applications

4-lane eDP TCON for All-In-One PC to support 2560x1600 30-bit colour panel

1-lane eDP TCON for low power Notebook panels

2009 eDP 1.1 TCON products for Notebook applications

DisplayPort to HDMI/DVI format converter

eSATA/SATA-II Repeater

DisplayPort/ HDMI mux/ demux for switching graphics

2010 eDP 1.2 TCON products for Notebook applications

QuickPort HDMI switch; SATA-III Repeater; eDP to LVDS format converter

3D display technology

SATA III 6Gb/s repeater

DP 1.2 (5.4Gbit/s) and FAUX

2011 USB 3.0 repeater

3Gb/s HDMI jitter cleaning repeater

DP 1.2 (5.4Gbit/s) repeater and De-multiplexer

eDP 1.2 TCON supports high resolution display

eDP 1.3 TCON supports 3D and/or PSR with data compression technology

Establishment of Parade Technologies Korea, Parade (Korea)

Listed on Taiwan GreTai Securities Market (GTSM) on September 13, 2011

2012 Standard Plus eDP TCON

Low power 3Gb/s HDMI jitter cleaning repeater

DP 1.2 (5.4Gbit/s) receiver and transmitter

Low power eDP 1.2 TCON supports high resolution display

Low power eDP 1.3 TCON supports PSR with data compression technology

Very low power HDMI repeater

MHL 2.0 transmitter

Source Driver with Scalable Intra Panel Interface (SIPI)

Establishment of Nanjing subsidiary, Parade (NJ)

2013 Low Power DisplayPort to VGA converters

Standard Plus Ultra Low Power eDP TCON

Source Driver with integrated-Stream Protocol (iSP) interface

Low Power, Small Package USB 3.0 Repeater/Redriver

2014 2nd generation of eDP 1.3 TCON devices to continue to lead technology

MIPI DSI receiver

2nd generation HDMI jitter cleaning

Maturing source driver product offerings in both SIPI and iSP protocols

MIPI based single chip smartphone display devices


11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 25

Appendix II – What is eDP T-Con? What is Embedded DisplayPort (eDP)?

Embedded DisplayPort (eDP) is a transmission interface developed by Video Electronics

Standards Association (VESA). It is aimed at the high-speed data transmission for devices

with embedded displays, including NB, All-in-one PCs, tablets, smartphones, etc. It is

developed based on DisplayPort (DP), though the latter is the interface for external

displays. eDP can share the GPU interface with DP, so unlike traditional interface (LCDS),

eDP does not need a dedicated video port on GPU.

eDP was first introduced in December 2008 and the current mainstream eDP v1.2 was

upgraded in May 2010, with an AUX channel added to control the panel backlight and

other display functions. The industry is now migrating to the eDP v1.3, released in

February 2011, as the version adds a Panel Self-Refresh (PSR) function which could help

reduce the power consumption of mobile devices.

Figure 44: eDP—interface between GPU and T-Con Figure 45: Conceptual illustration of eDP in notebook

Source: VESA, Credit Suisse Source: VESA, Credit Suisse

Figure 46: eDP standard evolution

Year eDP (Embedded DisplayPort) versions and key changes First system model


- based on DP v1.1a

- defined core functionality (embedded specific protocols and electrical interface)

2009

2009 eDP v1.1 released (Oct 2009)

- based on DP v1.1a

- minor changes and clarification

2010

2010 eDP v1.2 released (May 2010)

- based on DP v1.2

- added AUX channel commands to control panel BLM and other display functions

- added HBR2 5.4Gbs as option

- fast link training by Sink made mandatory

2011

2011 eDP v1.3 released (Feb 2011)

- added Panel Self Refresh (PSR) option as a system power saving feature

2013


- added partial update panel self-refresh option

- added display stream compression option

- added regional backlight control option

- added multi-touch over AUX option

2015


What are the advantages for eDP T-Con?

The timing controller based on the eDP interface is called eDP T-Con. Before eDP was

introduced, the mainstream interface for embedded displays was the LVDS (Low Voltage

Differential Signalling). eDP has several advantages over LVDS that make it a better

interface for portable devices.

eDP is a transmission

interface for devices with

embedded displays such as

NB, AIO PC, tablet,

smartphone, etc

Current mainstream version

is eDP v1.2 and the sector

is migrating into eDP v1.3

for better power

consumption

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 26

■ eDP enables higher-speed data transmission and slimmer design: eDP can

support up to 5.4Gbps data transmission compared to 945Mbps supported by LVDS,

so the former is more suitable for the high-resolution displays, where GPU sends

much more information constantly. Due to the higher data transmission rate, eDP only

requires fewer signal wires than LVDS. For a 13'1 NB with 1920 x 1080 (FHD) display

resolution, eDP only needs four signal wires between the GPU and timing controller,

while the traditional LVDs will need 20 signal wires. Fewer signal wires could lead to a

slimmer form factor for the end product.

Figure 47: eDP advantages over LVDS eDP (Embedded DisplayPort) LVDS (Low Voltage Differential Signalling)

No of data & clock pairs 1-4 data pair, no separate clock pair 8 pairs (dual channels), 2 clock pair (dual channels)

Bit rate (per pair0 1.6, 2.7, 5.4Gbps (fixed clock rate), future

extensible

945 Mbps (135Mhz clock)

Total raw capacity 1.6-21.6 Gbps 7.56 Gbps (dual channels)

Clock Embedded Separate clock pair per channel

Transport type Packetized for uncompressed display,

compressed display and audio

Limited to uncompressed pixel raster scan only

Data channel 1 or 720 Mbps (Bi-directional AUX channel for

data and control)

None

Channel coding ANS18B/10B None

Content protection eDP panel authentication, HDCP optional None

Protocol Micro-packet; extensible format Fixed sequential data stream Source: VESA, Credit Suisse

Figure 48: eDP enables slimmer product design through fewer signal wires


■ eDP has less EMI (Electro Magnetic Interference) and RFI (Radio Frequency

Interference) issue: As mentioned earlier, eDP has fewer signal wires, which could

lead to simplified internal cabling and less chance for interference. This could be a

cost factor because some of the system shielding could be spared.

■ eDP is more power efficient: eDP v1.3 introduces the Panel Self-Refresh (PSR)

function, where the frame buffer in the timing controller could maintain the still image

without receiving video data from GPU. This allows the GPI to power down until the

next image change and save power to extend the battery life for portable devices.

eDP enables higher-speed

transmission and slimmer

product design

eDP causes less EMI and

RFI

eDP is more power efficient

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 27

Figure 49: Panel Self-Refresh could help save power


11 F

eb

ruary

201

5

Para

de T

ec

hn

olo

gie

s

(49

66.T

WO

/ 496

6 T

T)

28

Figure 50: Parade—quarterly income statement


Year-end 31 Dec (NT$mn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15E 2Q15E 3Q15E 4Q15E 2013E 2014E 2015E 2016E

Sales 617 811 1,172 1,612 1,348 1,410 1,770 1,696 1,423 1,543 1,998 2,040 4,212 6,224 7,005 7,912

COGS 330 430 670 950 789 825 1,032 1,009 851 914 1,167 1,194 2,380 3,655 4,126 4,678

Gross profits 287 380 503 662 559 585 738 687 572 630 832 845 1,832 2,569 2,879 3,233

Total operating exp. 228 248 310 284 274 294 332 346 323 324 348 355 1,070 1,247 1,350 1,460

Operating exp. promotion 49 51 62 67 62 66 82 90 83 85 90 92 229 300 349 367

Operating exp. administrative 34 40 46 48 47 51 57 61 61 57 60 61 169 216 239 256

Operating expense R&D 145 156 202 169 166 177 192 195 179 182 198 202 672 731 762 837

EBIT 59 132 192 377 285 290 406 341 249 306 483 491 761 1,322 1,529 1,773

Non-oper. income (Loss) (1) 0 (1) (0) 1 1 22 10 10 0 0 0 (2) 35 11 1

Interest expenses - - - - - - - - - - - - - - - -

Interest income 0 0 0 0 0 0 0 0 0 0 0 0 2 1 1 1

Other non-op. income/(loss) (1) (0) (1) (1) 1 1 22 10 10 - - - (4) 34 10 -

Pre-tax Income 59 132 191 377 286 292 428 351 259 306 484 491 760 1,356 1,540 1,775

Income taxes exp./(gains) 9 14 17 39 29 14 46 42 23 31 42 43 80 131 139 155

Net income before extraord. 49 118 174 338 258 278 382 308 236 275 442 448 679 1,226 1,401 1,620

Net income 49 118 174 338 258 278 382 308 236 275 442 448 679 1,226 1,401 1,620

EPS (NT$) 0.95 2.26 3.31 4.52 3.45 3.71 5.10 4.09 3.13 3.65 5.86 5.94 11.81 16.37 18.58 21.49

Aveage shares 52 52 53 75 75 75 75 75 75 75 75 75 58 75 75 75

EBITDA 68 141 202 387 295 301 416 353 262 319 497 505 798 1,365 1,583 1,838

Margins (%)

Gross margin 46.5 46.9 42.9 41.1 41.5 41.5 41.7 40.5 40.2 40.8 41.6 41.5 43.5 41.3 41.1 40.9

Operating margin 9.6 16.3 16.4 23.4 21.1 20.6 22.9 20.1 17.5 19.8 24.2 24.1 18.1 21.2 21.8 22.4

Tax rate 16.1 10.8 9.1 10.4 10.0 4.7 10.8 12.0 9.0 10.0 8.7 8.7 10.6 9.6 9.0 8.7

Net margin 8.0 14.6 14.8 21.0 19.1 19.7 21.6 18.2 16.6 17.8 22.1 22.0 16.1 19.7 20.0 20.5

QoQ (%)

Sales (33) 31 45 38 (16) 5 26 (4) (16) 8 29 2

COGS (29) 30 56 42 (17) 5 25 (2) (16) 7 28 2

Gross profit (37) 32 32 32 (16) 5 26 (7) (17) 10 32 2

Operating profit (74) 123 45 96 (25) 2 40 (16) (27) 23 58 1

Net profit (78) 140 47 94 (24) 8 37 (19) (24) 17 60 1

YoY (%)

Sales (42) (41) (18) 74 118 74 51 5 6 9 13 20 (12) 48 13 13

COGS (35) (34) (4) 104 139 92 54 6 8 11 13 18 2 54 13 13

Gross profit (48) (46) (32) 44 95 54 47 4 2 8 13 23 (25) 40 12 12

Operating profit (82) (72) (61) 65 381 120 111 (10) (13) 5 19 44 (50) 74 16 16

Net profit (82) (70) (57) 53 424 135 119 (9) (8) (1) 16 45 (47) 80 14 16

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 29

Companies Mentioned (Price as of 10-Feb-2015)

Advanced Micro Devices, Inc. (AMD.OQ, $3.04) Apple Inc (AAPL.OQ, $119.72) Asmedia (5269.TW, NT$152.5) Asustek (2357.TW, NT$326.5) Cypress Semiconductor Corp. (CY.OQ, $14.32) FocalTech (3545.TW, NT$35.2) GLI (6104.TWO, NT$57.4) Hewlett Packard (HPQ.N, $37.64) Himax Technologies, Inc. (HIMX.OQ, $7.58) ILITEK (3598.TW, NT$69.2) Intel Corp. (INTC.OQ, $32.93) LG Electronics Inc (066570.KS, W59,300) Lenovo Group Ltd (0992.HK, HK$11.86) Maxim Integrated Products (MXIM.OQ, $33.73) MegaChips (6875.T, ¥1,407) NVIDIA (NVDA.OQ, $20.38) NXP Semiconductors N.V. (NXPI.OQ, $80.97) Novatek Microelectronics Corp Ltd (3034.TW, NT$168.0) Parade Technologies (4966.TWO, NT$281.0, OUTPERFORM[V], TP NT$360.0) Pericom Semi (PSEM.OQ, $14.34) ROHM (6963.T, ¥7,150) Renesas (6723.T, ¥915) Samsung Electronics (005930.KS, W1,378,000) Silicon Works (108320.KQ, W32,200) Siliconware Precision (2325.TW, NT$52.9) Sitronix (8016.TW, NT$99.0) Skyworks Solutns (SWKS.OQ, $79.08) Synaptics (SYNA.OQ, $76.4) Texas Instruments Inc. (TXN.OQ, $54.27) United Microelectronics (2303.TW, NT$15.4)

Disclosure Appendix

Important Global Disclosures

I, Derrick Yang, 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.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the re levant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s t otal return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

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Parade Technologies

(4966.TWO / 4966 TT) 30

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 45% (53% banking clients)

Neutral/Hold* 38% (49% banking clients)

Underperform/Sell* 14% (45% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Parade Technologies (4966.TWO)

Method: Our target price of NT$360 for Parade Technologies is based on 18x 12-month forward EPS (earnings per share). Our target multiple of 18x forward P/E (price-to-earnings) is similar to its long term average valuation amid the trading range of 11-23x P/E. We believe its earnings growth should be more normalised in 2015 and 2016 (+14%/16% YoY for 2015/16), as it will have a more diversified product base; we thus believe that mid-cycle average is the reasonable valuation for Parade.

Risk: Risks that could impede achievement of our NT$360 target price for Parade Technologies include: (1) slower than expected migration to eDP T-Con v1.3 among Apple products leading to lower revenue growth; (2) lower than expected penetration of the eDP T-Con among non-Apple NB models; and (3) competition from peers along with the proliferation of the eDP T-Con.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (TXN.OQ, AAPL.OQ, CY.OQ, 3034.TW, 2357.TW, AMD.OQ, HIMX.OQ, INTC.OQ, 066570.KS, MXIM.OQ, 0992.HK, NXPI.OQ, 005930.KS, HPQ.N) 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 (AAPL.OQ, AMD.OQ, INTC.OQ, 0992.HK, NXPI.OQ, 005930.KS, HPQ.N) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (TXN.OQ) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (AAPL.OQ, 0992.HK, NXPI.OQ) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (AAPL.OQ, AMD.OQ, INTC.OQ, 0992.HK, NXPI.OQ, 005930.KS, HPQ.N) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (TXN.OQ, AAPL.OQ, CY.OQ, 3034.TW, 2357.TW, AMD.OQ, HIMX.OQ, INTC.OQ, 066570.KS, MXIM.OQ, 0992.HK, NXPI.OQ, 6963.T, 005930.KS, HPQ.N) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (TXN.OQ) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (TXN.OQ, AAPL.OQ, CY.OQ, AMD.OQ, HIMX.OQ, INTC.OQ, MXIM.OQ, NXPI.OQ, HPQ.N).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (3034.TW, 2357.TW, 2303.TW, 2325.TW).

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Parade Technologies

(4966.TWO / 4966 TT) 31

Credit Suisse has a material conflict of interest with the subject company (INTC.OQ) . Credit Suisse Securities (USA) LLC is acting as financial advisor to Intel Corp (INTL) on its announced proposed acquisition of LSI’s Axxia Networking Business from Avago Technologies Limited (AVGO).

Credit Suisse has a material conflict of interest with the subject company (0992.HK) . Credit Suisse is acting as financial advisor to Lenovo Group Limited for its proposed acquisition of Motorola Mobility Group from Google.

Credit Suisse has a material conflict of interest with the subject company (005930.KS) . Credit Suisse is acting as exclusive financial advisor to Samsung Electronics and Samsung Fine Chemicals in relation to the proposed sale of their ownership stakes in the semiconductor wafer joint ventures with SunEdison, SMP Ltd and MEMC Korea Company Ltd, to SunEdison.

As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (AAPL.OQ). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of AAPL.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (4966.TWO, TXN.OQ, AAPL.OQ, CY.OQ, 3034.TW, 2357.TW, AMD.OQ, HIMX.OQ, INTC.OQ, 066570.KS, MXIM.OQ, 0992.HK, NXPI.OQ, 6963.T, 005930.KS, HPQ.N, 2303.TW, 2325.TW) within the past 12 months

An analyst involved in the preparation of this report has visited certain material operations of the subject company (AAPL.OQ) within the past 12 months

The travel expenses of the analyst in connection with such visits were not paid or reimbursed by the subject company, other than de minimus local travel expenses.

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

An analyst involved in the preparation of this report received third party benefits in connection with this research report from the subject company (HPQ.N)

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (AAPL.OQ, 3034.TW, HIMX.OQ, 066570.KS, 0992.HK, NXPI.OQ, HPQ.N) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse AG, Taipei Securities Branch ........................................................................................................................ Derrick Yang ; Jerry Su

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

11 February 2015

Parade Technologies

(4966.TWO / 4966 TT) 32

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Parade Technologies - Credit Suisse