Semiconductor - Mirae Asset

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.

KDB Daewoo Securities

upgraded to AA+ (highest

credit rating given to a

domestic securities firm)

By KR, KIS, and NICE on Nov. 2011 2012 Outlook Report December 30, 2011Industry Report

Semiconductor (Overweight)

Daewoo Securities Co., Ltd.

James Song +822-768-3722 [email protected]

William Lee +822-768-4168 [email protected]

Mobile revolution to bring about a paradigm shift

The mobile revolution is now transitioning from its initial phase of creative innovation to one

of evolution and growth. In 2012, the smart device market is projected to reach economies

of scale by growing to 800mn units (twice the PC market). Samsung Electronics (SEC),

having already overtaken Apple as the worldÊs top smartphone seller, is well positioned to

leverage its strengths to continue its lead through this next phase.

In light of the mid- to long-term growth of smart devices, the global application processor

(AP) market is expected to display explosive growth in the coming years. Although global

AP sales are forecast to come in at US$8bn in 2011, in contrast to CPU sales of US$40bn,

we project the AP market to dramatically expand to US$38bn in 2015, surpassing the CPU

market. This should provide enormous opportunities for SEC, which already controls over

50% of the global AP market.

SEC has differentiated itself from its leading peers in the mobile market by achieving strong

vertical integration. As such, the companyÊs AP, mobile DRAM, NAND, and AMOLED

businesses will all grow in line with the growth of its smartphone business. In addition to

overtaking Apple in the smartphone segment, SEC is likely to eclipse Intel in the

semiconductor segment over the mid- to long-term. Considering such positive momentum

behind SEC, we are highly optimistic of the shares.

We reiterate our Overweight rating on the semiconductor sector. Our top picks are SEC

(005930 KS/Buy/TP: W1,300,000), Hynix Semiconductor (000660 KS/Buy/TP: W26,000),

Eugene Technology (084370 KQ/Buy/TP: W30,000), Nepes (033640 KQ/Buy/TP: W22,000),

and Simmtech (036710 KQ/Buy/TP: W18,000).

2

I. Second phase of mobile revolution: Change in market leadership .......................................3

1. Global IT industry is undergoing seismic change .....................................................................3

2. Changes in the OS and CPU markets ......................................................................................4

3. SEC is at the center of the leadership change .........................................................................5

4. Mid- to long-term outlook for the smart device market .............................................................6

II. Mega-trend of global semiconductor market: Shift from CPU to AP....................................8

1. What’s behind the mega shift?..................................................................................................8

2. APs to undergo continued evolution .......................................................................................10

3. SEC is increasing its dominance in the AP market ................................................................12

4. Main AP rivals: Qualcomm and Texas Instruments................................................................15

5. Possible competition with TSMC and Intel .............................................................................18

III. Memory market outlook...........................................................................................................21

1. Memory market growth to be led by NAND demand from 2012.............................................21

2. Smartphones and PCs (SSD) to drive NAND demand...........................................................22

3. NAND supply may tighten after 2Q12 due to limited capacity growth....................................24

4. [DRAM competitiveness] Competitiveness gap widened during down-cycle.........................25

5. [DRAM demand] PC demand to enter low growth cycle ........................................................26

6. [DRAM demand] Release of Ivy Bridge and Windows 8 to have limited impact ........................27

7. DRAM supply/demand conditions to gradually improve from 1Q12.......................................29

IV. Issue analysis: Migration to 1Xnm process..........................................................................30

1. New lithography equipment to be introduced with migration to 1Xnm process .........................30

2. Introduction of EUV lithography equipment may trigger restructuring....................................31

3. NAND design to evolve to 3D method ....................................................................................33

4. DRAM modules to evolve to HMC ..........................................................................................34

V. Investment strategy and valuation .........................................................................................35

1. SEC: “Short Intel and long SEC” over the mid- to long-term..................................................35

2. Hynix Semiconductor: Beneficiary of growing mobile demand ..............................................36

3. Equipment segment: Focus on capex expansion in 2012......................................................37

4. Parts segment: Fundamentals improving at back-end processors ........................................38

Samsung Electronics (005930 KS) ............................................................................................. 39

Hynix Semiconductor (000660 KS)............................................................................................. 44

Eugene Technology (084370 KQ) ............................................................................................... 48

Nepes (033640 KQ)....................................................................................................................... 51

Simmtech (036710 KQ) ................................................................................................................ 54

December 30, 2011 Semiconductor

3 KDB Daewoo Securities Research

I. Second phase of mobile revolution: Change in market leadership

1. Global IT industry is undergoing seismic change

The Apple-led mobile revolution has brought about a sea change in the global IT hardware

industry, causing a crisis at some major hardware players. Recently, the industry has seen

developments that were unimaginable a few years back, such as Nokia losing its grip on the

market, Motorola Mobility being acquired by Google, and HP contemplating the split off of

its PC unit.

Many established hardware companies are unable to keep up with software companies (e.g.,

Google), which rapidly adopt new technologies by aggressive M&A. The reasons for this is

that hardware companies are generally focused on capacity ramp-ups and effective supply

chain management. However, Apple is differentiating itself from other hardware companies

by acquiring software technology. The benefits of AppleÊs recent acquisition of Siri should

become evident over time.

Figure 1. Mobile revolution and the market caps of Apple and other global IT hardware companies

Source: Thomson Reuters, KDB Daewoo Securities Research

Figure 2. Google growing rapidly via aggressive M&As

Acquisition date Company Business Value

Apr. 2003 Applied Semantics Online Advertising US$102mn

Oct. 2004 Keyhole, Inc. Map Analysis Not disclosed

Aug. 2005 Android Mobile Software US$50mn est.

Jan. 2006 dMarc Broadcasting Advertising US$102mn

Oct. 2006 YouTube Video Sharing US$1,650mn

Apr. 2007 DoubleClick Online Advertising US$3,100mn

Jul. 2007 Postini Communications Security US$625mn

Nov. 2009 AdMob Mobile Advertising US$750mn

Feb. 2010 On2 Video Compression US$133mn

Jul. 2010 ITA Software Travel Technology US$700mn

Aug. 2010 Slide.com Social Gaming US$228mn

Aug. 2011 Motorola Mobility Mobile Device US$12,500mn

Source: Web, KDB Daewoo Securities Research

IT hardware companies

under crisis

Big strategic differences

between hardware and

software companies

0

100

200

300

400

500

1/09 7/09 1/10 7/10 1/11 7/11

Apple

Intel+Dell+HP+Nokia+Sony

(US$bn)



2. Changes in the OS and CPU markets

The growth of smart devices has brought changes not only to handset/TV set makers, but

also to OS and CPU makers. While Microsoft has been the OS market leader in the PC era,

Google will likely take the reins in the smart device era with its Android OS (50% market

share). In addition, we expect the AP market to experience explosive growth, while the Intel-

dominated CPU market should continue to wane. Hence, in our view, the age of Wintel

(Windows + Intel) is slowly drawing to a close.

Figure 3. Shift in OS hegemony in an era of smart devices

Source: IDC, KDB Daewoo Securities Research

Figure 4. Seismic shift from CPU to AP in an era of smart devices

Source: KDB Daewoo Securities Research

OS and CPU markets are

also undergoing big

changes

[PC Era] [Smart Device Era]

16.1

35.2

47.252.0 52.8 51.753.1 45.5

39.9

28.0

13.8 4.9 1.1 0.2

5.911.7

14.9

17.8 19.3

18.818.1

17.6

14.8

13.5

7.93.8 7.3

12.917.3

20.6

2.50.30

20

40

60

80

100

08 09 10 11F 12F 13F 14F 15F

Android Symbian iOS RIM Microsoft Others(%)

[PC Era] [Smart Device Era]

Intel Core i3, i5, i7 Intel Atom ARM 9ARM 11Coretex A–15, 9, 8, 5

* CISC(Complex Instruction Set Computer) * RISC(Reduced Instruction Set Computer)

(Apple A6/A5/A4, Samsung Exynos)

CPU/AP

MARKET

OS

Media Tablets SmartphonesLaptopDesktopSmartbook/Netbooks

FeaturePhone

Basic



3. SEC is at the center of the leadership change

The mobile revolution is now transitioning from its initial phase of creative innovation to one

of evolution and growth. In 2012, the smart device market is projected to reach economies

of scale by growing to 800mn units (twice the PC market). Samsung Electronics (SEC),

having already overtaken Apple as the worldÊs top smartphone seller, is well positioned to

leverage its strengths to continue its lead through this next phase.

With the smart device market growing full swing, the competitiveness of smart device

makers is likely to hinge on the preemptive procurement of core components (e.g., APs,

AMOLED). In fact, compared to the initial stages of the mobile revolution, the technological

gaps (related to user interfaces and applications) between makers have narrowed

significantly.

Among global smartphone makers, SEC boasts the strongest vertical integration and market

share of core components. Thus, the company is highly likely to take leadership during the

next phase of the mobile revolution.

Figure 5. Smartphone market share trends and forecasts of SEC, Apple and Nokia

Source: IDC, KDB Daewoo Securities Research estimates

Figure 6. Recent stock performances of Apple and SEC and major events

Source: Company data, Thomson Reuters, KDB Daewoo Securities Research

The second phase of the

mobile revolution should

be focused on evolution

and growth

Increasing importance of

core component

procurement implies

that market leadership

could change

0

10

20

30

40

50

08 09 10 11F 12F 13F 14F 15F

SEC's M/S Apple's M/S Nokia's M/S

(%)

600

800

1,000

1,200

1/11 3/11 5/11 7/11 9/11 11/11 1/12

270

300

330

360

390

420

450SEC (L)

Apple (R)

(W'000) (US$)

Apple's 1Q results (Jan.18)

Steve Jobs on medical leave (Jan.18)

iPad2 (Mar.11)

Steve Jobs resigns as CEO (Aug.24)

iPhone 4S released (Oct.5), Steve Jobs passes (Oct.5)

Apple's 4Q results (Oct.18)

Apple's 2Q results (Apr.20)

Apple's 3Q results (July19)SEC's 1Q results (Apr.7) SEC's 2Q results (Jul.7)

SEC's 3Q results (Oct.7)

Galaxy S2 (May 6)

Galaxy S2 LTE (Sep.26)

Galaxy Nexus (Oct.19)

2/12

SEC to release Galaxy Celox (1Q12)

Apple to release iPhone5

in 2Q12



4. Mid- to long-term outlook for the smart device market

We expect the smartphone market to expand to 450mn units in 2011, to 680mn units in

2012 (up 51%), and to 1.7bn units in 2015 (five-year CAGR of 42%). The tablet PC market is

forecast to grow to 65mn units in 2011, to 110mn units (up 69%) in 2012, and to 320mn

units in 2015 (five-year CAGR of 49%).

The smart device market (smartphones and tablet PCs combined) has already exceeded the

PC market in units, and is forecast to grow to 520mn units in 2011 and to roughly 800mn

units (up 54%) in 2012.

Market research firm Gartner, forecasts that smartphones, tablet PCs and solid-state drives

(SSD) will lead semiconductor demand growth through 2015. The expansions of the

smartphone and table PC markets should directly drive demand for major semiconductor

products (e.g., APs, mobile DRAMs, and NANDs). Furthermore, the increasing adoption of

SSDs in non-tablet notebooks should contribute to NAND demand growth.

Figure 7. Main areas for demand growth in the future semiconductor market

Source: Gartner

Figure 8. Global smartphone market trends and forecasts

Source: Company data, IDC, KDB Daewoo Securities Research estimates

Smart device market is

forecast to grow to

800mn units in 2012

Smart devices and SSDs

will lead semiconductor

demand growth through

2015

134 173

296

455

683

1,300

1,690

956

29

58

71

5450

40

36

30

0

500

1,000

1,500

2,000

08 09 10 11F 12F 13F 14F 15F

0

10

20

30

40

50

60

70

80

Smartphone shipments (L)

% YoY (R)

(mn units) (%)

2010~2015F

CAGR 45%



Figure 9. Global tablet PC market trend and forecast

Figure 10. Demand trend and forecasts of SSD-use NAND

Source: Company data, Gartner, KDB Daewoo Securities Research estimates

Figure 11. Mobile revolution and paradigm shift in semiconductor industry

Source: WSTS, KDB Daewoo Securities Research estimates

15

65

110

170

240

320

0

50

100

150

200

250

300

350

08 09 10 11F 12F 13F 14F 15F

50

55

60

65

70

75Global tablet PC shipments (L)

Apple's M/S (R)

(mn units)

49% CAGR during

2011~2015F

(%)

0 15

11

22

45

83

0

20

40

60

80

100

09 10 11F 12F 13F 14F 15F

0

10

20

30

40

50Global NAND demand by SSD (L)

SSD portion of NAND demand (R)

(%)(1GB Eq. bn units)

138% CAGR during

2010~2015F

0

2,000

4,000

6,000

8,000

10,000

91 93 95 97 99 01 03 05 07 09 11F 13F 15F

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Global DRAM revenues (L) Global NAND revenues (L) SEC share price (R) (W'000)

SDRAM DDR

DDR2

PC growth

Smar t device growth → C loud envir onment

Led by Apple, Google and SEC Led by IBM, Microsof t and In tel Led by Nokia, SEC, In tel, C isco & Qualcomm

SSD

DDR4PC DRAM's

short boom

NAND demand picks up

PC DRAM market booms

PC DRAM

experiences

a short

boom

PC DRAM's long-term boom

Major var iables of semiconductor industr y

1) Memory price: Depends on supply/demand; Affects profitability

2) Memory demand: Smartphone and PC shipments, and memory content

3) Memory supply: Capex, capacity expansion and process migration (efficiency)

4) Smartphone shipments and competitiveness → AP, mobile DRAM, NAND & AMOLED sales

5) IT demand trend and new products: New demand (e.g. new smartphones, SSDs, etc.)

(US$mn)

NAND and mobile

DRAM demand

surges

Mobile phone growth

Mobile revolut ion

dr ives AP, mobile

DRAM and NAND

demand

DDR3

t



II. Mega-trend of global semiconductor market: Shift from CPU to AP

1. What’s behind the mega shift?

The global AP market is expected to display explosive growth, aided by the continued

growth of smart devices. We forecast smart device shipments to expand to around 2bn

units in 2015 (1.7bn units for smartphones; 320mn units for tablet PCs). At that point, the

market would be equivalent to four to five times the market for PCs (which use CPUs).

In light of the mid- to long-term growth of smart devices, the global application processor AP

market is expected to display explosive growth in the coming years. Although global AP

sales are forecast to come in just shy of US$10bn in 2011, in contrast to CPU sales of

US$40bn, we project the AP market to dramatically expand to US$38bn in 2015. And while

smart device shipments have already exceeded PC shipments, the ASP of APs (US$15)

remains at only one-fifth that of CPUs (US$80).

However, assuming that smart device shipments surge to more than 1.7bn units in 2015

(15% less than market consensus), we project the AP market to expand to US$38bn (five-

year CAGR of 49%), surpassing the CPU market. Hence, the global semiconductor market is

undergoing a mega shift from CPUs to APs.

Demand for APs is expected come from a multitude of devices and equipments (PCs to

automobiles). However, as smart devices should initially be the primary driver of AP demand,

our analysis of the smart device market outlook should be sufficient in the formulation of a

mid- to long-term outlook for APs.

Table 1. AP & CPU market forecasts (US$bn, bn, US$)

10 11F 12F 13F 14F 15F 5yr CAGR Comment

AP 5.3 7.8 14.4 18.7 28.1 38.3 48.6% Outgrow the CPU market in 2015

Shipment 0.33 0.52 0.80 0.94 1.28 1.70 Rapid growth of smart devices

ASP 16.0 15.0 18.0 20.0 22.0 22.5 Improvement in the number of cores and speed

CPU 35.2 38.6 40.6 40.0 37.8 36.0 0.4%

Shipment 0.46 0.48 0.49 0.47 0.43 0.40 Limited PC market growth

ASP 76.6 80.4 82.8 85.0 88.0 90.0 Limited ASP increase

Note: 2013F~2015F AP shipments are calculated by applying a 15% discount to smartphone and tablet PC shipments

Source: Gartner, Company data, KDB Daewoo Securities Research estimates

Figure 12. Global CPU & AP market trends and forecasts

Source: Gartner, KDB Daewoo Securities Research estimates

Smart device shipments

are likely to reach 2bn

units in 2015

AP market is expected

to rapidly grow to

US$38bn in 2015

2.0 2.75.3

7.8

14.4

18.7

28.1

38.3

0

10

20

30

40

50

60

08 09 10 11F 12F 13F 14F 15F

Global AP sales

Global CPU sales

(US$bn)Global AP sales:

49% CAGR during 2010~2015F

→ exceed global CPU sales in 2015



Figure 13. Mid- to long-term forecast of global semiconductor market

Source: Gartner, KDB Daewoo Securities Research

Table 2. Global semiconductor market size and forecast (US$bn, %)

09 10 11F 12F 13F 14F 15F 5yr CAGR

Memory 44.6 67.6 61.2 67.8 74.1 68.6 77.9 2.9%

Microcomponents 42.5 56.4 59.1 60.6 64.0 68.0 72.0 5.0%

Logic IC 9.8 11.6 12.2 12.5 13.0 13.6 14.2 4.1%

ASSP 61.3 76.3 76.3 77.5 85.0 95.0 105.0 6.6%

ASIC 19.3 22.2 22.6 24.4 27.3 29.6 31.9 7.5%

Analog IC 15.7 21.0 21.5 21.9 24.1 25.2 26.6 4.8%

Discrete 14.8 19.5 19.9 20.1 22.0 22.9 24.2 4.4%

Optoelectronics 15.5 20.8 21.9 23.2 25.7 28.6 32.6 9.4%

Sensors 2.6 4.0 4.5 4.9 5.7 6.4 7.1 12.2%

Total 226.1 299.4 299.1 312.9 342.2 351.8 380.2 4.9%


Figure 14. Weighted portion of semiconductor market in 2011


0

100

200

300

400

500

09 10 11F 12F 13F 14F 15F

Sensors Discrete Analog IC Logic IC Optoelectronics

ASIC ASSP Microcomponents Memory

$60,000mn of Memory, MCU market

(US$bn)

ASSP market to expand due to

rapidly growing AP market

Memory

20%

Optos, Sensors

9%

ASIC

8%

ASSP

25%

Microcomponents

20%Logic IC

4%

Analog IC

7%

Discrete

7%



2. APs to undergo continued evolution

APs are projected to steadily evolve in line with an increase in the number of cores per chip

(single- dual- quad-core processors), leading to higher average unit prices and a

decrease in the number of chips produced from each wafer (a 12-inch wafer can produce

only 373 chips for quad-core processors, compared to more than 1,200 for single-core

processors and 559 for dual-core processors). Indeed, a production line with a monthly

capacity of 50,000 wafers can produce 190mn single core processors, or 84mn dual core

processors. As such, the evolution in core processors should necessitate capacity ramp-ups

for major AP makers.

Moreover, the processing speeds of APs are likely to accelerate (1Ghz 1.2Ghz 1.5Ghz

2.0Ghz 2.5Ghz) in tandem with the evolution of ARM CPU core processors (Coretex-A8

A9 A15). Furthermore, APs will likely be adopted in PCs after the launch of Windows 8

in 2012. The use of APs in PCs is likely to pick up starting in 2H12, when the maximum

speed of APs is forecast to reach 2.5Ghz.

In particular, given that AP prices are only a quarter of CPU prices, low-end PC models are

highly likely to adopt APs.

Figure 15. Evolution of AP: Increase in core numbers


Figure 16. ARM core road map

Source: Industry data

1) Increase in the

number of cores per

chip; Capacity ramp-ups

necessary for growth

2) Processing speeds to

accelerate; APs likely to

be adopted in PCs

Single Core: 53mm2 (7.3mx7.3m) 1,266 chips/wafer (12‰) Dual Core: 120mm2 (10mx12m)

230% bigger than Single Core 559 chips/wafer (12‰)

Quad Core: 180mm2 (12mx15m) 50% bigger than Dual Core 373 chips/wafer (12‰)



Table 3. Major AP products from 2010 to 2012

Application Processor Process

Node CPU GPU

Memory

Bus Release

Apple A4 45nm 1 x ARM Cortex A8 w/ [email protected]

PowerVR SGX 535 1 x 32-bit LPDDR1

2010

Apple A5 45nm 2 x ARM Cortex

A9 w/ [email protected] PowerVR SGX 543MP2

2 x 32-bit

LPDDR2 1Q11

Samsung Exynos 3110 (Humming-bird)

45nm 1 x ARM Cortex A8 w/ [email protected]


2010

Samsung Exynos 4210 45nm 2 x ARM Cortex

A9 w/ [email protected] ARM Mali-400 MP4

2 x 32-bit

LPDDR2 Now

Samsung Exynos 4212 32nm 2 x ARM Cortex

A9 w/ [email protected] ARM Mali-400 MP4

2 x 32-bit

LPDDR2 2012

NVIDIA Tegra 2 40nm 2 x ARM Cortex [email protected]

GeForce 1 x 32-bit LPDDR2

Now

NVIDIA Tegra 3

(KalEl) 40nm

4 x ARM Cortex

A9 w/ MPE@ ~1.3GHz GeForce++

1 x 32-bit

LPDDR2 4Q11

TI OMAP 4430 45nm 2 x ARM Cortex

A9 w/ [email protected] PowerVR SGX 540

2 x 32-bit

LPDDR2 Now

TI OMAP 4460 45nm 2 x ARM Cortex A9 w/ [email protected]


1H12


A9 w/ [email protected] PowerVR SGX 544

2 x 32-bit

LPDDR2 1H12


[email protected] PowerVR SGX 544MPx

2 x 32-bit

LPDDR2 2H12

Qualcomm MSM8x60 45nm 2 x Scorpion@ 1.5GHz

Adreno 220 1 x 32-bit LPDDR2

Now

Qualcomm MSM8960 28nm 2 x Krait@

1.5GHz Adreno 225

2 x 32-bit

LPDDR2 1H12

ST-Ericsson NovaThor LP9600

(Nova A9600) 28nm

2 x ARM Cortex

[email protected] IMG PowerVR Series 6 (Rogue)

Dual

Memory 2013

ST-Ericsson NovaThor LP9540 (Nova A9540)

32nm 2 x ARM Cortex [email protected]

IMG PowerVR Series 5 2 x 32-bit LPDDR2

2H12

ST-Ericsson NovaThor U9500

(Nova A9500) 45nm

2 x ARM Cortex

[email protected] ARM Mali-400 MP1

1 x 32-bit

LPDDR2 Now

ST-Ericsson NovaThor U8500 45nm 2 x ARM Cortex

[email protected] ARM Mali-400 MP1

1 x 32-bit

LPDDR2 Now

Source: Company data, Industry data

Table 4. Specifications of mainstream APs by maker

Company Samsung Electronics Apple Qualcomm Texas Instruments NVIDIA

Product Exynos 4210 A5 Snapdragon S3 OMAP 4430 Tegra3

Model

CPU Dual-Core ARM Cortex-A9 Dual-Core ARM Cortex-A9 Dual-Core Scorpion ARM Cortex-A8 Quad-Core ARM Cortex-A9

GPU ARM Mali-400 MP4 PowerVR SGX 543MP2 Adreno 220 PowerVR SGX 540 GeForce++

Speed 1/1.2 GHz 1 GHz 1.5 GHz 720 MHz Single-Core 1.4 GHz

Quad-Core 1.3 GHz

Node 45 nm 45 nm 45 nm 65 nm 40 nm

Manu-

facturer Samsung Electronics Samsung Electronics TSMC TSMC TSMC




3. SEC is increasing its dominance in the AP market

SEC controls more than 50% of the global AP market, as the company produces APs for

Apple as well as for in-house use. AppleÊs A4 and A5 and SECÊs S5PC100 and Exynos 3110

chips are all based on ARMÊs CPU core processors and GPUs and are produced

collaboratively by SEC, P.A. Semi (acquired by Apple in 2008), and Intrinsity (acquired by

Apple in 2010).

We believe that SEC will be able to remain dominant in the global AP market going forward,

as:

First, SEC is expected to make aggressive investments in the non-memory business in 2012.

The company is likely to spend almost half (W8tr) of its 2012F semiconductor capex (W15tr)

on the non-memory segment. The company built a new AP production line (40,000

wafers/month) in Austin in 2H11 to supplement the existing S-line (50,000 wafers/month).

Furthermore, Line 14, which produces NAND (50,000 wafers/month) is projected to be

partially converted into an AP line in 1H12.

Figure 17. SEC capex trend and forecast

Source: KDB Daewoo Securities Research estimates

Figure 18. Fab capacity trend and forecast of Samsung Electronics System LSI

Source: Samsung Electronics, KDB Daewoo Securities Research estimates

SEC controls more than

50% of the AP market

1) Aggressive capex plan

10.08.5

9.5

7.0

19.8

22.8

26.2

6.6 6.35.3

3.9

15.0

10.512.3

0

5

10

15

20

25

30

06 07 08 09 10 11F 12F

Total Capex

Semiconductor

LCD

Telcom

Others

(US$bn) 12F CapEx of non-memory to increase

to W8tr from W4tr in 2011

48 48 48 48 48 48 48 48 48 50 50 50

2040 40 40 40 40

1530

4555 60

5

1015

5

0

30

60

90

120

150

180

1Q10 3Q10 1Q11 3Q11 1Q12F 3Q12F

8-Line

14-Line

Austin-Line

S-Line

('000 units wpm) SEC's system LSI production capacity

to increase to 140k wpm by end-2Q12

(3 times that of existing S-Line's)



Second, the companyÊs non-memory processes have improved. SEC has recently rolled out

its 2Ghz dual-core processor Exynos 5250 (based on ARM A-15), which is produced using

the 32nm high-k/metal gate (HKMG) process. The HKMG process consumes less power

than TSMCÊs 28nm low-power process.

Although Intel has already introduced a 45nm HKMG process and TSMC also plans to adopt

a 28nm HKMG process, it should be noted that SECÊs non-memory competitiveness is no

longer inferior to that of Intel or TSMC. SEC is developing non-memory processes with IBM,

GlobalFoundries, and Texas Instruments under the Common Platform technology

collaboration.

Figure 19. Comparison of existing SiO2 and High-K Metal Gate transistor process


Figure 20. Foundry road map of TSMC

Source: TSMC

2) Stronger process

competitiveness



Third, SEC could improve its cost competitiveness thanks to synergies between its AP and

memory businesses. Since APs are installed on mobile devices through the package-on–

package (PoP) or multi-chip packaging (MCP) methods (as is the case with mobile DRAM),

the company has higher cost competitiveness than AP makers without memory production

capabilities. Going forward, a more advanced packaging technique such as through-silicon

via (TSV) will likely be implemented.

Figure 21. AP packaging technology: PoP (Package on Package)

Figure 22. Future packaging technology development: TSV (w/ Silicon Via) / HMC (Hybrid Memory Cube)


Table 5. AP product specifications of SEC

Model Name Process

Node CPU GPU Release Devices

S3C2443 65nm 400/533 MHz Single-Core ARM9 LCD Controller 2007 Asus R300, Mio Moov 2xx, LG LN8xx, Navigon 8300, etc.

S3C2450 65nm 400/533 MHz Single-Core ARM9 2D graphic

acceleration 2008

Mio Moov 500, Archos Arnova 10,

SMiT MTV-PND530, etc.

S5L8900 90nm 412 MHz Single-Core ARM11 PowerVR MBX Lite 2007 Apple iPhone 3G, Apple iPod touch 1G/2G

S3C6410 65nm 533/667/800 MHz Single-Core ARM11 2D/3D Graphics

Acceleration 2009 Samsung GT-i5510 Galaxy 551/GT-i5700 Galaxy Spica, etc.

S5PC100 65nm 667/833 MHz Single-Core ARM Cortex-A8 PowerVR SGX535 2009 Apple iPhone 3GS, Apple iPod touch 3G, etc.

Exynos 3110 45nm 1.0 GHz Single-Core ARM Cortex-A8 PowerVR SGX540 2010 Samsung Galaxy S line/Wave/Tab, etc.

Exynos 4210 45nm 1-1.4 GHz Dual-CoreARM Cortex-A9 ARM Mali-400 MP4 2011 Samsung Galaxy S II/Galaxy Note/Galaxy Tab 7.0 Plus, etc.

Exynos 4212 32nm 1.5 GHz Dual-Core ARM Cortex-A9 ARM Mali-400 MP4 2011

Exynos 4412 32nm 1.5 GHz quad-Core ARM Cortex-A9 ARM Mali-T604 2012 Samsung Galaxy S III (rumored)

Exynos 5250 32nm 2.0 GHz Dual-Core ARM Cortex-A15 ARM Mali-T604 2012

Source: Samsung Electronics, Industry data

3) Synergies with the

memory business



4. Main AP rivals: Qualcomm and Texas Instruments

Aside from SEC, major AP makers include Qualcomm and Texas Instruments (TI) which

respectively hold market shares of over 20%. NVIDIA, Freescale and Renesas also produce

APs.

QualcommÊs application processors (collectively dubbed Snapdragon) contain 1) Scorpion (an

AP core) based on the ARMv7 platform, and 2) Adreno, the company's proprietary GPU

technology, which is integrated into Snapdragon chipsets (fat modem). Snapdragon

consumes less power than other comparable products. However, its drawbacks include low

data transfer per clock cycle and the GPUÊs poor graphic performance (despite significant

improvements since Adreno20).

The 45nm Snapdragon S3 is equipped with a 1.2~1.5Ghz dual-core CPU. Beginning in 2012,

Qualcomm will produce 28nm application processors with a 2.5Ghz quad-core CPU. Sony

Ericsson, HTC and LG have adopted Snapdragon application processors for their

smartphones. SEC has recently started to use Snapdragon for some of its Galaxy S2 and

LTE models. Going forward, we expect Snapdragon demand from LTE models to rise, as

QualcommÊs MDM 9600 baseband chip (a core component of LTE smartphones) does not

support 3G voice calls.

TI supplies its OMAP APs mainly to Nokia. OMAP AP is based on a discrete architecture that

is not integrated with baseband chipsets (thin modem). Built on the ARMv7 platform, it

contains a Coretex A-8 or A-9 CPU, and a PowerVR SGX series GPU manufactured by

Imagination. OMAP AP excels in terms of clock cycles per second (overclocking), but

underperforms in terms of video decoding due to a lack of NEON instructions (thus, it does

not enable hardware acceleration through parallel data processing).

The 45nm OMAP 4 has adopted a 1.0~1.5Ghz dual-core CPU. Beginning in 3Q12, TI will

produce 28nm application processors with a dual core CPU. Amazon and SEC have adopted

OMAP for the Kindle Fire and Galaxy Nexus, respectively.

Figure 23. AP architecture: Integrated vs. Discrete

Source: Semiconductor Insight

Qualcomm:

Snapdragon

TI: OMAP



Figure 24. TI OMAP 5 platform: ARM Coretex A-15 (Dual) and PowerVR SGX (3D) GPU


Figure 25. Qualcomm Snapdragon S4 platform with LTE support

Source: Qualcomm

Figure 26. Galaxy S2 LTE(w/ Qualcomm - APQ 8860 AP) vs. Galaxy Nexus (w/ TI – OMAP4 AP)

Source: 10Division.com



Table 6. AP Specifications of QualcommÊs Snapdragon

Model Name Process

Node CPU GPU Release Devices

Snapdragon S1

QSD8250 65nm 1 GHz Scorpion Adreno 200 4Q08 LG Optimus Q, Samsung Omnia 7, etc.

QSD8650 65nm 1 GHz Scorpion Adreno 200 4Q08 HTC Supersonic/EVO 4G, LG Optimus 7, etc.

QSD8250A 45nm 1.3 GHz Scorpion Adreno 205 4Q09

QSD8650A 45nm 1.3 GHz Scorpion Adreno 205 4Q09 Lenovo LePad

MSM7225A 45nm 600 MHz CortexA5 Adreno 200 (enhanced) 4Q11


MSM7227A 45nm 800 MHz CortexA5 Adreno 200 (enhanced) 4Q11 Motorola XT615


Snapdragon S2

MSM7230 45nm 800 MHz Scorpion Adreno 205

2Q10 HTC Desire Z/T-Mobile G2, Acer Liquid Metal,

HTC Prime, etc.

MSM7630 45nm 800 MHz Scorpion Adreno 205

2Q10 HTC Evo Shift 4G, Casio G'zOne Commando,

HTC Merge, etc.

MSM8255 45nm 1 GHz Scorpion Adreno 205

2Q10 Acer Iconia Smart, Sony Ericsson Xperia,

Blackberry Torch, etc.

MSM8655 45nm 1 GHz Scorpion Adreno 205

2Q10 HTC Thunderbolt, Motorola Triumph, Samsung Conquer 4G, etc.

MSM8255T 45nm 1.4-1.5 GHz Scorpion Adreno 205

2011 Samsung Focus S/Galaxy S Plus/W, Sony Xperia arc S, etc.

MSM8655T 45nm 1.4-1.5 GHz Scorpion Adreno 205 2011 HP Pre 3, Toshiba REGZA Phone IS11T, etc.

Snapdragon S3

APQ8060 45nm 1.2-1.5 GHz Dual-Core Scorpion Adreno 220 2011 HP TouchPad, Galaxy S II Skyrocket/LTE, etc.

MSM8260 45nm 1.2-1.5 GHz Dual-Core Scorpion Adreno 220 3Q10 ASUS Eee Pad MeMO, HTC Sensation, etc.

MSM8660 45nm 1.2-1.5 GHz Dual-Core Scorpion Adreno 220

3Q10 Pantech Vega Racer, HTC EVO 3D,

HTC Rezound, etc.

QSD8672 45nm 1.5 GHz Dual-Core Scorpion Adreno 220 1Q10

Snapdragon S4

APQ8064 28nm 2.5 GHz Quad-Core Krait Adreno 320 2012

MSM8960 28nm 1.5-1.7 GHz Dual-Core Krait Adreno 225 4Q11



MSM8260A 28nm 1.5-1.7 GHz Dual-Core Krait Adreno 225 4Q11

Source: Qualcomm, Industry data

Table 7. AP Specifications of TIÊs OMAP

Model Name Process Node

CPU GPU Devices

OMAP3410 65nm 600 MHz ARM Cortex-A8 PowerVR SGX530 Motorola Charm, Motorola Flipout, Motorola Flipside, etc.

OMAP3420 65nm 600 MHz ARM Cortex-A8 PowerVR SGX530

OMAP3430 65nm 600 MHz ARM Cortex-A8 PowerVR SGX530 Motorola Droid/Milestone, Palm Pre, Samsung i8910, etc.

OMAP3440 65nm 800 MHz ARM Cortex-A8 PowerVR SGX530 Motorola XT720, Samsung Galaxy A, etc.

OMAP3503 65nm 600 MHz ARM Cortex-A8 N/A Gumstix Overo Earth

OMAP3515 65nm 600 MHz ARM Cortex-A8 PowerVR SGX530

OMAP3525 65nm 600 MHz ARM Cortex-A8 N/A

OMAP3530 65nm 720 MHz ARM Cortex-A8 PowerVR SGX530 BeagleBoard, Alico's Kinetic 3500, Pandora, Touch Book, etc.

OMAP3611 45nm 800 MHz ARM Cortex-A8 PowerVR SGX530 Cybook Odyssey

OMAP3621 45nm 1 GHz ARM Cortex-A8 PowerVR SGX530 Nook Color, Nook Simple Touch, etc.

OMAP3630 45nm 600MHz~1.2GHz ARM Cortex-A8 PowerVR SGX530 LG Optimus Black, Samsung Galaxy S/7 TAB Wifi Only, etc.




5. Possible competition with TSMC and Intel

Mid- to long-term risks for SEC include: 1) AppleÊs diversification of its AP suppliers, and 2)

IntelÊs possible entry into the AP market. However, Apple is unlikely to switch to TSMC

(from SEC) in the upcoming year for the following reasons:

First, SEC has a fundamentally different business model than TSMC. Unlike TSMC, SEC is

not just a foundry; the company also possesses AP design capabilities and related

intellectual properties. If TSMC wants to produce A4 and A5 processors for Apple, then the

company must boost its intellectual properties.

Second, SEC and TSMC use different production methods. SEC, TI and GlobalFoundries

utilize the gate-first method, which requires a simpler production process, less power and

smaller chips than TSMCÊs gate-last method.

The gate-last method, adopted by TSMC and Intel, is faster, but consumes more power.

SEC may also switch to the gate-last method for 28nm or lower fabs. Even so, the gate-first

method seems better suited for AP production at least for now.

Figure 27. Comparison of semiconductor transistor manufacturing methods: Gate First vs. Gate Last


Third, TSMC would have to either 1) expand its capacity via investments, or 2) divert a

significant portion of its capacity from existing customers to Apple.

Apple will have to consider whether TSMC will be able to supply application processors at

prices similar to or cheaper than SEC (cost issue). On the other hand, TSMC will have to

consider whether Apple will be able to guarantee margins similar to those of other

customers, or whether it is willing to supply to Apple despite lower margins (profitability

issue).

The problem is that the two companies are highly likely to face conflicts of interest amid the

rapidly evolving smartphone and AP markets.

1) Design capabilities

and intellectual

properties

2) Differences in

design/production

methods

3) Cost and profitability

issues



Figure 28. Difference of semiconductor transistor manufacturing methods: Gate First vs. Gate Last

Gate First Gate Last

Company IBM, SEC, Global Foundries, TI Intel, TSMC

Manufacturing processes Relatively simple Relatively complicated

Production cost Relatively low Relatively high

Power consumption Low High

Speed Low High

Chip size Relatively small Relatively big

Disadvantage Low speed, leakage current Big chip size, high cost, high power consumption Source: KDB Daewoo Securities Research

Intel plans to launch the new Ivy Bridge CPU in 2012, which is based on the 3D Tri-Gate

system (3D fin structure). The Tri-Gate technology improves upon the 2D transistor

architecture that Fairchild developed in 1959; the new technology is based on 3D

architecture and consumes half the power. However, Intel is unlikely to enter the AP market

until 2013, the same year that the chip maker is expected to release a Haswell CPU (power

consumption should be similar to that of APs (0.5W)).

Figure 29. IntelÊs Tick-Tock strategy, micro-process conversion and transistor design change

Figure 30. Characteristics of Intel Ivy Bridge: 3D Tri Gate (fin structure)

Source: Intel

Intel unlikely to enter the

AP market until 2013



LTE smartphones to continue to adopt Qualcomm’s AP for the time being

Why did the recently released Galaxy S2 LTE and Galaxy Note have to adopt QualcommÊs

Snapdragon AP, instead of SECÊs Exynos AP?

Smartphones need to use one of QualcommÊs baseband processors (BPs), such as the

MDM 9600 or the MDM 9200, to offer 4G LTE services. These BPs should be coupled with

the Snapdragon AP to enable voice communication. If SEC adopts its Exynos AP, the

company would have to use both 3G BPs and LTE BPs, requiring three chips (one AP plus

two BPs).

As such, the Galaxy S2 LTE adopts a combination of QualcommÊs APs and BPs: 1) MSM

9200 + APQ 8060 for SKT and KT; and 2) MDM 9600 + MSM 8660 for LGU+. LTE

smartphone makers will likely have to continue to use QualcommÊs APs for the time being,

as Qualcomm is not expected to launch a BP (MDM 9615) that enables voice

communication without QualcommÊs AP until 2Q12. Qualcomm plans to mass produce

MDM 9615 processors via TSMC based on the 28nm HKMG process technology.

The Snapdragon S3 AP (with in-order architecture), which the Galaxy Note recently adopted,

displays some weaknesses, namely 1) slower processing speed during multi-tasking and 2)

relatively low data processing capability (DMIPS/Mhz).

Figure 31. QualcommÊs baseband chip MDM 9600: 3G(w/o voice support), 4G LTE simultaneous support

Source: TechRepublic

Figure 32. QualcommÊs LTE modem road map: MDM 9615 (3G voice support) slated for 2Q12

Source: AnandTech

Snapdragon will remain

in use for now



III. Memory market outlook

1. Memory market growth to be led by NAND demand from 2012

In September 2011, global NAND shipments surpassed DRAM shipments for the first time

in history, driven by: 1) steady declines in DRAM prices (as in 2H08), but more importantly,

2) surging NAND demand amid the ongoing mobile revolution. Indeed, monthly NAND

shipments averaged around US$1bn before 2009, but have increased to US$2bn in 2010.

In 2012, we expect the NAND market to grow from just half the size of the DRAM market

(US$40bn) last year to reach US$34bn (the flash memory market is forecast at US$40bn),

while the DRAM market remains stagnant at US$33bn. In 2015, the NAND market is

anticipated to grow to US$50bn, while the DRAM market continues to remain at US$40bn.

Figure 33. Global monthly DRAM & NAND shipments trend


Figure 34. NAND market size will exceed that of DRAM starting from 2012


NAND market picks up

full swing

NAND demand to start

to exceed DRAM

demand in 2012

0.0

1.0

2.0

3.0

4.0

05 06 07 08 09 10 11F

Monthly DRAM shipments

Monthly Flash shipments

(US$bn)

0

10

20

30

40

50

60

05 07 09 11F 13F 15F

Annual DRAM shipments

Annual NAND shipments

(US$bn)

NAND market to exceed

DRAM market from 2012

Mobile and PC(SSD) demand

to drive NAND market



2. Smartphones and PCs (SSD) to drive NAND demand

We expect the NAND market to grow full swing beginning in 2012, boosted by demand

from smartphones and PCs (SSD). SSDs should significantly impact NAND demand in terms

of memory content (128GB and 256GB).

1) We expect the smartphone market to grow from 450mn units this year to 680mn units

next year. Handsets, including smartphones, already account for 50% of total NAND

demand. Assuming NAND requirement per smartphone at 18GB, the smartphone NAND

market should grow to roughly 12.5bn GB in 2012, taking up 33% of total NAND demand of

35bn GB.

2) In 2011, 15% of NAND demand came from SSDs. In 2012, the SSD market is forecast to

expand to approximately 8.7bn GB (25% of total NAND demand), driven by 1) the growth of

the tablet PC market (2012F of 110mn units), and 2) rising demand from notebooks including

ultra PCs. The outlook for SSDs in 2012 is further boosted by the fact that 32Gb (4GB) is

priced at only US$3.50, and many PC makers plan to release ultra PC models.

Figure 35. Annual NAND market revenues and shipments trends and forecasts

Source: WSTS, Gartner, IDC, KDB Daewoo Securities Research estimates

Figure 36. Handset NAND demand trend and forecast

Source: Gartner, IDC, KDB Daewoo Securities Research estimates

Smartphones to account

for over 30% of total

NAND demand

SSD NAND demand to

surpass 10TB after 2012

25

11

19

30

43

63

31 32

38

455352

46

0

20

40

60

80

100

09 10 11F 12F 13F 14F 15F

0

10

20

30

40

50

60Global NAND demand from handsets (L)

Handset portion of NAND demand (R)

(1GB Eq. bn units) (%)

11F Global smartphone

shipments → 450mn units

12F Global smartphone

shipments → 680mn units

0 1 2 4 6 1121

36

65

113

198

24

51

45

40

34

22

15

1215

1211

0

10

20

30

40

50

60

05 07 09 11F 13F 15F

0

40

80

120

160

200

240Annual NAND shipments in revenue (L)

Annual NAND shipments in GB (R)

(US$bn) (bn GB)



Figure 37. SSD NAND demand trend and forecast


Table 8. Ultrabook specifications by maker

Company Apple Acer Toshiba HP

Product MacBook Air Aspire S3 Portege Z830 Folio 13

Model

CPU 1.6GHz Dual-core Intel Core i5 1.6GHz Intel Core i5-2467M 1.6GHz Intel Core i5-2467M 1.6GHz Intel Core i5-2467M

Display 11.6" LED Backlit 13.3" HD LED Backlit TFT-LCD 13.3" HD LED Backlit 13.3" LED Backlit TFT-LCD

RAM 2GB/4GB DDR3 4GB DDR3 4GB DDR3 4GB DDR3

Sotrage 64GB 20GB SSD + 320GB HDD 128GB SSD 128GB SSD

Size (WxDxH) 300x192x17mm 323x218.5x17.5mm 316x227x15.9mm 318.5x220x18mm

Weight 1.08 Kg 1.35kg 1.09 Kg 1.49kg

Battery 5H 6H 8H 9H

Price $999~$1199 $899 $1,000 $1,049.99

Release date 7/11 12/11 12/11 12/11

Source: Company data, KDB Daewoo Securities Research

Figure 38. Typical UltrabookÊs BoM (Bill of materials) Figure 39. AcerÊs Ultrabook: Aspire S3

Source: IDC, KDB Daewoo Securities Research Source: Engadget.com

0 14

9

18

42

79

8

10

18

2527

36

38

0

20

40

60

80

100

09 10 11F 12F 13F 14F 15F

0

10

20

30

40NAND demand from SSD (L)

SSD portion of NAND demand (R)

(%)(1GB Eq, bn units)

Panel9%

CPU22%

SSD24%

Battery6%

Memory3%

ME5%

EE10%

PS9%

Casomg5%

Others7%



3. NAND supply may tighten after 2Q12 due to limited capacity growth

NAND capacity expansion plans in 2012 include: 1) SECÊs new Line 16, 2) ToshibaÊs new Fab

5 line, and 3) HynixÊs line M11 expansion and new M12 line. SEC will convert its Line 14 in

Giheung to an AP line as part of its plan to allocate all fabs in Giheung to the System LSI unit.

Considering limited capacity expansion, global NAND capacity growth should come in at

16%, shy of our estimate.

SECÊs planned investments in China can also impact NAND supply outlook over the mid- to

long-term. However, ChinaÊs new semiconductor fab is unlikely to affect NAND supply in

2012 if operation starts in 2013.

NAND supply bit growth may fall below 70% if capacity growth comes in less than 20%. As

such, although NAND prices are falling due to weakening memory card demand, supply will

likely tighten after 2Q12. Embedded NAND demand from smartphones pushes NAND prices

higher, and thus, it may negatively affect NAND demand growth from SSDs. However, if

ultra PC demand (SSD) rises stronger than expected, NAND prices may increase. Moreover,

disruptions in HDD production should be positive for SSD demand.

Figure 40. NAND capacity growth trend and forecast

Source: Company data, KDB Daewoo Securities Research estimates

Figure 41. NAND demand and supply bit growth rate trends and forecasts


Capacity growth forecast

at 16% in 2012

SECÊs Chinese fab to

have mid- to long-term

effect on NAND supply

NAND supply bit growth

likely to fall shy of 70%

93

3630

13

26

16

-80.0

0.3

0.6

0.9

1.2

1.5

06 07 08 09 10 11F 12F

(mn wpm)

-20

0

20

40

60

80

100Global NAND capacity (L) % YoY (R)

2012 NAND capacity growth rate

to fall below 20% YoY

(%)

212

171

117

6276

8370

227

160

131

42

7784

67

0

50

100

150

200

250

06 07 08 09 10 11F 12F

NAND demand bit growth

NAND supply bit growth

(%)

2012 NAND demand bit growth

to exceed supply bit growth



4. [DRAM competitiveness] Competitiveness gap widened during down-cycle

One of the most notable trends of the current down-cycle has been the widening

competitiveness gap among DRAM makers. In terms of EBITDA margin, the divergence

between domestic and foreign makers is especially pronounced: in 3Q11, Hynix posted 27%

vs. -19.2% and -70.5% for Elpida and Nanya, respectively. The largest drivers behind this

gap have been differences in 1) product mix and 2) process capabilities.

Despite their recent efforts to raise capital via rights issues, we believe Taiwanese DRAM

makers (Nanya Technology, Powerchip, etc.) are unlikely to regain their competitiveness. For

example, after exhausting almost all of its cash, Nanya raised NT$30bn from its parent group

Formosa through a rights offering. Still, the company reported an EBIDTA loss of NT$5bn in

3Q11.

Furthermore, the adoption of extreme ultra violet (EUV) equipment from 2013 should

present another challenge for Taiwanese DRAM makers in repairing their competitiveness.

Figure 42. EBITDA margin trend and forecasts of main DRAM makers


Figure 43. Cashable assets trend of main DRAM makers

Source: Company data, IDC, KDB Daewoo Securities Research estimates

EBITDA margin gap

between leaders and

laggards has dramatically

widened

Unlikely to regain

competitiveness via

rights issues

Adoption of EUV

equipments presents

another threat

-150

-100

-50

0

50

100

06 07 08 09 10 11F 12F

SEC

Hynix

Elpida

Nanya

Powerchip

(%)

Gap between top-tier DRAM makers

and others is widening during severe

downcycle

0.0

1.0

2.0

3.0

4.0

1Q06 1Q07 1Q08 1Q09 1Q10 1Q11

Hynix Elpida Micron Nanya

PSC Inotera

(US$bn)

Taiwanese DRAM makers suffering financial

difficulties due to lack of cash



5. [DRAM demand] PC demand to enter low growth cycle

We believe the full-fledged growth of smart devices will mean weak growth for PCs. We

expect average PC demand growth (CAGR) to moderate to almost zero from roughly 10% in

previous years. We see 5% growth during up-cycles and -5% growth during down-cycles.

Tablet PCs have an advantage over traditional laptops in many aspects, such as web

browsing, app execution and document viewing. Thus, rather than replacing traditional

laptop demand, we believe tablet PCs are partially absorbing demand for traditional PCs.

Thus, if tablet PC shipments (65mn units in 2011F) are considered as PC consumption, the

PC market could be seen as having grown over 10% this year. However, the problem is that

traditional PCs use PC DRAMs (4GB) while tablet PCs are based on mobile DRAMs (1GB).

Therefore, stronger demand for tablet PCs is ultimately bad news for PC DRAM demand.

In addition, we believe the early stages of the cloud computing cycle will have a positive

impact on NAND (which are used in serversÊ solid state drives) but a negative impact on PC

DRAM content growth.

Figure 44. Annual DRAM revenues & shipments trends and forecasts

Source: WSTS, Gartner, IDC, KDB Daewoo Securities Research estimates

Figure 45. Annual PC shipments (excl. tablet PC) trend and forecast Figure 46. Annual shipments and forecasts by PC type

Source: Gartner, IDC, KDB Daewoo Securities Research Source: Gartner, IDC, KDB Daewoo Securities Research

PC industry to enter low

growth cycle

Stronger demand for

tablet PCs is bad news

for PC DRAM demand

0.2 0.4 0.71.1 1.3

1.92.7

3.9

6.0

9.0

13.1

2622

39 414038

3330

24

3134

0

10

20

30

40

50

05 07 09 11F 13F 15F

0

3

6

9

12

15Annual DRAM shipments in GB (R)

Annual DRAM shipments in revenue (L)

(US$bn) (bn GB)

302

347366

386 389416

348

0

100

200

300

400

500

00 02 04 06 08 10 12F 14F

-5

0

5

10

15

20

Global PC shipments (L, excl. Tablet PC) % YoY (R)(mn units) (%)

0

50

100

150

200

250

300

08 09 10 11F 12F 13F 14F

Desktop

Notebook

Mini NB

Media Tablet

(mn units)

Global media tablet PC shipments

to exceed notebook shipments after 2014



6. [DRAM demand] Release of Ivy Bridge and Windows 8 to have limited impact

In 2012, we see several drivers that could revive demand for traditional PCs: 1) the release

of IntelÊs Ivy Bridge processors, 2) launch of MicrosoftÊs Windows 8 and 3) slim (less than

0.8 inches) and lightweight (less than 1.4kg) ultrabooks that adopt solid state drives (SSD). In

particular, we could see joint marketing of Ivy Bridge and Windows 8 from the „Wintel‰

camp.

However, we have already entered the second stage of the mobile revolution. Although the

positive drivers mentioned above could support a relatively solid growth of 5%~10% in

traditional PC demand for 2012, we do not expect growth of over 10%~15% as seen in the

past.

Still, we do see the three drivers having a positive impact in some other aspects.

1) Since Ivy Bridge can be embedded with low-power DDR3 (mobile DRAM), it is likely to

have a positive impact on mobile DRAM demand, especially after the release of IntelÊs

Haswell CPU in 2013.

2) The new Windows 8 features faster booting (8 seconds), a new user interface (Metro) and

a scalable OS (cloud computing). We believe its interoperability will allow for the increased

adoption of ARM-based CPUs (in turn, siphoning off demand for Intel CPUs) going forward.

3) Although price is the biggest determinant of ultrabook demand, its form factor

requirements should clearly have a positive impact on SSD demand.

Figure 47. IntelÊs CPU road map for the next 2 years

Source: Intel

Figure 48. 3D Tri Gate to be installed on Ivy Bridge in 2012


Three major drivers of

the 2012 PC market

Release of Ivy Bridge is

positive to mobile

DRAM demand

Windows 8 to allow for

widespread adoption of

ARM-based CPUs

Ultrabooks to boost SSD

demand



Figure 49. Ultrabook platform with the possibility of mobile DRAM adoption


Figure 50. UI (Metro) change of Windows 8


Figure 51. 64x ARM based CPU – Denver Project of NVIDIA




7. DRAM supply/demand conditions to gradually improve from 1Q12

The DRAM market is unlikely to experience supply growth arising from capacity expansion in

2012. As such, DRAM supply bit growth is expected to hinge on 1) DRAM makersÊ

production cuts, 2) a rise in efficiency resulting from process migration, and 3) changes in

product mix.

Under the conventional supply/demand model, overall demand bit growth (which is

estimated by combining a variety of demand sources, including PC and mobile DRAMs) is

compared to supply bit growth. However, this model is inadequate to interpret recent

structural changes in the DRAM market, as bit growths should vary by demand source. In

2012, overall DRAM demand bit growth is expected to reach around 40%, while PC DRAM

demand bit growth will likely remain under 30%, and that of mobile DRAM should exceed

90%.

Figure 52. Annual PC DRAM and mobile DRAM bit growth rate trend and forecasts


In 2012, mobile DRAM sales will account for a larger portion of total DRAM sales at top-tier

makers, according to our forecasts. If the percentage of mobile DRAM demand out of total

DRAM demand rises above 25% during the year, the sales contribution of mobile DRAM at

top-tier makers will likely reach 30~40%. Such a change could also be considered a form of

reduction in PC DRAM production.

PC DRAM contract price has recently fallen below US$0.90. The contract price is expected

to bottom at around US$0.80, given that production cuts at second-tier DRAM makers

should take effect from 1Q12. Rising spot prices appear solely attributable to restocking at

module makers, rather than a rise in actual demand. Furthermore, the DRAM market is

unlikely to see a pickup in the near-term, in our view.

DRAM supply bit growth

to be limited in 2012

PC DRAM demand bit

growth to remain under

30%

PC DRAM contract price

to bottom at around

US$0.80 in 1Q12

55 58

27

43

32 33

45

70

36

63

132

9286

47

31

43 41 43

0

25

50

75

100

125

150

07 08 09 10 11F 12F

(%)

PC DRAM demand bit growth

Mobile DRAM demand bit growth

Total DRAM demand bit growth

Mobile DRAM to lead the growth



IV. Issue analysis: Migration to 1Xnm process

1. New lithography equipment to be introduced with migration to 1Xnm process

Major chipmakers, such as SEC, Toshiba and Hynix, plan to start mass production using

1Xnm process technology from 4Q12. Migration to the 1Xnm technology will likely bring

about significant changes in design, equipment, and materials. In particular, it is necessary to

replace the existing ArF immersion lithography equipment with extreme ultra violet (EUV)

lithography equipment.

Figure 53. Process migration trend and forecast of global DRAM makers

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F

SEC 35nm 28 nm 1X nm

Hynix 44nm 38nm 28 nm

Elpida 65nm XS

40nm 30nm 25nm

Micron 50nm 42nm 30nm

Powerch

ip

65nm

XS 40nm 30nm

Rexchip 65nm XS

40nm 30nm 25nm

Nanya 50nm 42nm 30nm

Inotera 50nm 42nm 30nm


Figure 54. Process migration trend and forecast of global NAND makers

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F

SEC 27nm 21nm 16nm

Toshiba 24nm 19 nm 15 nm

IMFT 25nm 19nm 15 nm

Hynix 32nm 26nm 20nm 15 nm


Figure 55. Lithography equipment roadmap by process migration and light wavelength

Source: ArF

Migration to 1Xnm

process to spur demand

for EUV equipment



2. Introduction of EUV lithography equipment may trigger restructuring

According to the Rayleigh equation, the resolution (R) of the ArF immersion lithography can

be expressed as R = k1 * λ / NA = 0.25 * 193 nm / 1.35 = 35.7 nm, where k1 is the Rayleigh

constant, λ is the imaging wave length, and NA is the numerical aperture. As such, a line

width of less than 20nm will be enabled, only if additional processes, including double

patterning, are added to ArF immersion.

However, such additional processes may lower yields, leading to higher costs. In order to

address this issue, a new type of lithography equipment needs to be introduced. The new

EUV lithography enables R = k1 * / NA = 0.25 * λ 13.5 nm / 0.25 = 13.5 nm by dramatically

reducing the wave length despite a lower numerical aperture of 0.25.

The only EUV lithography equipment maker in the world is the Netherlands-based ASML.

ASML plans to commercially produce EUV lithography equipment from 3Q12. The price of

NXE 3100, a pilot EUV model, stands at EUR42mn/unit (around W64bn/unit). The price of

commercially produced EUV lithography equipment is expected to reach as much as

W100~150bn/unit.

Therefore, the introduction of EUV lithography equipment is likely to trigger restructuring at

Taiwanese DRAM makers after 2013, in light of 1) high costs, 2) the limited number of

suppliers, and 3) the long delivery time (more than 10 months).

Figure 56. Development of semiconductor optical equipment and theoretical resolution

Source: Industry data, KDB Daewoo Securities Research

EUV lithography is

essential to overcome

the limitation of

resolution

Introduction of EUV

lithography equipment to

trigger restructuring at

Taiwanese DRAM

makers



Figure 57. EUV lithography equipment (NXE3300) and operating principles

Source: Industry equipment

Figure 58. ASML EUV lithography equipment (EXE3300) and production road map

Source: ASML



3. NAND design to evolve to 3D method

Even after migration to 1Xnm process, the memory market is expected to face the

limitations of process migration once again. Contrary to widely held view, next-generation

memories, including PRAM and MRAM, are unlikely to entirely replace existing chips. The

existing NAND and DRAM markets are forecast to enter another phase of growth after 2014

based on the 3D cell design and HMC (hybrid memory cube) technologies, respectively.

Major NAND producers have continued to develop 3D design technology since 2007.

Toshiba presented its Bit- BiCS (bit-cost scalable) 3D cell technology at the Symposium on

VLSI Technology in 2007. In 2009, the company presented a more advanced P-BiCS (pipe-

shaped BiCS) technology. The technology creates a U-pipe-shaped hole inside the

architecture by vertically stacking up memory cells that are composed of memory film and Si

electrodes, etc.

Meanwhile, SEC pointed out some drawbacks of ToshibaÊs technology and unveiled 1) VG

(vertical gate)-NAND technology (with horizontal cell array) and 2) TCAT (terra-bit cell array

transistor) technology (with vertical cell array) at the same time. Unlike BiCS, SECÊs TCAT

forms oxide films, metal electrodes, etc, on the outside of cylindrical Si electrodes. We

expect competition for mass-production based on the 3D technology after 2014 to

determine the future of the NAND market.

Figure 59. Introduction of 3D NAND design technology under 10nm

Source: Nikkei Electronics

Figure 60. 3D NAND design technology of main NAND makers

Source: Applied Material

New memory era to

begin after 2014

ToshibaÊs 3D cell

technology

SEC is expected to lead

3D technology after

2014



4. DRAM modules to evolve to HMC

3D technologies for DRAM are expected to advance dramatically in the areas other than

design and process. Despite an increase in the number of cores in the CPU and AP, the

current DIMM has little room for accommodating ever-expanding memory bandwidth.

Accordingly, SEC and Micron are making efforts to sharply expand bandwidth with HMC,

which stacks individual chips.

HMC stacks a number of DRAM chips atop a logic chip, and connects them with the 3D TSV

(through silicon via) technology. Thus, the architecture 1) uses nearly 90% less physical

space, 2) provides much wider bandwidth (over 1Tb/s, 10~15 times wider than the one

provided by DDR3 modules), and 3) reduces electricity consumption by over 70%. In

addition, HMC could prevent memory overload resulting from an increase in the number of

cores by connecting each core in the CPU with memory.

Figure 61. Key map of HMC (Hybrid Memory Cube) and prototype installed on PCB

Source: Micron

Figure 62. Comparison of module, HMC shape and power consumption under same bandwidth (160GB/s)

Source: Micron

DRAM modules to

advance dramatically

through HMC

Advantages of HMC:

less space, wider

bandwidth, and lower

electricity consumption



V. Investment strategy and valuation

1. SEC: “Short Intel and long SEC” over the mid- to long-term

Since the global semiconductor market is expected to shift from CPUs to APs, SEC is

highly likely to overtake the reign of market leader from Intel over the mid- to long-term.

Taking into account the outlooks for the CPU, AP, and memory markets, we project the

SEC-led AP and memory markets (AP market share of 50%; memory market share of

40%) to outstrip the Intel-dominated CPU market after 2013.

SECÊs 2011 semiconductor revenues are projected at US$410bn, below that of Intel

(US$550bn). However, in 2014 and beyond, SECÊs semiconductor revenues are forecast to

exceed IntelÊs. Although this seismic shift is still several years away, it should be noted

that the winds have already begun to change on the back of the mobile revolution. In short,

the shift from CPUs to APs should bring about a leadership change from Intel to SEC.

While our strategy before SEC took the lead in the smartphone market was to „short Apple

and long SEC‰, which proved successful, we now suggest to „short Intel and long SEC‰,

given the strong mid- to long-term prospects of the AP market and SECÊs advantageous

position.

Table 9. Revenue trend and forecast of Intel & SEC based on CPU, AP and memory market trend

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

CPU 35 33 34 33 32 35 39 41 40 38 36

AP 1 1 2 2 3 5 8 14 19 28 38

Memory 49 58 58 46 45 70 63 76 78 85 92

Ap*50%+Memory40% 20 24 24 20 19 30 29 38 41 48 56

Intel 39 35 38 38 35 44 55 58 55 55 55

Samsung Electronics 16 18 25 28 31 41 41 50 52 56 62

Note: 10% discount from our forecasts towards memory market size after 2013

Source: WSTS, Gartner, Bloomberg, company data, KDB Daewoo Securities Research

Figure 63. Trend and forecast of CPU, AP market, and the revenues of Intel and SECÊs semicon segment

Source: Company data, Bloomberg, KDB Daewoo Securities Research estimates

A hegemonic shift

expected in the global

semiconductor industry

SECÊs mid- to long-term

outlook is bright

Recommend to „short

Apple and long SEC‰

0

20

40

60

80

05 07 09 11F 13F 15F

CPU market shipments

AP shipments x 50% + memory shipments x 40%

Intel's revenues

SEC semicon unit's revenues

(US$bn)

CPU vs. AP

→ Intel vs. SEC



2. Hynix Semiconductor: Beneficiary of growing mobile demand

We are paying close attention to HynixÊs efforts to improve its product portfolio. The

company is expected to change its portfolio (currently focused on PC DRAM) so as to

benefit from growing mobile demand. The companyÊs fundamentals are likely to improve

if: 1) its NAND capacity expands, 2) its proportion of mobile DRAM sales increases, and 3)

its sales to Apple increase.

In 2012 and beyond, Hynix should be able to aggressively expand its capex on the back of

increased capital (resulting from SK TelecomÊs acquisition of the company and its W2.3tr

rights offering). The companyÊs NAND capacity (120,000 units per month) is currently

equivalent to only one-third of its DRAM capacity (300,000 units per month), but this figure is

likely to expand to 50% by end-2012 and to 100% by end-2013.

It should be noted that SECÊs strong smartphone shipments are unlikely to directly affect

demand for HynixÊs mobile DRAM, because HynixÊs major mobile DRAM customers are

Apple and Nokia. We project the company to sharply expand sales of mobile DRAMs based

on 38nm process to major customers in 1H12, which should provide significant momentum

to its DRAM unit.

As such, we advise investors to base their investment decisions on the following:

smartphone and non-memory segment growth for SEC, and improvements in memory

market fundamentals for Hynix, which shows obvious differences between SEC and Hynix.

Figure 64. HynixÊs capex trend and forecast

Figure 65. HynixÊs DRAM and NAND capacity trends and forecasts


NAND capacity

expansion through

aggressive capex

Mobile DRAM and

increased supply to

Apple to provide

significant momentum

5.4 5.1

2.3

1.3

3.13.4

4.35.0 5.0

5.5

-4

-2

0

2

4

6

8

10

06 07 08 09 10 11F 12F 13F 14F 15F

EBITDA - Capex

EBITDA

Capex Fundamentals improved since 2009

Capex falls below EBITDA

FCF turns positive → Financial health continues to improve

(Wtr)

0

100

200

300

400

06 07 08 09 10 11F 12F

DRAM Capacity

NAND Capacity

(12" Eq. '000 sheets/month)

NAND capacity to expand

full swing from 2012

(M12)



3. Equipment segment: Focus on capex expansion in 2012

In 2012, SEC is expected to significantly increase its semiconductor capex. We estimate

the companyÊs 2012 semiconductor capex at W15tr (W7tr for memory; W8tr for non-

memory). Hynix also plans to ramp up its new M12 line in 2012. SEC and LG DisplayÊs

expected AMOLED investments should benefit related equipment makers. As such,

equipment makers are projected to generate order momentum and receive a valuation

premium in 1H12.

We recommend Eugene Technology, as: 1) demand for single low-pressure-chemical-vapor-

deposition equipment (the companyÊs flagship product) is steadily growing from both

memory and non-memory lines, 2) the company is supplying its equipment to both SEC and

Hynix (thanks to its global competitiveness), and 3) sales of cyclic chemical vapor deposition

equipment (a new product) are on the rise. Eugene currently appears undervalued, trading at

a 2012F P/E of less than 9x.

Table 10. SEC capex trend and forecast by segment (Wbn, %)

2006 2007 2008 2009 2010 2011F 2012F

Capex Total 10.0 8.5 9.5 7.0 19.8 22.8 26.2

Semi 6.6 6.3 5.3 3.9 12.3 10.5 15.0

LCD 2.5 1.3 3.2 2.0 6.0 9.0 8.5

Telecom 0.2 0.2 0.2 0.2 0.3 0.7 0.7

DM&A 0.6 0.7 0.8 0.8 1.1 2.6 2.0

Portion Semi 66% 75% 56% 56% 68% 45% 47%

LCD 25% 15% 34% 29% 24% 40% 38%

Telecom 2% 2% 2% 3% 2% 3% 3%

DM&A 6% 8% 8% 12% 6% 11% 12%

% YoY Total -14.9% 12.0% -26.2% 182.3% 15.2% 15.0%

Semi -3.9% -16.7% -26.0% 215.4% -15.0% 43.1%

LCD -49.8% 152.0% -36.5% 195.3% 50.0% -5.6%

Telecom -5.0% 10.0% 0.8% 61.8% 100.0% -2.0%

DM&A 8.1% 19.1% 6.2% 27.8% 140.0% -23.0%


Table 11. Valuation of global semiconductor front-end processors (Wbn, %, x)

Revenues Operating profit Net profit P/E P/B ROE EV/EBITDA Company

Market cap. 11F 12F 11F 12F 11F 12F 11F 12F 11F 12F 11F 12F 11F 12F

Wonik IPS 660 302 468 36 68 39 65 17.0 10.3 3.3 2.6 11.5 21.7 14.6 9.0

Jusung Engineering 383 357 447 18 27 16 21 24.0 17.6 1.5 1.4 6.4 8.1 19.3 14.5

Eugene Technology 297 129 174 29 39 26 36 11.8 8.5 4.4 2.9 42.0 38.8 7.5 5.4

Kukje Electronics 173 171 202 24 32 19 25 8.9 6.9 - - 29.8 32.9 5.4 5.4

Tes 73 88 119 8 13 7 10 10.4 7.4 1.2 1.0 13.0 15.5 - -

AMAT 15,408 10,197 11,155 1,523 2,309 1,130 1,683 13.5 9.0 1.4 1.3 11.7 16.0 6.8 4.5

TEL 10,698 9,345 9,415 844 901 581 599 18.5 17.7 1.2 1.1 6.7 6.8 8.6 8.4

NOVELLUS 3,150 1,558 1,424 334 257 281 202 13.3 15.0 2.9 2.3 21.9 17.8 6.9 9.5

AIXTRON 1,421 926 624 268 166 176 84 8.1 14.7 1.4 1.3 18.3 7.6 3.1 5.3

HITACHI KOKUSAI 982 2,086 2,119 106 109 76 71 12.8 13.1 0.9 0.8 7.6 7.1 6.0 5.9

VEECO 956 1,137 734 312 110 222 86 4.6 11.5 1.1 0.9 21.7 8.6 1.4 2.1

Source: Thomson Reuters, Bloomberg, KDB Daewoo Research estimates

Equipment makers to

benefit from SECÊs

increased investments in

1H12

Top pick: Eugene

Technology (084370

KQ/Buy/TP: W30,000)



4. Parts segment: Fundamentals improving at back-end processors

Shares of packaging service providers (e.g., Signetics, STS Semiconductor, Hana Micron,

and Nepes) as well as those of memory module/printed circuit board (PCB) producers (e.g.,

Simmtech) have fluctuated significantly throughout 2011. However, overall, investor

sentiment for back-end processors has improved considerably as they are no longer deeply

undervalued as in 2009.

We believe that the fundamentals of back-end processors should continue to improve after

2012, aided by: 1) growing demand for multi-chip packaging (MCP) or wafer-level packaging

(WLP), 2) new PCB demand growth (e.g., from manufacturers of solid-state drives), and 3)

product mix improvement owing to increases in sales of high-margin products (e.g., flip-chip

chip-scale packaging).

In this segment, we prefer Nepes and Simmtech. Nepes is expected to be re-rated on the

back of the growth of the smart device market, which leads to greater sales of APs (to SEC

and Apple) that require NepesÊ WLP. Simmtech appears deeply undervalued (2012F P/E of

7.5x), considering its strong market share in the memory module PCB/BOC segment and its

product mix improvement.

Table 12. Valuation of global back-end processors (Wbn, %, x)

Revenues Operating profit Net profit P/E P/B ROE EV/EBITDA Company Market cap.

11F 12F 11F 12F 11F 12F 11F 12F 11F 12F 11F 12F 11F 12F

Daeduck

Electronics 527.0 2,319.4 2,464.9 181.6 248.9 181.8 215.4 17.2 14.5 1.4 1.3 7.8 8.6 5.5 5.0

STS

Semiconductor 410.9 442.4 562.1 31.1 43.6 18.9 35.7 20.0 10.8 2.0 1.7 11.7 17.4 11.7 8.8

Nepes 346.0 219.2 259.0 22.5 32.2 18.9 36.3 19.1 9.9 2.2 1.8 11.7 19.6 9.7 7.4

Simmtech 341.0 598.5 660.3 61.4 70.3 42.8 52.3 8.4 7.5 2.0 1.8 27.2 25.8 4.8 3.8

Signetics 325.8 292.5 380.1 29.6 44.0 24.7 38.4 13.7 8.9 2.0 1.6 15.8 20.7 7.9 5.3

Hana Micron 236.0 302.2 370.9 21.5 27.5 16.2 24.6 13.2 8.7 1.5 1.3 12.6 14.5 6.9 6.6

ASE 6,803 6,890 7,253 676 762 558 615 11.5 10.7 1.7 1.5 14.8 14.8 5.6 5.0

SPIL 3,127 2,325 2,480 189 233 182 214 17.2 14.7 1.4 1.3 7.9 9.5 5.2 4.6

PTI 2,024 1,506 1,585 283 304 249 264 8.0 7.5 1.4 1.3 18.5 18.6 3.5 2.9

Amkor 891 3,223 3,252 218 258 112 159 10.9 5.8 1.1 0.9 12.8 17.4 3.2 3.2

Chipbond 725 499 525 78.8 86.7 65.4 72.3 11.1 10.2 1.2 1.1 11.0 10.3 4.4 4.1

Source: Thomson Reuters, Bloomberg, KDB Daewoo Research estimates

Figure 66. Share price trend of Korean back-end processors Figure 67. Share price trend of global back-end processors

Source: Thomson Reuters, KDB Daewoo Research Source: Thomson Reuters, KDB Daewoo Research

Improved investor

sentiment for back-end

processors

Focus on mid- to long-

term growth drivers

Top picks: Nepes and

Simmtech

60

90

120

150

180

210

240

270

1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11

Nepes Hana Micron

STS Semi Simmtech

Daeduk Elec.

(1/1/10=100)

30

60

90

120

150

180

210

1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11

ASE PTI

Amkor SPIL

Chipbond

(1/1/10=100)



Samsung Electronics (005930 KS)

Undisputable global leader

Global smartphone leadership to continue with 4Q shipments reaching 34mn units

Aggressive non-memory investments to keep global M/S above 50% in 2012

2012F revenues of W183tr (up 13.6% YoY) and OP of W21tr (up 31.3% YoY)

We reiterate our Buy call on Samsung Electronics (SEC) with a target price of

W1,300,000 (a 2012F P/B of 2.0x and a 2012F EV/EBITDA of 4.9x).

Samsung Electronics (SEC) continues to solidify its leadership position in the

global market. After overtaking Apple as the worldÊs largest smartphone vendor in

3Q, we expect SECÊs smartphone shipments to remain strong at 34mn units in 4Q.

Furthermore, SEC sells a whopping 90mn mobile phones (including smartphones)

per quarter. Meanwhile, its product mix has continued to shift towards

smartphones on the back of strong marketing.

Thus, given SECÊs leadership in the global smartphone market, the growth of its

smartphone business is likely to lead to the growth of the companyÊs AP, mobile

DRAM, NAND, and AMOLED businesses. SECÊs remarkable growth story has only

just begun: after outstripping Apple, we believe the company will eventually

dethrone Intel in the mid- to long-term. This, combined with a low valuation,

should prompt investors to follow SEC closely.

SEC has set itself apart from other large domestic IT companies. 1) In terms of

smartphone shipments, SEC is far ahead of LG Electronics. 2) Compared to Hynix,

SEC can take advantage of its rapidly growing AP business and strong internal

demand for mobile memory. 3) SECÊs AMOLED business has strong earnings

potential in contrast to LG Display which is focused more on less-profitable LCDs.

Hence, we believe SEC is well positioned to maintain its leadership role.

We expect 4Q earnings to meet our expectations with revenues of W43tr (up 5.0%

QoQ; up 3.5% YoY) and an operating profit (released) of W5.2tr (up 22.0% QoQ; up

72.3% YoY). By business unit, we expect operating profits of W2.8tr for telecom,

W1.5tr for semiconductors, W123bn for displays, and W125bn for DM&A. We also

reflected non-operating profits of W700bn, including the sale of the HDD division

and the reversal of Microsoft royalty-related reserves, in our earnings estimates.

For 2012, we expect revenues of W183tr (up 13.6% YoY) and an operating profit

of W21.2tr (up 31.3% YoY). In particular, quarterly operating profits from 3Q12 are

projected to exceed W5tr, even after excluding non-operating profits. Thus, we

expect the companyÊs share price to gain stronger momentum.

Buy (Maintain)

Target Price (12M, W) 1,300,000

Share Price (12/29/11, W) 1,058,000

Expected Return (%) 22.9

EPS Growth (11F, %) -11.8

Market EPS Growth (11F, %) -0.4

P/E(11F, x) 12.9

Market P/E(11F, x) 10.0

KOSPI 1,825.74

Market Cap (Wbn) 155,843

Shares Outstanding (mn) 170

Avg Trading Volume (60D, Â000) 356

Avg Trading Value (60D, Wbn) 349

Dividend Yield (11F, %) 0.5

Free Float (%) 70.9

52-Week Low 672,000

52-Week High 1,084,000

Beta (12M, Daily Rate of Return) 0.9

Price Return Volatility (12M Daily, %, SD) 2.1

Foreign Ownership (%) 43.7

Major Shareholder(s)

K.H. Lee(17.59%)

Treasury stock (11.55%)

Price Performance

(%) 1M 6M 12M

Absolute 5.3 27.0 12.0

Relative 6.9 39.8 22.6

40

60

80

100

120

12/10 4/11 8/11 12/11

Share price

KOSPI

§ Earnings & Valuation Metrics FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA

(Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x)

12/09 138,994 11,578 8.3 9,650 56,717 22,737 10,360 15.5 14.1 2.1 5.5

12/10 154,630 17,297 11.2 15,799 92,863 28,015 -706 20.7 10.2 1.9 5.3

12/11F 161,047 16,144 10.0 13,941 81,943 28,624 5,726 15.1 12.9 1.9 5.6

12/12F 182,870 21,190 11.6 18,433 108,345 36,866 9,896 17.0 9.8 1.6 4.1

12/13F 210,330 23,099 11.0 20,792 122,209 37,974 7,748 16.4 8.7 1.4 3.9

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests



KDB Daewoo Securities Research 40

Table 13. SECÊs quarterly and annual earnings trends and forecasts (Wbn, %)

1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F 2013F

Revenues 36,985 39,439 41,274 43,349 41,718 44,458 48,275 48,419 154,630 161,047 182,870 210,330

% QoQ -11.7 6.6 4.7 5.0 -3.8 6.6 8.6 0.3

% YoY 6.8 4.1 2.6 3.5 12.8 12.7 17.0 11.7 13.4 4.1 13.6 15.0

Semiconductor 9,180 9,160 9,480 8,745 9,393 10,201 11,274 11,537 37,640 36,565 42,404 48,050

Memory 5,870 5,890 5,500 5,323 5,517 6,032 6,815 6,598 25,830 22,583 24,963 27,500

DRAM 3,611 3,675 2,855 2,784 2,922 3,421 3,773 4,040 16,352 12,925 14,157 14,000

NAND 2,678 2,642 2,600 2,539 2,595 2,611 3,042 2,558 9,423 10,459 10,806 13,500

Non-memory 2,320 2,490 2,800 3,220 3,703 4,073 4,481 4,929 6,500 10,830 17,186 21,050

DP 6,510 7,090 7,080 7,636 6,972 7,420 7,711 7,620 29,910 28,316 29,723 33,290

Telecom 10,640 12,180 14,900 16,586 16,146 17,188 18,237 17,742 41,190 54,306 69,312 80,402

DM&A 13,520 14,070 14,360 14,670 13,334 14,046 15,829 16,309 57,250 56,620 59,518 63,089

COGS 26,054 26,827 27,754 29,482 28,375 29,818 32,574 33,398 102,667 110,118 124,165 142,604

Gross profit 10,931 12,612 13,520 13,867 13,343 14,640 15,701 15,021 51,964 50,929 58,705 67,726

Gross margin 29.6 32.0 32.8 32.0 32.0 32.9 32.5 31.0 33.6 31.6 32.1 32.2

SG&A 8,135 8,960 9,160 9,377 8,632 9,344 9,775 9,815 35,342 35,631 37,565 45,228

SG&A margin 22.9 22.4 22.8 24.0 21.5 21.4 21.3 22.8 22.9 22.1 20.5 21.5

Operating profit (Adj.) 2,795 3,652 4,360 4,490 4,712 5,296 5,926 5,206 16,621 15,298 21,140 22,499

Non-operating profit 153 100 -107 700 150 100 -100 -100 676 846 50 600

Operating profit (Rpt.) 2,949 3,752 4,253 5,190 4,862 5,396 5,826 5,106 17,297 16,144 21,190 23,099

% QoQ -2.1 27.2 13.4 22.0 -6.3 11.0 8.0 -12.4

% YoY -33.1 -25.2 -12.6 72.3 64.9 43.8 37.0 -1.6 58.3 -6.7 31.3 9.0

Semiconductor 1,640 1,790 1,590 1,538 1,667 2,074 2,306 1,980 10,120 6,558 8,027 11,078

Memory 1,496 1,564 1,117 1,022 1,115 1,429 1,600 1,208 9,616 5,199 5,352 7,420

DRAM 949 1,057 601 414 530 773 866 839 7,408 3,021 3,007 3,640

NAND 830 743 721 768 751 838 939 567 3,276 3,062 3,094 3,780

Non-memory 209 274 420 483 518 611 672 739 554 1,386 2,541 3,158

DP -230 -210 -90 123 142 231 339 190 1,990 -407 901 1,664

Telecom 1,430 1,670 2,520 2,804 2,869 2,918 3,144 2,973 4,300 8,424 11,904 9,648

DM&A 100 510 240 125 133 174 238 163 450 975 709 379

OP margin 8.0 9.5 10.3 12.0 11.7 12.1 12.1 10.5 11.2 10.0 11.6 11.0

Semiconductor 17.9 19.5 16.8 17.6 17.7 20.3 20.5 17.2 26.9 17.9 18.9 19.2

Memory 25.5 26.6 20.3 19.2 20.2 23.7 23.5 18.3 37.2 23.0 21.4 27.0

DRAM 26.3 28.8 21.0 14.9 18.1 22.6 23.0 20.8 45.3 23.4 21.2 26.0

NAND 31.0 28.1 27.7 30.2 28.9 32.1 30.9 22.2 34.8 29.3 28.6 28.0

Non-memory 9.0 11.0 15.0 15.0 14.0 15.0 15.0 15.0 8.5 12.8 14.8 15.0

DP -3.5 -3.0 -1.3 1.6 2.0 3.1 4.4 2.5 6.7 -1.4 3.0 5.0

Telecom 13.4 13.7 16.9 16.9 17.8 17.0 17.2 16.8 10.4 15.5 17.2 12.0

DM&A 0.7 3.6 1.7 0.8 1.0 1.2 1.5 1.0 0.8 1.7 1.2 0.6

Net profit 2,715 3,457 3,300 4,469 3,980 4,549 4,916 4,988 15,799 13,941 18,433 20,792

% QoQ -17.7 27.3 -4.5 35.4 -10.9 14.3 8.1 1.5

% YoY -32.4 -17.2 -23.4 35.5 46.6 31.6 49.0 11.6 61.9 -11.8 32.2 12.8

Note: Consolidated K-IFRS basis




Table 14. Earnings forecast revisions (Wbn, %)

Previous Revised Diff.

11F 12F 11F 12F 11F 12F

Revenues 161,952 183,654 161,047 182,870 -0.6 -0.4

Operating profit 15,644 19,456 16,144 21,190 3.2 8.9

Net profit 13,152 16,980 13,941 18,433 6.0 8.6

OP margin 9.7 10.6 10.0 11.6

Net margin 8.1 9.2 8.7 10.1

Note: Consolidated K-IFRS basis, Source: KDB Daewoo Securities Research estimates

Table 15. Major assumptions by division (mn units, Â000 units, %, US$)

1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F

DRAM

Shipments (1Gb, mn units) 2,011 2,119 2,308 2,560 2,678 3,145 3,717 4,458 5,826 8,998 12,598

Bit growth (% QoQ, %YoY) 15.2 5.4 8.9 10.9 4.6 17.5 18.2 19.9 71.4 54.5 40.0

ASP (1Gb, US$) 1.8 1.8 1.5 1.3 1.3 1.2 1.2 1.1 2.6 1.5 1.1

%QoQ, %YoY -16.6 0.1 -18.1 -11.7 -2.4 -1.3 -4.0 -9.0 15.6 -42.4 -24.7

OP margin 24.5 28.5 13.6 10.1 13.6 18.7 19.4 17.5 40.2 20.2 17.5

NAND

Shipments (8Gb, mn units) 1,592 1,781 2,137 2,303 2,626 2,847 3,532 3,811 4,138 7,813 12,815

Bit growth (% QoQ, %YoY) 31.5 11.9 20.0 7.8 14.0 8.4 24.1 7.9 70.1 88.8 64.0

ASP (8Gb, US$) 1.5 1.4 1.2 1.1 0.9 0.8 0.8 0.7 2.0 1.3 0.8

%QoQ, %YoY -10.0 -8.6 -15.2 -8.9 -12.9 -8.1 -3.4 -20.6 -16.4 -36.8 -36.2

OP margin 30.4 28.1 25.7 28.9 27.7 30.8 29.8 20.8 33.8 28.3 27.4

TFT-LCD

Mid/large shipments (Â000) 38,541 42,742 43,412 46,432 41,789 43,735 46,303 47,257 151,342 171,127 179,084

%QoQ, %YoY -3.1 10.9 1.6 7.0 -10.0 4.7 5.9 2.1 20.8 13.1 4.6

ASP (US$) 268 255 247 234 234 252 267 268 317 250 240

%QoQ, %YoY -5.0 -5.0 -3.2 -5.0 0.0 7.3 6.0 0.6 6.1 -21.1 -4.1

OP margin -6.2 -5.7 -5.4 -2.4 -3.4 -2.6 -1.1 -5.5 5.8 -4.9 -2.0

Handset

Shipments (mn units) 70 75 89 92 93 97 101 103 283 326 390

%QoQ, %YoY -15.8 6.8 18.5 3.4 0.5 4.9 3.6 2.5 23.2 12.9 17.5

ASP (US$) 12.3 20.2 27.0 34.0 38.0 42.0 46.0 48.0 25.4 93.5 174.0

%QoQ, %YoY 1.9 64.2 33.7 25.9 11.8 10.5 9.5 4.3 333.2 267.6 86.1

OP margin 14.8 17.9 22.6 23.7 26.2 23.4 22.0 20.8 11.5 20.2 17.4

W/US$ 1,120 1,080 1,070 1,100 1,080 1,080 1,080 1,080 1,154 1,093 1,080


Figure 68. Annual operating profit trend and outlook Figure 69. Quarterly operating profit trend and outlook

Source: Company data, KDB Daewoo Securities Research estimates Source: Company data, KDB Daewoo Securities Research estimates

9.0

6.0

10.9

16.1

21.2

23.1

9.0

17.3

0

5

10

15

20

25

06 07 08 09 10 11F 12F 13F

(Wtr)

-40

-20

0

20

40

60

80

100Annual operating profit (L)

% YoY (R)

(%)

-1

0

1

2

3

4

5

6

1Q08 1Q09 1Q10 1Q11F 1Q12F

(Wtr)

-10

0

10

20Quarterly operating profit (L)

OP margin (R)

(%)



Table 16. P/B valuation (W, x, %)

2011F 2012F

Share price 1,052,000 1,052,000

BPS 563,564 669,855

ROE 15.1 17.0

P/B 1.87 1.57

Target P/B 2.25 2.00

Target price 1,300,000 1,300,000



Table 17. EV/EBITDA; Sum-of-the-parts valuation (Wbn, x)

2012F

EBITDA 30,841

Semiconductor 14,072

TFT-LCD 3,226

Telecom 12,648

DM 895

Fair EV/EBITDA 4.9

Semiconductor 4.5 Intel 4.7x, Hynix 4.2x, Elpida 4.0x, Micron 3.4x

TFT-LCD 3.0 LGD 2.6x, AUO 4.3x

Telecom 6.0 Nokia 5.5x, LGE 7.6x

DM 2.0 Sony 2.8x, LGE 7.6x

EV A 150,679

Semiconductor 63,323

TFT-LCD 9,679

Telecom 75,887

DM 1,790

Net debt B -9,599 3Q11 Cash and Cash eqv. W21.8tr

Investment securities C 20,334 Listed: 15% discount on MV, Unlisted : 20% discount on

Treasury shares D 17,371 20% discount on MV

Shareholder's equity E=A-B+C+D 197,982

Value per share 1,300,000 147mn common shares



Figure 70. SECÊs P/B band (2012F) Figure 71. P/B-ROE of global IT companies (2012F)

Source: KDB Daewoo Securities Research estimates Source: Thomson Reuters, KDB Daewoo Securities Research estimates

0

200

400

600

800

1,000

1,200

04 06 08 10 12

2.0x1.8x

2.2x

1.6x

1.4x

12F

(W'000)

SEC

Sony

Intel

Apple

HP

Dell

TSMC

AMATNokia

y = 0.0679x + 0.5046

0

1

2

3

0 10 20 30 40

(P/B, x)

(ROE, %)



Samsung Electronics (005930 KS/Buy/TP: W1,300,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F

Revenues 154,630 161,047 182,870 210,330 Current Assets 61,403 67,289 80,160 91,060

Cost of Sales 102,667 110,118 124,165 142,604 Cash and Cash Equivalents 9,791 16,290 24,448 29,455

Gross Profit 51,964 50,929 58,705 67,726 AR & Other Receivables 21,309 22,061 24,641 27,476

SG&A Expenses 35,343 35,579 37,565 45,228 Inventories 13,365 13,836 15,454 17,775

Operating Profit (Adj) 16,621 15,351 21,140 22,499 Other Current Assets 4,249 4,399 4,914 5,652

Operating Profit 17,297 16,144 21,190 23,099 Non-Current Assets 72,886 82,686 91,403 104,676

Non-Operating Profit 2,708 444 464 667 Investments in Associates 8,335 9,642 11,194 13,094

Net Financial Income 23 -48 -201 -447 Property, Plant and Equipment 52,965 60,477 67,462 77,668

Net Gain from Inv in Associates 2,267 828 1,503 1,300 Intangible Assets 2,779 3,441 3,407 3,404

Pretax Profit 19,329 16,494 21,654 23,766 Total Assets 134,289 149,975 171,562 195,735

Income Tax 3,182 2,192 2,861 2,614 Current Liabilities 39,945 39,353 42,032 46,309

Profit from Continuing Operations 16,147 14,302 18,793 21,152 AP & Other Payables 16,050 16,617 18,560 21,347

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 9,554 7,888 6,888 5,888

Net Profit 16,147 14,302 18,793 21,152 Other Current Liabilities 14,341 14,848 16,584 19,074

Controlling Interests 15,799 13,941 18,433 20,792 Non-Current Liabilities 4,995 6,889 7,357 7,220

Non-Controlling Interests 348 361 360 360 Long-Term Financial Liabilities 1,222 3,464 4,464 3,964

Total Comprehensive Profit 17,288 15,076 19,743 22,052 Other Non-Current Liabilities 3,175 3,165 2,970 3,333

Controlling Interests 16,901 14,629 19,353 21,652 Total Liabilities 44,940 46,241 49,389 53,529

Non-Controlling Interests 387 447 390 400 Controlling Interests 85,590 99,321 117,372 137,004

EBITDA 28,015 28,624 36,866 37,974 Capital Stock 898 898 898 898

FCF (Free Cash Flow) -706 5,726 9,896 7,748 Capital Surplus 4,532 4,404 4,404 4,404

EBITDA Margin (%) 18.1 17.8 20.2 18.1 Retained Earnings 85,015 98,125 115,255 134,027

Operating Profit Margin (%) 11.2 10.0 11.6 11.0 Non-Controlling Interests 3,760 4,412 4,802 5,202

Net Profit Margin (%) 10.2 8.7 10.1 9.9 Stockholders' Equity 89,349 103,734 122,174 142,206

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F

Cash Flows from Op Activities 22,432 25,864 32,127 33,686 P/E (x) 10.2 12.9 9.8 8.7

Net Profit 16,147 14,302 18,793 21,152 P/CF (x) 5.9 6.6 5.3 5.0

Non-Cash Income and Expense 19,515 15,365 18,073 36,992 P/B (x) 1.9 1.9 1.6 1.4

Depreciation 10,847 12,629 15,015 14,794 EV/EBITDA (x) 5.3 5.6 4.1 3.9

Amortization 547 645 711 681 EPS (W) 92,863 81,943 108,345 122,209

Others -7,206 -837 -560 -400 CFPS (W) 159,834 159,963 200,776 213,168

Chg in Working Capital -11,095 -436 -1,878 -1,674 BPS (W) 490,097 563,564 669,855 785,271

Chg in AR & Other Receivables -1,936 372 -2,580 -2,835 DPS (W) 10,000 5,000 10,500 11,000

Chg in Inventories -4,813 -882 -1,618 -2,321 Payout ratio (%) 9.5 4.7 7.4 6.9

Chg in AP & Other Payables 2,415 -194 1,943 2,787 Dividend Yield (%) 1.1 0.5 1.0 1.0

Income Tax Paid -2,135 -3,368 -2,861 -2,614 Revenue Growth (%) 11.3 4.2 13.6 15.0

Cash Flows from Inv Activities -22,007 -17,511 -21,838 -24,593 EBITDA Growth (%) 23.2 2.2 28.8 3.0

Chg in PP&E -20,391 -19,736 -21,960 -24,950 Operating Profit Growth (%) 49.4 -6.7 31.3 9.0

Chg in Intangible Assets -1,243 -677 -677 -677 EPS Growth (%) 63.7 -11.8 32.2 12.8

Chg in Financial Assets -2,416 1,986 0 0 Accounts Receivable Turnover (x) 8.5 8.3 8.7 9.0

Others 2,043 917 799 1,035 Inventory Turnover (x) 13.3 11.8 12.5 12.7

Cash Flows from Fin Activities -735 -795 -2,131 -4,087 Accounts Payable Turnover (x) 17.8 17.3 18.2 18.5

Chg in Financial Liabilities 1,702 152 0 -1,500 ROA (%) 12.8 10.1 11.7 11.5

Chg in Equity 184 80 0 0 ROE (%) 20.7 15.1 17.0 16.4

Dividends Paid -1,918 -1,497 -1,303 -2,020 ROIC (%) 23.6 18.3 22.6 21.4

Others -703 -1,026 -828 -568 Liability to Equity Ratio (%) 50.3 44.6 40.4 37.6

Increase (Decrease) in Cash -359 6,498 8,158 5,006 Current Ratio (%) 153.7 171.0 190.7 196.6

Beginning Balance 10,150 9,791 16,290 24,448 Net Debt to Equity Ratio (%) -13.1 -15.1 -19.5 -21.3

Ending Balance 9,791 16,290 24,448 29,455 Interest Coverage Ratio (x) 29.8 26.9 36.7 40.7




Hynix Semiconductor (000660 KS)

Earning improvement is key

Mid- to long-term: Likely to benefit from rising mobile demand on the back of NAND capacity expansion and a rise in sales contribution of mobile DRAMs

Short term: Operating loss to persist due to the sluggish PC DRAM market

2012 Revenues and operating profit (adjusted) are forecast at W12.3tr (up 20.1% YoY) and W769bn

We maintain our Buy rating on Hynix Semiconductor with a target price of W26,000

(2012F P/B of 1.7x). We are paying close attention to HynixÊs product portfolio

improvement efforts. The company is expected to mix up its portfolio (currently

focused on PC DRAM) so as to better benefit from growing mobile demand. The

companyÊs fundamentals will likely improve if: 1) its NAND capacity expands, 2) its

proportion of mobile DRAM sales increases, and 3) its sales to Apple increase.

In the mid- to long-term, Hynix should be able to aggressively expand its capex on

the back of its increased capital (resulting from SK TelecomÊs acquisition of the

company and its W2.3tr rights offering), enabling the company to better benefit from

rising mobile demand. The companyÊs NAND capacity (120,000 units per month) is

currently equivalent to only one-third of its DRAM capacity (300,000 units per month),

but this figure is likely to expand to 50% by end-2012 and to 100% by end-2013.

It should be noted that SECÊs strong smartphone shipments are unlikely to spur

demand for HynixÊs mobile DRAM, because HynixÊs major mobile DRAM

customers are Apple and Nokia. We project the company to sharply expand sales

of mobile DRAMs based on 38nm process to major customers in 1H12, which

should provide significant momentum to its DRAM unit.

In 4Q, we project Hynix Semiconductor to generate an operating loss (adjusted) of

W261bn on revenues of W2.4tr (up 3.2% QoQ; down 14.0% YoY). Including the

reversal of provisions related to the Rambus lawsuits, 4Q operating loss (reported)

may be smaller, coming in at around W110bn. The contract price for PC DRAM has

fallen by more than 30% QoQ, negatively affecting the companyÊs 4Q earnings.

In 2012, revenues and operating profit (reported) are forecast at W12.3tr (up

20.1% YoY) and W899bn (up 135.5% YoY). Full-year operating profit is unlikely to

exceed the W1tr mark, as the company should continue to report losses at a loss

into 1Q12 amid the current PC DRAM price levels. There is concern that operating

loss may persist through 2Q12. However, DRAM prices are expected to turn

upward at least from 2Q, backed by 1) production cuts at DRAM makers and 2) a

recovery in PC DRAM demand.

Buy (Maintain)

Target Price (12M, W) 26,000

Share Price (12/29/11, W) 21,950




P/E(11F, x) 132.3

Market P/E(11F, x) 10.0

KOSPI 1,825.74

Market Cap (Wbn) 12,998


Avg Trading Volume (60D, '000) 8,126



Free Float (%) 85.4

52-Week Low 15,500

52-Week High 37,400





National Pension Service (9.15%)

SKT (7.47%)

Korea Finance Corporation (5.47%)

Price Performance

(%) 1M 6M 12M

Absolute -6.2 -14.1 -9.5

Relative -4.5 -1.3 1.2

40

60

80

100

120

140

160

180

12/10 4/11 8/11 12/11

Share price

KOSPI



12/09 7,906 192 2.4 -348 -621 2,988 1,305 -6.6 -37.3 2.5 6.8

12/10 12,099 3,273 27.1 2,648 4,486 6,100 2,588 38.9 5.4 1.8 3.0

12/11F 10,208 382 3.7 98 166 3,554 11 1.2 132. 1.7 5.0

12/12F 12,257 899 7.3 437 738 4,350 261 5.2 29.8 1.6 4.1

12/13F 13,066 2,042 15.6 1,448 2,446 5,907 1,060 15.4 9.0 1.3 2.9

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests




Table 18. HynixÊs quarterly and annual earnings forecasts (Wbn, %)


Revenues 2,793 2,758 2,291 2,365 2,595 3,075 3,239 3,348 12,106 10,208 12,256 13,066

%QoQ 1.5 -1.3 -16.9 3.2 9.7 18.5 5.3 3.4 %YoY -1.1 -15.9 -29.5 -14.0 -7.1 11.5 41.4 41.5 53.1 -15.7 20.1 6.6

DRAM 2,134 2,013 1,535 1,587 1,726 2,055 2,167 2,262 9,554 7,270 8,210 8,210

NAND 670 745 756 778 868 1,020 1,072 1,086 2,552 2,938 4,046 4,856

COGS 2,112 2,141 2,265 2,297 2,352 2,479 2,498 2,729 7,644 8,909 10,058 9,224

Gross profit 681 617 26 69 242 596 741 619 4,462 1,299 2,199 3,842

SG&A 348 360 318 330 340 340 370 380 1,487 1,263 1,430 1,800

Operating profit (Adj.) 332 257 -292 -261 -98 256 371 239 2,975 36 769 2,042

Non-operating profit -10 190 15 150 130 346 130

Operating profit (Rpt.) 323 447 -277 -111 32 256 371 239 2,975 382 899 2,042

%QoQ (Adj.) 9.8 38.5 TTR RIR RIR TTB 44.8 -35.6 %YoY (Adj.) -56.5 -56.0 TTR TTR TTR -42.6 TTB TTB 1454.3 -87.2 135.5 127.2

DRAM 264 161 -414 -385 -281 -26 104 27 2,792 -374 -176 1,314

NAND 68 96 122 124 183 283 267 212 183 410 944 728

OP margin 11.6 16.2 -12.1 -4.7 1.2 8.3 11.5 7.1 24.6 0.4 6.3 15.6

DRAM 12.4 8.0 -27.0 -24.3 -16.3 -1.3 4.8 1.2 29.2 -5.1 -2.1 16.0

NAND 10.2 12.9 16.2 15.9 21.1 27.7 24.9 19.5 7.2 14.0 23.3 15.0

Net profit 273 471 -561 -85 -71 123 246 139 2,598 98 437 1,448

%QoQ 810.9 72.4 TTR RIR RIR TTB 100.0 -43.7 %YoY -66.2 -34.5 TTR TTR TTR -73.9 TTB TTB TTB -96.2 344.5 231.6

Note: Consolidated K-IFRS basis; TTR refers to Âturn to redÊ, RIR refers to Âremain in redÊ, TTB refers to Âturn to blackÊ


Table 19. Major assumptions by division (Wbn, US$, mn units)

1Q11 2Q11 3Q11 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F

DRAM Shipment (1Gb Eq. Mn) 1,135 1,146 1,250 1,479 1,739 1,870 1,990 2,213 3,408 5,010 7,812

Bit growth (% Ch) 15.0 1.0 9.1 18.3 17.6 7.5 6.4 11.2 38.1 47.0 55.9 ASP (1Gb Eq. US$) 1.69 1.67 1.18 0.99 0.97 1.08 1.07 1.00 2.53 1.35 1.03

% QoQ, % YoY -11.2 -1.2 -29.1 -16.5 -1.3 10.7 -0.9 -6.2 23.7 -46.7 -23.6

NAND Shipment (16Gb Eq. Mn) 221 221 257 298 362 419 509 633 525 997 1,924 Bit growth (% Ch) 15.0 0.0 16.2 15.9 21.7 15.6 21.5 24.2 113.5 90.0 92.9

ASP (16Gb Eq. USD) 3.21 2.60 2.24 2.01 1.96 2.03 1.77 1.44 4.07 2.46 1.23

% QoQ, % YoY -0.3 -19.0 -14.0 -10.2 -2.3 3.6 -13.1 -18.3 -29.9 -39.4 -50.0

US$/W 1,120 1,080 1,070 1,100 1,080 1,080 1,080 1,080 1,156 1,093 1,080




Previous Revised Diff. Major earnings

forecasts 11F 12F 11F 12F 11F 12F

Revenues 10,208 12,256 10,208 12,256 0.0 0.0

Operating profit (Adj.) 51 769 36 769 -29.4 0.0

Net profit 12 361 98 437 718.9 21.0

NP margin 0.5 6.3 0.4 6.3

OP margin 0.1 2.9 1.0 3.6





Figure 72. Consolidated quarterly operating profit trend and outlook


Figure 73. Consolidated annual operating profit trend and outlook


Figure 74. HynixÊs P/B band (2012F) Figure 75. P/B-ROE of global memory makers (2012F)

Source: KRX, KDB Daewoo Securities Research estimates Source: Thomson Reuters, KDB Daewoo Securities Research estimates

0

10

20

30

40

50

04 06 08 10 12

1.8x

2.3x

1.4x

0.6x

1.0x

12F

(W'000)

-1,200

-800

-400

0

400

800

1,200

06 07 08 09 10 11F 12F

(Wbn)

-120

-80

-40

0

40

80Hynix's quarterly operating profit (L)

OP margin (R)

(%)

Hynix's OP to swing to

black after 2Q12

3.0

0.0

0.8

2.02.1

0.5

-1.9

0.2

-4

-2

0

2

4

06 07 08 09 10 11F 12F 13F

(Wtr)

-40

-20

0

20

40Hynix's annual operating profit (L)

OP margin (R)

(%)

SECHynix

Elpida

Micron

Powerchip

Inotera

Toshiba

SNDK

y = -0.0048x + 1.043

0.0

1.0

2.0

-60 -40 -20 0 20 40

(P/B, x)

(ROE, %)



Hynix Semiconductor (000660 KS/Buy/TP: W26,000)


(Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F

Revenues 12,099 10,208 12,257 13,066 Current Assets 5,338 5,543 6,509 6,294

Cost of Sales 7,319 8,719 10,058 9,224 Cash and Cash Equivalents 1,247 2,354 2,125 1,950

Gross Profit 4,780 1,489 2,199 3,842 AR & Other Receivables 1,751 1,419 2,143 1,996

SG&A Expenses 1,506 1,453 1,430 1,800 Inventories 1,265 1,135 1,607 1,713

Operating Profit (Adj) 3,273 36 769 2,042 Other Current Assets 126 41 41 41

Operating Profit 3,273 382 899 2,042 Non-Current Assets 12,246 12,390 12,503 13,236

Non-Operating Profit -577 -68 -410 -338 Investments in Associates 104 113 120 127

Net Financial Income 282 268 292 286 Property, Plant and Equipment 10,817 10,751 10,770 11,471

Net Gain from Inv in Associates 0 7 7 7 Intangible Assets 549 708 788 852

Pretax Profit 2,696 118 489 1,704 Total Assets 17,584 17,933 19,012 19,530

Income Tax 40 19 53 256 Current Liabilities 5,342 5,184 6,048 5,998

Profit from Continuing Operations 2,657 99 437 1,448 AP & Other Payables 1,529 2,082 2,946 2,995

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 2,578 3,102 3,102 3,002

Net Profit 2,657 99 437 1,448 Other Current Liabilities 1,235 0 0 0

Controlling Interests 2,648 98 437 1,448 Non-Current Liabilities 4,073 4,538 4,296 3,396

Non-Controlling Interests 9 1 0 0 Long-Term Financial Liabilities 3,421 4,019 3,794 2,894

Total Comprehensive Profit 2,657 280 457 1,468 Other Non-Current Liabilities 237 96 70 70

Controlling Interests 2,648 277 454 1,466 Total Liabilities 9,415 9,722 10,344 9,393

Non-Controlling Interests 9 3 2 2 Controlling Interests 8,170 8,209 8,663 10,129

EBITDA 6,100 3,554 4,350 5,907 Capital Stock 2,969 2,979 2,979 2,979

FCF (Free Cash Flow) 2,588 11 261 1,060 Capital Surplus 1,415 1,231 1,231 1,231

EBITDA Margin (%) 50.4 34.8 35.5 45.2 Retained Earnings 3,654 3,838 4,275 5,723

Operating Profit Margin (%) 27.1 3.7 7.3 15.6 Non-Controlling Interests 0 3 5 7

Net Profit Margin (%) 21.9 1.0 3.6 11.1 Stockholders' Equity 8,170 8,212 8,668 10,136


(Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F

Cash Flows from Op Activities 5,908 3,779 3,975 5,741 P/E (x) 5.4 132.3 29.8 9.0

Net Profit 2,657 117 437 1,448 P/CF (x) 2.6 3.6 3.2 2.5

Non-Cash Income and Expense 3,156 3,725 3,914 4,458 P/B (x) 1.8 1.7 1.6 1.3

Depreciation 2,769 3,482 3,531 3,799 EV/EBITDA (x) 3.0 5.0 4.1 2.9

Amortization 58 35 50 66 EPS (W) 4,486 166 738 2,446

Others -287 94 105 40 CFPS (W) 9,276 6,106 6,785 8,972

Chg in Working Capital 96 -51 -323 90 BPS (W) 13,498 13,319 13,952 16,320

Chg in AR & Other Receivables 225 501 -723 146 DPS (W) 150 0 0 0

Chg in Inventories -210 170 -472 -106 Payout ratio (%) 3.3 0.0 0.0 0.0

Chg in AP & Other Payables 156 391 864 49 Dividend Yield (%) 0.6 0.0 0.0 0.0

Income Tax Paid 0 -13 -53 -256 Revenue Growth (%) 53.0 -15.6 20.1 6.6

Cash Flows from Inv Activities -4,709 -3,090 -3,600 -4,572 EBITDA Growth (%) 104.2 -41.7 22.4 35.8

Chg in PP&E -3,383 -3,411 -3,550 -4,500 Operating Profit Growth (%) 1,605.0 -88.3 135.6 127.2

Chg in Intangible Assets -149 -130 -130 -130 EPS Growth (%) -823.0 -96.3 344.5 231.6

Chg in Financial Assets -689 372 0 0 Accounts Receivable Turnover (x) 7.3 7.5 8.5 7.9

Others -489 78 80 58 Inventory Turnover (x) 10.4 8.5 8.9 7.9

Cash Flows from Fin Activities -1,140 499 -604 -1,343 Accounts Payable Turnover (x) 15.0 10.2 8.9 8.2

Chg in Financial Liabilities -1,140 780 -1,100 -1,000 ROA (%) 15.7 0.6 2.4 7.5

Chg in Equity 0 0 0 0 ROE (%) 38.9 1.2 5.2 15.4

Dividends Paid 0 -89 0 0 ROIC (%) 28.0 0.2 5.7 13.7

Others 0 -282 -380 -343 Liability to Equity Ratio (%) 115.2 118.4 119.3 92.7

Increase (Decrease) in Cash 38 1,107 -229 -175 Current Ratio (%) 99.9 106.9 107.6 104.9

Beginning Balance 1,209 1,247 2,354 2,125 Net Debt to Equity Ratio (%) 46.5 50.8 48.2 33.1

Ending Balance 1,247 2,354 2,125 1,950 Interest Coverage Ratio (x) 9.3 1.2 2.5 6.0




Eugene Technology (084370 KQ)

Re-rating to continue thanks to strong competitiveness

Largest beneficiary of capex expansion by SEC and Hynix in 2012

Demand for single-type LPCVD equipment is on a steady rise on the back of semiconductor process migration

2012 Revenues are projected at W174.4bn (up 35.7% YoY) and operating profit at W38.7bn (up 33.3% YoY)

We maintain our Buy rating on Eugene Technology and raise our target price by

25% to W30,000 from W24,000. The target price is based on a 2012F P/E of 12.5x.

The company is providing equipment to both SEC and Hynix. In addition, it holds

world-class competitiveness in single-type LPCVD (low pressure chemical vapor

deposition) equipment, for which demand continues to grow in line with chip

makersÊ process migration.

In particular, SEC is projected to expand capex to W15tr (W7tr for memory and

W8tr for non-memory) in 2012. EugeneÊs single-type LPCVD is used for process

migration for the non-memory as well as for the memory segment. Hynix is also

expected to invest in the new M12 line and process migration next year. Thus,

Eugene Technology is forecast to display strong order momentum and earnings

improvement in line with investment expansion by major memory producers going

forward.

Meanwhile, demand for cyclic CVD, the companyÊs new product, is expected to

increase after 2012. As production processes for both DRAM and NAND have

migrated to 20nm and below, demand for the deposition of evenly thin layers,

which is difficult with the existing ALD (atomic layer deposition) equipment, is

growing. Growth based on portfolio diversification is projected to take off after

2013.

We expect Eugene Technology to deliver an earnings surprise in 4Q11 with

revenues of W38.3bn (up 11.5% QoQ, up 108.3% YoY) and operating profit of

W8.4bn (up 8.0% QoQ, up 61.7% YoY) with OP margin of 22.0%. There are very

few semiconductor equipment producers in Korea that are expected to generate

such a high YoY earnings growth. In light of SECÊs increase in semiconductor capex,

we sharply revise up our forecasts for 2012 revenues to W174.4bn (up 35.7%

YoY) and operating profit to W38.7bn (up 33.3% YoY) with OP margin of 22.2%.

Buy (Maintain)


Share Price (12/29/11, W) 23,350


EPS Growth (11F, %) 40.1


P/E(11F, x) 11.8

Market P/E(11F, x) 10

KOSPI 500.18

Market Cap (Wbn) 319


Avg Trading Volume (60D, '000) 129


Dividend Yield (11F, %) 0

Free Float (%) 59.1

52-Week Low 11,950

52-Week High 24,600





P.Y. Eum (39.67%)

Shinyoung Asset Management (9.83%)

Korea Investment Value Asset (9.01%)

Price Performance

(%) 1M 6M 12M

Absolute 21.2 32.9 75.8

Relative 22.83 45.75 86.42

40

90

140

190

240

12/10 4/11 8/11 12/11

Share price

KOSDAQ



12/09 49 8 15.6 6 462 8.3 9 21.6 17.6 4.4 11.7

12/10 94 20 20.9 18 1,352 20.6 27 43.4 10.2 3.8 7.1

12/11F 129 29 22.6 26 1,987 31.8 25 42.0 11.8 4.4 8.1

12/12F 174 39 22.2 36 2,739 40.0 22 38.8 8.5 2.9 6.0

12/13F 210 46 22.0 43 3,232 48.0 28 32.2 7.2 2.1 4.6

Note: Non-consolidated K-IFRS basis; NP refers to net profit attributable to controlling interests




Table 21. Quarterly and annual earnings forecasts (Wmn, %)


Sales 30,606 25,417 34,301 38,250 39,780 42,840 42,840 48,960 93,908 128,575 174,420 210,000

% QoQ 66.7 -17.0 35.0 11.5 4.0 7.7 0.0 14.3

% YoY 1.7 5.0 61.4 108.3 30.0 68.5 24.9 28.0 92.5 36.9 35.7 20.4

LPCVD 21,000 18,900 21,600 27,000 27,000 30,000 30,000 36,000 41,400 88,500 123,000 156,000

Plasma System 9,000 6,000 9,000 10,500 12,000 12,000 12,000 12,000 52,500 34,500 48,000 54,000

Gross profit 9,383 10,787 11,792 12,240 12,332 13,709 13,709 15,178 29,958 44,201 54,927 65,100

SG&A expenses 3,190 3,136 3,529 3,825 3,580 3,856 3,856 4,896 10,303 13,680 16,187 18,900

Operating profit 6,285 6,578 7,793 8,415 8,752 9,853 9,853 10,282 19,656 29,071 38,740 46,200

% QoQ 20.7 4.7 18.5 8.0 4.0 12.6 0.0 4.3

% YoY 21.7 32.8 81.3 61.7 39.2 49.8 26.4 22.2 158.6 47.9 33.3 19.3

Net profit 5,128 5,532 6,529 9,173 7,961 8,398 8,483 11,501 17,937 26,362 36,342 42,878

GP margin -3.8 7.9 18.0 40.5 -13.2 5.5 1.0 35.6

OP margin 12.6 27.0 76.6 72.1 55.2 51.8 29.9 25.4 192.9 47.0 37.9 18.0

NP margin 30.7 42.4 34.4 32.0 31.0 32.0 32.0 31.0 31.9 34.4 31.5 31.0

Note: Non-consolidated K-IFRS basis


Table 22. Earnings forecast revisions (Wmn, %)

Previous Revised Diff.

11F 12F 11F 12F 11F 12F

Sales 120,895 149,022 128,575 174,420 6.4 17.0

Operating profit 27,447 33,118 29,071 38,740 5.9 17.0

Net profit 25,012 31,311 26,362 36,342 5.4 16.1

OP margin 22.7 22.2 22.6 22.2

NP margin 20.7 21.0 20.5 20.8



Figure 76. Quarterly sales and operating profit trends and forecasts Figure 77. Annual sales and operating profit trends and forecasts

Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research

0

10

20

30

40

50

60

06 07 08 09 10 11F 12F

-3

0

3

6

9

12Quarterly revenues (L)

Quarterly operating profit (R)

(Wbn)

Eugene Technology to benefit from capacity

expansion and process migration by SEC and

Hynix

(Wbn)

0

50

100

150

200

250

06 07 08 09 10 11F 12F 13F

-10

0

10

20

30

40

50Annual revenues (L)

Annual operating profit (R)

(Wbn) (Wbn)



Eugene Technology (084370 KQ/Buy/TP: W30,000)


(Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F

Revenues 93.9 128.6 174.4 210 Current Assets 55.7 111.9 155.9 149.5

Cost of Sales 63.9 84.4 119.5 144.9 Cash and Cash Equivalents 37.1 46.7 66.4 87

Gross Profit 30 44.2 54.9 65.1 AR & Other Receivables 12.7 35.8 54.7 17.7

SG&A Expenses 10.3 13.7 16.2 18.9 Inventories 3.9 13.7 18.6 28.1

Operating Profit (Adj) 19.7 30.5 38.7 46.2 Other Current Assets 0.9 1.8 2.3 2.7

Operating Profit 19.7 29.1 38.7 46.2 Non-Current Assets 18.4 25.7 35.9 52.4

Non-Operating Profit -0.6 -0.2 1.4 1.4 Investments in Associates 4.1 1.6 4.6 9.6

Net Financial Income -0.6 -0.6 -0.9 -1.2 Property, Plant and Equipment 8 11.5 16.4 22.5

Net Gain from Inv in Associates -1.3 0 0 0 Intangible Assets 2.3 4.5 5.3 5.9

Pretax Profit 19.1 30.3 40.2 47.6 Total Assets 74.1 137.6 191.8 202

Income Tax 1.2 3.9 3.8 4.8 Current Liabilities 23 61.6 79.4 46.7

Profit from Continuing Operations 17.9 26.4 36.3 42.9 AP & Other Payables 9.3 37.1 48 12

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0.3 0 0 0

Net Profit 17.9 26.4 36.3 42.9 Other Current Liabilities 13.5 24.5 31.3 34.6

Controlling Interests 17.9 26.4 36.3 42.9 Non-Current Liabilities 0.9 0.6 0.7 0.7

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0

Total Comprehensive Profit 17.9 26.3 36.3 42.8 Other Non-Current Liabilities 0.5 0.1 0.1 0.1

Controlling Interests 17.9 26.3 36.3 42.8 Total Liabilities 23.9 62.2 80.1 47.4

Non-Controlling Interests 0 0 0 0 Controlling Interests 50.2 75.5 111.8 154.6

EBITDA 20.6 31.8 40 48 Capital Stock 6.4 6.6 6.6 6.6

FCF (Free Cash Flow) 27.2 25.3 21.7 27.6 Capital Surplus 6.1 6 6 6

EBITDA Margin (%) 22 24.7 22.9 22.8 Retained Earnings 37.9 64 100.3 143.2

Operating Profit Margin (%) 20.9 22.6 22.2 22 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 19.1 20.5 20.8 20.4 Stockholders' Equity 50.2 75.5 111.8 154.6


(Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F

Cash Flows from Op Activities 26.8 32.5 28.6 35.9 P/E (x) 10.2 11.8 8.5 7.2

Net Profit 17.9 26.4 36.3 42.9 P/CF (x) 9.7 11.2 8.3 6.9

Non-Cash Income and Expense 20.1 18.2 3.6 5.1 P/B (x) 3.8 4.4 2.9 2.1

Depreciation 0.5 0.5 0.6 0.9 EV/EBITDA (x) 7.1 8.1 6 4.6

Amortization 0.5 0.8 0.6 0.8 EPS (W) 1352.1 1987.1 2739.4 3232.1

Others -17.8 -14.5 0.3 0 CFPS (W) 1468 2081.6 2831.5 3365

Chg in Working Capital -11.2 -11.2 -7.5 -7.3 BPS (W) 3716.2 5346.3 8022.8 11207.2

Chg in AR & Other Receivables 2.3 -22 -18.9 37 DPS (W) 100 0 0 0

Chg in Inventories 1 -13.2 -4.9 -9.5 Payout ratio (%) 7.1 0 0 0

Chg in AP & Other Payables -7.3 27.6 10.9 -36 Dividend Yield (%) 0.7 0 0 0

Income Tax Paid 0 -1 -3.8 -4.8 Revenue Growth (%) 92.5 36.9 35.7 20.4

Cash Flows from Inv Activities -0.8 -20.7 -9 -15.2 EBITDA Growth (%) 149.5 54 25.8 20

Chg in PP&E -0.9 -4.2 -5.5 -7 Operating Profit Growth (%) 158.6 47.9 33.3 19.3

Chg in Intangible Assets 2.9 -1.3 -1.4 -1.4 EPS Growth (%) 192.9 47 37.9 18

Chg in Financial Assets -1.2 -13 0 0 Accounts Receivable Turnover (x) 6.5 5.3 3.9 5.8

Others -1.5 -2.2 -2.1 -6.8 Inventory Turnover (x) 19.1 14.7 10.8 9

Cash Flows from Fin Activities -6 -0.9 0 0 Accounts Payable Turnover (x) 8 5.9 4.3 7.5

Chg in Financial Liabilities -5.8 0 0 ROA (%) 26.8 24.9 22.1 21.8

Chg in Equity 0.4 -0.8 0 0 ROE (%) 43.4 42 38.8 32.2

Dividends Paid -0.6 -1.3 0 0 ROIC (%) 147.5 324 216.6 139.5

Others 0 0 0 0 Liability to Equity Ratio (%) 47.6 82.4 71.6 30.6

Increase (Decrease) in Cash 20 9.6 19.7 20.7 Current Ratio (%) 241.7 181.7 196.5 320.5

Beginning Balance 17 37.1 46.7 66.4 Net Debt to Equity Ratio (%) -75.6 -80.4 -71.9 -65.3

Ending Balance 37.1 46.7 66.4 87 Interest Coverage Ratio (x) 389.7 903.2




Nepes (033640 KQ)

Biggest beneficiary of AP demand growth

Likely to see top-line growth from WLP services for SEC and Apple’s APs

Monthly WLP capacity expanded to 34,000 units (including Nepes Pte.’s capacity)

2012F revenues of W259bn (up 18.2% YoY) and OP of 32.2bn (up 43.0% YoY)

We maintain our Buy call on Nepes, but raise our target price to W22,000

(corresponding to 2012F P/E of 13.0x) from W18,000. As a supplier of wafer level

packaging (WLP) services for SEC and AppleÊs application processors (AP), we believe

Nepes is best positioned to benefit from SECÊs non-memory investments in 2012.

The company has aggressively expanded its domestic capacity for WLP services

since 2H: its monthly WLP capacity for 12-inch wafers now stands at 9,000 units.

Adding the capacity (25,000 units/month) of its Singapore subsidiary Nepes Pte.,

the companyÊs total monthly WLP capacity has increased to 34,000 units. In line

with SECÊs likely expansion of AP production, we believe Nepes will continue to

ramp up its domestic WLP capacity in 2012.

We expect Nepes to post 4Q revenues of W58bn (up 10.3% QoQ; up 10.3% YoY)

and an operating profit of W6.2bn (up 15.7% QoQ; up 51.1% YoY; OP margin of

10.8%). Although the companyÊs earnings growth remained flat through end-3Q

due to weak earnings at its LCD driver IC bumping/packaging division, we expect

to see continued improvement from 4Q thanks to earnings growth in its WLP

division in 2H.

For 2012, we forecast revenues of W259bn (up 18.2% YoY) and an operating

profit of W32.2bn (up 43.0% YoY; OP margin of 12.4%). In particular, we expect

12-inch WLP revenues to jump from W10bn in 1Q12 to W15bn in 4Q12. Top-line

growth from high-margin WLP services is likely to boost the companyÊs overall

profitability.

Nepes Pte. (in which Nepes owns a 74% stake) has also been generating earnings

growth. We expect full-year revenues to climb from W34bn in 2010 to W57bn in

2011 (up 66.2% YoY) and operating profit to surge from W5bn to W11.3bn (up

125% YoY) during that same period. While Nepes Pte.Ês earnings growth has been

partly driven by capacity expansion, we believe the largest driver has been a shift

in product mix to WLP services for APs. Given our 2012F revenue growth

estimates of W90bn for Nepes Pte., we forecast NepesÊ IFRS consolidated

revenues to reach roughly W370bn in 2012.

Buy (Maintain)


Share Price (12/29/11, W) 16,500


EPS Growth (11F, %) 29.3


P/E(11F, x) 19.1


KOSPI 500.18






Free Float (%) 70.8

52-Week Low 9,650

52-Week High 23,350





B.K. Lee (27.77%)

Alliantz Global Investors (10.59%)

National Pension Service (8.54%)

Price Performance

(%) 1M 6M 12M

Absolute -8.8 -5.2 3.5

Relative -7.18 7.66 14.11

40

60

80

100

120

140

160

12/10 4/11 8/11 12/11

Share price

KOSDAQ



12/09 221 25 11.4 18 871 42.4 27 16.8 15.9 2.7 7.3

12/10 239 26 10.9 14 669 44.5 -17 10.5 24.6 2.3 8.9

12/11F 219 23 10.3 19 864 42.2 -10 11.7 19.1 2.2 10.0

12/12F 259 32 12.4 36 1,662 57.0 18 19.6 9.9 1.8 7.7

12/13F 327 33 10.0 39 1,775 59.5 10 17.5 9.3 1.5 8.0





Table 23. Nepes' earnings forecasts (Wbn, W, %)


Sales 52.0 56.8 52.5 57.9 59.1 62.6 69.6 67.6 238.5 219.2 259.0 326.6

% QoQ -0.8 9.2 -7.7 10.3 2.2 5.9 11.2 -2.9

% YoY -6.4 -12.8 -19.7 10.3 13.7 10.2 32.7 16.9 8.1 -8.1 18.2 26.1

Semiconductor 25.0 30.8 27.0 30.9 32.1 35.6 40.6 38.6 126.1 113.6 147.0 190.6

Chemical 27.0 26.0 27.0 27.0 27.0 27.0 29.0 29.0 112.4 107.0 112.0 136.0

12‰ WLP 0.0 0.0 4.9 8.7 9.9 11.7 14.6 14.6 13.5 50.7 66.4

Gross profit 10.2 11.6 10.3 13.2 13.5 14.6 16.7 16.4 44.7 45.3 61.2 58.8

SG&A 4.8 6.1 4.9 7.0 6.7 6.9 7.7 7.7 18.7 22.8 29.0 26.1

Operating profit 5.4 5.5 5.4 6.2 6.8 7.7 9.0 8.7 26.0 22.5 32.2 32.7

% QoQ 31.7 0.8 -1.7 15.7 9.3 13.0 17.1 -3.4

% YoY -6.4 -41.8 -19.3 51.1 25.4 40.5 67.3 39.7 4.5 -13.4 43.0 1.4

Pretax profit 3.7 3.5 2.8 10.8 6.2 6.6 7.9 19.6 18.0 20.8 40.3 43.0

Net profit 2.8 2.6 2.1 11.4 4.7 5.0 6.0 20.6 13.6 18.9 36.3 38.7

% QoQ TTB -7.2 -22.0 453.7 -58.6 6.1 20.0 244.0

% YoY -42.4 -55.4 -58.2 TTB 66.0 89.9 192.0 81.4 -31.3 38.4 92.3 6.8

Gross margin 19.6 20.4 19.6 22.9 22.8 23.3 24.0 24.3 18.8 20.7 23.6 18.0

OP margin 10.4 9.6 10.3 10.8 11.5 12.3 12.9 12.9 10.9 10.3 12.4 10.0

Net margin 5.4 4.6 3.9 19.6 8.0 8.0 8.6 30.5 5.7 8.6 14.0 11.9

Note: Non-consolidated K-IFRS basis, TTB refers to Âturn to blackÊ


Table 24. Revisions to Nepes' earnings forecasts (Wbn, %)

Previous Revised Diff. (%)

11F 12F 11F 12F 11F 12F

Sales 218.9 248.3 219.2 259.0 0.1 4.3

Operating profit 21.5 26.8 22.5 32.2 4.7 20.1

Net profit 19.2 31.9 18.9 36.3 -1.7 13.7

OP margin 9.8 10.8 10.3 12.4

Net margin 8.8 12.8 8.6 14.0



Figure 78. NepesÊ annual sales and OP trends and forecasts Figure 79. NepesÊ quarterly sales and OP trends and forecasts


0

100

200

300

06 07 08 09 10 11F 12F

0

20

40

Annual revenues (L) Annual operating profit (R)(Wbn) (Wbn)

Annual revenues and OP to be back

on growth track in 2012

0

20

40

60

80

1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12F

0

3

6

9

12

Quarterly revenues (L) Quarterly operating profit (R)(Wbn) (Wbn)

Quarterly revenues and OP to be

back on growth track in 2012

on the back of expanding WLP portion



Nepes (033640 KQ/Buy/TP: W22,000)


(Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F

Revenues 238.5 219.2 259 326.6 Current Assets 115.5 78.4 91.2 104.8

Cost of Sales 193.8 173.8 197.8 267.8 Cash and Cash Equivalents 47.2 10.6 11.1 6.8

Gross Profit 44.7 45.3 61.2 58.8 AR & Other Receivables 39.8 40.2 50.1 63.1

SG&A Expenses 18.7 22.8 29 26.1 Inventories 11.7 11.8 14.1 18.5

Operating Profit (Adj) 26 22.5 32.2 32.7 Other Current Assets 1 0.9 1.1 1.4

Operating Profit 26 22.5 32.2 32.7 Non-Current Assets 177.8 216.4 261.3 330.3

Non-Operating Profit -7.9 -1.7 8.1 10.3 Investments in Associates 34.5 17.7 29.7 45.7

Net Financial Income 3.9 2.2 2.9 3.7 Property, Plant and Equipment 117.8 145.2 146.4 155.6

Net Gain from Inv in Associates -5 2.5 12 16 Intangible Assets 1.1 4 4 4

Pretax Profit 18 20.8 40.3 43 Total Assets 293.3 294.7 352.6 435.1

Income Tax 4.4 1.9 4 4.2 Current Liabilities 99.7 60.2 72 78.6

Profit from Continuing Operations 13.6 18.9 36.3 38.7 AP & Other Payables 35 33.7 39.8 50.2

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 60.5 22.7 27.7 22.7

Net Profit 13.6 18.9 36.3 38.7 Other Current Liabilities 4.2 3.8 4.5 5.7

Controlling Interests 13.6 18.9 36.3 38.7 Non-Current Liabilities 39.2 67.2 78 116.3

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 25.1 53.1 63.1 99.1

Total Comprehensive Profit 13.6 18.9 36.3 38.7 Other Non-Current Liabilities 13.1 13 13.9 16.1

Controlling Interests 13.6 18.9 36.3 38.7 Total Liabilities 138.8 127.3 150 194.8


EBITDA 44.5 42.2 57 59.5 Capital Stock 11 11 11 11

FCF (Free Cash Flow) -17.2 -10.4 18.2 9.5 Capital Surplus 77.5 72.7 72.7 72.7

EBITDA Margin (%) 18.7 19.3 22 18.2 Retained Earnings 68.4 86.4 121.6 159.3

Operating Profit Margin (%) 10.9 10.3 12.4 10 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 5.7 8.6 14 11.9 Stockholders' Equity 154.5 167.4 202.6 240.3


(Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F


Net Profit 13.6 18.9 36.3 38.7 P/CF (x) 10.4 9.3 5.9 5.5

Non-Cash Income and Expense 20.7 23 20.7 20.7 P/B (x) 2.3 2.2 1.8 1.5

Depreciation 18.2 19.1 23.8 25.8 EV/EBITDA (x) 8.9 10 7.7 8

Amortization 0.3 0.6 1 1 EPS (W) 668.5 864.3 1662.3 1775

Others 4.4 -1.4 -1 -2 CFPS (W) 1579 1766.3 2798.9 3003.9

Chg in Working Capital 1.4 -4.8 -7.6 -9.7 BPS (W) 7028.7 7487.3 9100.2 10825.8

Chg in AR & Other Receivables -6.6 0.9 -9.9 -13.1 DPS (W) 50 50 50 50

Chg in Inventories 2.1 -0.1 -2.3 -4.4 Payout ratio (%) 7.9 5.7 3 2.8

Chg in AP & Other Payables 6.7 -2 6.1 10.4 Dividend Yield (%) 0.3 0.3 0.3 0.3

Income Tax Paid 0 -1.8 -4 -4.2 Revenue Growth (%) 8.1 -8.1 18.2 26.1

Cash Flows from Inv Activities -43.5 -52.1 -55.2 -75.1 EBITDA Growth (%) 5 -5.3 35.1 4.4

Chg in PP&E -47.6 -47.2 -25 -35 Operating Profit Growth (%) 3.8 -13.4 43 1.4

Chg in Intangible Assets -0.2 0 -1 -1 EPS Growth (%) -23.2 29.3 92.3 6.8

Chg in Financial Assets 13.9 -1.3 0 0 Accounts Receivable Turnover (x) 7.3 6.8 7 7

Others -9.6 -3.7 -29.2 -39.1 Inventory Turnover (x) 18.7 18.7 20 20

Cash Flows from Fin Activities 41.1 -19.6 10.1 25.4 Accounts Payable Turnover (x) 14.9 14.5 15.5 15.9

Chg in Financial Liabilities -6.2 -5 15 -15 ROA (%) 5.3 6.4 11.2 9.8

Chg in Equity 29.1 0 0 0 ROE (%) 10.5 11.7 19.6 17.5

Dividends Paid -0.9 -1.1 -1.1 -1.1 ROIC (%) 15.5 11.7 14.9 14.6

Others 19.1 -14.6 -3.8 -4.5 Liability to Equity Ratio (%) 89.9 76.1 74 81.1

Increase (Decrease) in Cash 33.3 -37.3 0.5 -4.2 Current Ratio (%) 115.9 130.3 126.8 133.4

Beginning Balance 14.6 47.9 10.6 11.1 Net Debt to Equity Ratio (%) 14.6 30 32 41.6

Ending Balance 47.9 10.6 11.1 6.8 Interest Coverage Ratio (x) 4.6 5.3 8.5 7.2




Simmtech (036710 KQ)

Steady growth with high undervaluation

Unrivaled leader in memory module PCB and BOC (respective MS of 35 and 40%)

Growing sales of high-end products including MCP and RDIMM

Deeply undervalued (2012F P/E of 7.0x)

We maintain our Buy call on Simmtech with a target price of W18,000 (2012F P/E

of 11.0x). Simmtech is the undisputed leader in memory module PCB and board-

on-chips (BOC), with global market shares of 35% and 40%, respectively. The

companyÊs customers include almost all major memory makers, including SEC.

The market cap of Daeduck Electronics, one of SimmtechÊs rivals, has exceeded

W500bn vs. W340bn of Simmtech. The valuation improvement at Daeduck was

driven mainly by: 1) increased sales of CSP (Chip Scale Packaging) used in mobile

DRAM and NAND, and 2) the sale of FC (Flip Chip)-CSP projected to begin in 1H12.

We believe that Simmtech is deeply undervalued compared to Daeduck, considering

that: 1) Simmtech also plans to enter the multi-layer (four and higher) CSP market

soon, and will start producing FC-CSP next year, 2) there is less than 10%

difference with Daeduck in terms of recent quarterly earnings and earnings

projections for the next year, and 3) SimmtechÊs CSP supply to SEC will likely

increase in 1H12.

We expect Simmtech to report 4Q revenues of W152bn (up 5.7% QoQ; down

2.6% YoY), and an operating profit of W16bn (up 45.6% QoQ; down 25.1% YoY),

on an OP margin of 10.4%. On a QoQ basis, revenues from MCP (Multi Chip

Packaging) and RDIMM (server-use module PCB) should edge up, and operating

profit will likely surge without one-off negatives (e.g., rising gold prices).

In 2012, revenues and operating profit are forecast at W660bn (up 10.3% YoY) and

W70bn (up 14.4% YoY; OP margin of 10.6%), respectively. These solid operating

results should be driven by: 1) a rise in RDIMM demand, 2) an increase in MCP

revenues along with a growing mobile demand, and 3) sales of new products

including FC-CSP. In the mid- to long-term, DDR4 and SSD (Solid State Drive) will

likely propel growth after 2013.

SimmtechÊs shares seem highly undervalued, currently trading at a 2012F P/E of

7.0x. The companyÊs P/B is only 1.7x, while its 2012F ROE is at a healthy level of

25.8%.

Buy (Maintain)


Share Price (12/29/11, W) 12,250




P/E(11F, x) 8.4


KOSPI 500.18






Free Float (%) 70.7

52-Week Low 9,600

52-Week High 18,000





S.H. Jeon (27.43%)

M.J. Lee (10.04%)

Allianz Global Investors (6.88%)

Price Performance

(%) 1M 6M 12M

Absolute 1.7 0.8 -8.6

Relative 3.32 13.65 2.08

40

60

80

100

120

140

160

12/10 4/11 8/11 12/11

Share price

KOSDAQ



12/09 497 51 10.3 49 1,814 74.3 33 - 3.7 13.9 6.4

12/10 577 85 14.8 71 2,599 111.8 144 94.1 5.4 3.0 5.2

12/11F 599 61 10.3 43 1,466 92.6 64 27.2 8.4 2.0 5.1

12/12F 660 70 10.6 52 1,624 100.7 102 25.8 7.5 1.8 3.9

12/13F 772 81 10.5 61 1,906 117.2 23 24.0 6.4 1.4 3.4





Table 25. SimmtechÊs quarterly and annual earnings forecasts (Wbn, %)


Revenues 148 155 144 152 155 161 169 175 577 598 660 772

% QoQ -4.9 4.3 -7.1 5.7 2.0 4.2 4.6 6.5

% YoY 13.5 7.6 -1.8 -2.6 4.5 4.4 17.5 15.3 16.1 3.8 10.3 16.9

Memory module PCB 64 70 66 70 70 71 74 75 244 270 289 328

Package substrate 81 82 77 78 82 87 91 96 315 317 356 428

Build up 1 1 2 2 1 1 2 2 5 5 5 6

BIB 3 2 2 3 3 3 3 3 13 9 10 10

Gross profit 25 26 20 26 26 27 29 30 117 97 112 131

% of Sales 17.1 17.1 13.9 17.0 17.0 17.0 17.0 17.0 20.3 16.3 17.0 17.0

SG&A 9 9 9 10 10 11 11 11 32 36 42 50

% of Sales 6.0 5.7 6.0 6.6 6.5 6.5 6.2 6.3 5.5 6.1 6.4 6.5

Operating profit 17 18 11 16 16 17 18 19 85 61 70 81

% QoQ -21.1 8.0 -39.7 45.6 3.2 3.7 7.5 3.0

% YoY -2.7 -26.9 -53.7 -25.1 -2.1 -6.0 67.6 18.6 66.1 -27.9 14.4 15.7

Net profit 11 12 8 12 13 12 14 14 71 43 52 61

% QoQ -28.3 5.8 -33.2 60.1 1.3 -5.9 14.6 4.7

% YoY -59.7 -7852.6 -78.6 -18.9 14.7 2.0 75.0 14.4 43.6 -39.6 22.1 17.4

Gross margin 17.1 17.1 13.9 17.0 17.0 17.0 17.0 17.0 20.3 16.3 17.0 17.0

OP margin 11.3 11.7 7.6 10.4 10.5 10.5 10.8 10.7 14.8 10.3 10.6 10.5

Net margin 7.4 7.5 5.4 8.2 8.1 7.3 8.1 8.1 12.3 7.2 7.9 7.9




Previous Revised Diff. Major earnings forecasts

11F 12F 11F 12F 11F 12F

Revenues 606 680 598 660 -1.2 -2.9

Operating profit 67 82 61 70 -8.4 -14.3

Net profit 49 60 43 52 -12.6 -12.8

OP margin 11.1 12.1 10.3 10.6

NP margin 8.1 8.8 7.2 7.9



Figure 80. Annual revenues and operating profit trends and forecasts Figure 81. Quarterly sales trend and forecast by mobile product


0

200

400

600

800

1,000

05 06 07 08 09 10 11F 12F 13F

0

25

50

75

100

Annual revenues (L) Annual operating profit (R)(Wbn) (Wbn)

Revenues and operating profit to expand on

product mix improvement (e.g., RDIMM and MCP)

0

20

40

60

07 08 09 10 11F 12F

0

10

20

30

40

50FMC (L)

FC-CSP (L)

MCP (L)

CSP (L)

Mobile-related revenues portion (R)

(Wbn) (%)

Simmtech's mobile-related products

to increase on the back of

mobile-related demand growth



Simmtech (036710 KQ/Buy/TP: W18,000)


(Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F

Revenues 576.6 598.5 660.3 772.1 Current Assets 117.7 183.1 292 321.4

Cost of Sales 459.5 501 548 640.9 Cash and Cash Equivalents 13 100.4 225.7 187.3

Gross Profit 117.1 97.5 112.3 131.3 AR & Other Receivables 49.8 43.6 30.9 56.1

SG&A Expenses 32 36.3 42 50 Inventories 48.4 37.6 13.7 46.3

Operating Profit (Adj) 85.1 61.2 70.3 81.3 Other Current Assets 0.7 0.7 0.8 1

Operating Profit 85.1 61.4 70.3 81.3 Non-Current Assets 323.3 287.3 311 336.3

Non-Operating Profit -5.7 -7.9 -4.7 -4.3 Investments in Associates 66.9 13.1 12.7 12.2

Net Financial Income 11.9 8.5 9.2 5.9 Property, Plant and Equipment 226.3 230.6 231.1 235.7

Net Gain from Inv in Associates 0.1 -0.5 -0.5 -0.5 Intangible Assets 0.5 2.5 1.5 1

Pretax Profit 79.4 53.3 65.5 76.9 Total Assets 441 470.3 603 657.7

Income Tax 8.7 10.5 13.2 15.5 Current Liabilities 259.2 281.5 251 230.9

Profit from Continuing Operations 70.7 42.8 52.3 61.4 AP & Other Payables 82.6 76.7 85.2 104

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 174.7 198.7 158.7 118.7

Net Profit 70.7 42.8 52.3 61.4 Other Current Liabilities 1.8 6.1 7 8.2

Controlling Interests 70.7 42.8 52.3 61.4 Non-Current Liabilities 45.4 9.7 124.9 142.7

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 36.6 0 110.9 128.6

Total Comprehensive Profit 70.7 42.8 52.3 61.4 Other Non-Current Liabilities 3.3 0 0 0

Controlling Interests 70.7 42.8 52.3 61.4 Total Liabilities 304.6 291.2 375.9 373.6


EBITDA 111.8 92.6 100.7 117.2 Capital Stock 14.5 14.7 14.7 14.7

FCF (Free Cash Flow) 143.6 63.7 102.4 23 Capital Surplus 78.8 82.1 82.1 82.1

EBITDA Margin (%) 19.4 15.5 15.3 15.2 Retained Earnings 31.4 82.6 130.6 187.7

Operating Profit Margin (%) 14.8 10.3 10.6 10.5 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 12.3 7.2 7.9 8 Stockholders' Equity 136.4 179.1 227.1 284.2


(Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F


Net Profit 70.7 42.8 52.3 61.4 P/CF (x) 4 4.8 4.8 4.1

Non-Cash Income and Expense 31.4 59.2 48.4 55.8 P/B (x) 3 2 1.8 1.4

Depreciation 26.2 30.8 29.4 35.4 EV/EBITDA (x) 5.2 5.1 3.9 3.4

Amortization 0.5 0.5 1 0.5 EPS (W) 2599.4 1465.5 1624.2 1906.1

Others -1.4 -12.2 4 5 CFPS (W) 3579.9 2537.8 2569.2 3022.1

Chg in Working Capital -9.5 37.5 50.3 -38 BPS (W) 4679.3 6015.5 7006.8 8794.5

Chg in AR & Other Receivables -7.4 34.5 12.6 -25.2 DPS (W) 170 150 150 150

Chg in Inventories -13 10.8 23.9 -32.6 Payout ratio (%) 6.9 10.1 8.3 7

Chg in AP & Other Payables -0.2 -8.4 8.5 18.8 Dividend Yield (%) 1.2 1.2 1.2 1.2

Income Tax Paid 0 -2.1 -13.2 -15.5 Revenue Growth (%) 16.1 3.8 10.3 16.9

Cash Flows from Inv Activities -108.4 -30.6 -67.9 -65.3 EBITDA Growth (%) 50.6 -17.2 8.8 16.4

Chg in PP&E -14.7 -35.8 -30 -40 Operating Profit Growth (%) 66.1 -27.9 14.4 15.7

Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 43.3 -43.6 10.8 17.4

Chg in Financial Assets 8.4 5.2 -20 -10 Accounts Receivable Turnover (x) 8.6 14.4 21.5 21.5

Others -102.1 -0.1 -17.9 -15.3 Inventory Turnover (x) 13.7 13.9 25.8 25.8

Cash Flows from Fin Activities 21 -14.5 55.5 -36.9 Accounts Payable Turnover (x) 15.2 16 18.8 18.8

Chg in Financial Liabilities -36.9 -7.8 10 -40 ROA (%) 17 9.4 9.7 9.7

Chg in Equity 57.3 1.9 0 0 ROE (%) 94.1 27.2 25.8 24

Dividends Paid 0 -4.9 -4.3 -4.3 ROIC (%) 31.2 20.8 26.8 31.4

Others 0.6 -8.6 -11 -10.2 Liability to Equity Ratio (%) 223.2 162.6 165.5 131.5

Increase (Decrease) in Cash 5.2 87.3 125.4 -38.5 Current Ratio (%) 45.4 65 116.4 139.2

Beginning Balance 8.3 13.5 100.7 226.1 Net Debt to Equity Ratio (%) 141.3 54.5 10.2 10.3

Ending Balance 13.5 100.7 226.1 187.6 Interest Coverage Ratio (x) 6.7 7 6.4 7.9




Disclosures

As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of HynixSemi and SamsungElec as an

underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies.

As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with HynixSemi and SamsungElec as an underlying asset, and other than this, Daewoo

Securities has no other special interests in the covered companies.

Stock Ratings Industry Ratings

Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving

Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes

Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening

Sell Relative performance of -10%

* Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))

* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.

* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development.

* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analystÊs estimate of future earnings.

The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Analyst Certification

The research analysts who prepared this report (the „Analysts‰) are registered with the Korea Financial Investment Association and are subject to Korean securities

regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication

about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy

prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage, and the Analysts do not serve as an officer,

director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits

from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is,

or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive

compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking,

proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of

interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.

Important Disclosures & Disclaimers

SamsungElec

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

12/09 6/10 12/10 6/11 12/11

(W) HynixSemi

0

10,000

20,000

30,000

40,000

50,000

12/09 6/10 12/10 6/11 12/11

(W) Eugenetech

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

12/09 6/10 12/10 6/11 12/11

(W) NEPES

0

10,000

20,000

30,000

40,000

12/09 6/10 12/10 6/11 12/11

(W)

SIMMTECH

0

5,000

10,000

15,000

20,000

25,000

12/09 6/10 12/10 6/11 12/11

(W)



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