Semiconductor weekly comment

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1 Sector Report Semiconductor weekly comment Hyun-joon Shin Brian Shim Mem prices to stabilize on mobile app, low capex DDR3 spot price rise likely to slow, contract price to stabilize DDR3 spot prices should stay almost flat after surging more than 3% last week. DDR3 2Gb 1,333MHz spot price to fall 1% (US$2.27 US$2.25) DDR3 1Gb 1,333MHz spot price to fall 3% (US$1.19 US$1.16) DDR3 contract prices, which have declined for six months, are likely to stabilize. February 15, 211 KOREA Semiconductors NAND prices should stay flat on strong demand for mobile applications NAND flash 32Gb MLC spot price to drop 2% (US$5.97 US$5.83) NAND flash 32Gb MLC spot price to drop 2% (US$4.35 US$4.27) DRAM capex decline to benefit supply-demand dynamics 211 capex for memory to shrink 1% y-y, for commodity DRAM over 3% y-y. As North American book-to-bill ratio has fallen to below 1, financial conditions at second-tier semicon makers, including Elpida, have weakened. Demand for mobile DRAM and NAND flash will likely remain strong on continued smartphone launches and tablet PC follow-up models, starting with the Galaxy S2 unveiled on Feb 13. Samsung Electronics (SEC) benefits the most from strong demand for mobile apps, and with the adoption of the Exynos mobile application processor (AP) and supply of Super Plane-to-Line Switching (PLS) displays, Apple s sales contribution to SEC should grow to around W8.6tn in 211. We expect the semicon and telecom divisions to remain healthy as follow-up models to the Galaxy S and Galaxy Tab are released. DRAM spot and contract prices NAND flash spot and contract prices (%) ($) (%) ($) Premium/contract price (LHS) 1. DDR3 1Gb 1333 MHz spot (RHS).5 DDR3 1Gb 1333 MHz contract (RHS). Mar-1 May-1 Aug-1 Nov-1 Feb Premium/contract price (LHS) NAND 16Gb MLC spot (RHS) NAND 16Gb MLC contract (RHS) -5. Sep-8 Mar-9 Sep-9 Mar-1 Aug-1 Feb-1 Source: DRAMeXchange, Tong Yang Securities Source: DRAMeXchange, Tong Yang Securities Tong Yang Research

Semiconductor Weekly Comment With Galaxy S2, SEC presence in smartphones to rise After successfully launching the Galaxy S, SEC will likely solidify its presence in the smartphone market with the

As competition between Galaxy S2 and to-be-released iphone 5 will likely expand the smartphone market, the markets for mobile DRAM, solid state drive (SSD), and application processor (AP) should grow

Smartphone specifications Model Galaxy S2 iphone 4 Galaxy S Manufacturer SEC Apple SEC Image Display size 4.3 inches 3.

2 Semiconductor Weekly Comment With Galaxy S2, SEC presence in smartphones to rise After successfully launching the Galaxy S, SEC will likely solidify its presence in the smartphone market with the Galaxy S2, which features a 1GHz dual-core processor, Android 2.3 ( Gingerbread ) operating system, and a Super AMOLED Plus display. As competition between Galaxy S2 and to-be-released iphone 5 will likely expand the smartphone market, the markets for mobile DRAM, solid state drive (SSD), and application processor (AP) should grow further, benefiting the semicon business. We believe SEC will benefit the most from this virtuous cycle of market expansion. Smartphone specifications Model Galaxy S2 iphone 4 Galaxy S Manufacturer SEC Apple SEC Image Display size 4.3 inches 3.5 inches 4 inches Resolution 8x48 96x64 8x48 Screen Super AMOLED Plus LED-backlit multi-touch Retina display with IPS Super AMOLED touchscreen OS Android 2.3 ios 4 Android 2.1 CPU 1 GHz dual core 1 GHz Apple A4 1GHz ARM Cortex A8 RAM 1GB 512MB 512MB Storage SSD 16/32GB SSD 16/32GB SSD 16GB 3G Yes Yes Yes Wi-Fi Yes Yes Yes Bluetooth Yes Yes Yes Camera Back: 8 megapixel Front: 2 megapixel Back: 5 megapixel Front:.3 megapixel Back: 5 megapixel Front: 1.3 megapixel GPS Yes Yes Yes Battery life Video playback: up to 1 hrs Talk time: up to 7 hrs Video playback: up to 6 hrs Weight 116g 137g 121g Size x 66.1 x 8.49 mm x 58.6 x 9.3 mm x 64.2 x 9.9 mm SD/USB SD No SD Source: Company data, Tong Yang Securities 2 Tong Yang Securities Inc.

3 Company Report Sector Report Major industry news isuppli predicts mobile DRAM market will grow 71% y-y in 211 isuppli forecasts that mobile DRAM shipments in 211 will grow 71% y-y to 2.9bn Gb. Despite overall weakness in the DRAM market, we expect the mobile DRAM market to increase exponentially backed by the growth of smartphones and tablet PCs. Comment: With the dramatic increase in mobile DRAM sales, we expect mobile DRAM supply growth to beat market expectations thanks to Elpida s aggressive capex and Inotera s pursuit of mass producing 5nm mobile DRAM. However, they are unlikely to narrow their gaps vs SEC and Hynix in mobile DRAM, where density growth has greater impact than in commodity DRAM. In particular, Elpida, which is suffering increasing operating losses, may have to shrink commodity DRAM production to increase capex for mobile DRAM, and thus, we expect very tight supply for commodity DRAM from 3Q11. Further, as mobile DRAM supply is not expected to increase as fast as demand, the mobile DRAM market should continue to grow. As such, we believe the overall DRAM market will turn around earlier than expected. Global mobile DRAM growth estimate (bn Gb) Shipment Growth (% y-y) Source: isuppli, Tong Yang Securities Market share by mobile DRAM shipment (%) Manufacturer 4Q9 1Q1 2Q1 3Q1 SEC Hynix Elpida Micron Source: isuppli, Tong Yang Securities Tong Yang Securities Inc. 3

4 Semiconductor Weekly Comment Micron CEO says global DRAM makers will cut capex in 211 Micron CEO says DRAM capex will not increase in 211, as Asian DRAM makers except SEC lack cash to repay bonds due next year. Comment: Micron expects non-memory capex in 211 to fall 1% y-y, and in particular, capex for commodity DRAM to drop more than 3%. Indeed, book-to-bill (BB) ratios for semicon equipment have already turned downward, with North American BB ratio fell to below 1 in Oct 21. With downward pressure on contract prices, which are now down to some memory makers cash costs, weighing on memory makers, we expect DRAM contract prices to stabilize earlier than expected following contract price negotiations in February. 4 Tong Yang Securities Inc.

5 Company Report Sector Report [Appendix 1] Key industry indicators Global semicon industry: monthly sales Dom semicon industry: monthly exports and y-y growth (U S$bn) NAND (LHS) DRAM (LHS) Total semiconductors (RHS) Mar-9 Jul-9 Nov-9 Mar-1 Jul-1 Nov-1 Source: WSTS, Tong Yang Securities (U S$bn) (U S$ bn) Semic onduc tor exports (LHS) Growth (% y-y, RHS) Mar-9 Jul-9 Nov-9 Mar-1 Jul-1 Nov-1 Source: Ministry of Knowledge Economy, Tong Yang Securities (% ) Semicon equipment book-to-bill ratio IT-related retail sales in the US North A meric an BB ratio Japanese BB ratio (U S$bn) 9.5 US electronic retail sales (LHS) (U S$bn) C omputer and related devices retail sales in the US (RHS) Mar-9 Jul-9 Nov-9 Mar-1 Jul-1 Nov Mar-9 Jul-9 Nov-9 Mar-1 Jul-1 Nov US new orders and inventory/shipment Taiwan PC makers: monthly sales and y-y growth (U S$bn) Computer & electronics new orders in the US (LHS) Computer & electronics inventory/shipment in the US (RHS) (months ) (T WDbn) Quanta (LHS) Wistron (LHS) Inventec (LHS) Growth (% y-y, RHS) Compal (LHS) ACER (LHS) Asustek (LHS) (% ) Mar-9 Jul-9 Nov-9 Mar-1 Jul-1 Nov-1 Mar-9 Jul-9 Nov-9 Mar-1 Jul-1 Nov-1 Source: Taiwan Stock Exchange, Tong Yang Securities Tong Yang Securities Inc. 5

6 Semiconductor Weekly Comment [Appendix 2] Earnings consensus DRAM Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation 1Q11E 2Q11E 3Q11E 4Q11E 211E 212E 211E 212E Samsung Sales 38,57,438 4,761,777 43,354,83 45,89, ,973,57 185,522,319 P/E Market cap (Wbn) OP 3,497,94 4,4,962 4,996,238 4,68,789 17,295,477 19,273,17 P/B ,376 NP 3,297,553 3,748,3 4,554,953 4,242,417 15,637,359 17,74,18 ROE Hynix Sales 2,553,726 2,725,281 2,991,75 3,24,512 11,347,44 12,535,189 P/E Market cap (Wbn) OP 238,438 42, ,25 595,19 1,826,659 2,154,191 P/B ,531 NP 19,47 314, ,55 517,884 1,627,79 1,99,468 ROE Elpida Sales 2,158,48 2,6,561 1,468,33 1,378,26 7,133,981 6,92,123 P/E Market cap (Wbn) OP 54, ,53-159,483-12, ,545 58,43 P/B.9.9 3,463 NP 386, ,162-22,21-176, ,17 187,541 ROE Micron Sales 2,714,862 2,315,7 2,485,63 2,691,931 1,18,134 11,377,761 P/E Market cap (Wbn) OP 33,612 13, ,35 316,77 1,15,271 1,668,484 P/B ,715 NP 384,875 36,23 17,97 274, ,433 1,489,923 ROE Nanya Sales 435,729 58, ,32 842,756 2,514,96 2,923,815 P/E N/A 25. Market cap (Wbn) OP -165, ,245-47,858 68, ,694-74,65 P/B ,738 NP -275, ,425-66,438 56, ,324 18,32 ROE Powerchip Sales 498,689 57,6 658,935 71,482 2,429,112 2,841,66 P/E N/A 9.4 Market cap (Wbn) OP N/A N/A N/A N/A N/A N/A P/B ,41 NP -157,513-19,5-5,195 1,4-164, ,893 ROE ProMOS Sales 172,243 17, ,226 N/A 652,875 N/A P/E N/A N/A Market cap (Wbn) OP N/A N/A N/A N/A -326,668-5,127 P/B 1.1 N/A 21 NP -87,375-6,21-43,968 N/A -388,487 N/A ROE N/A N/A NAND Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation 1Q11E 2Q11E 3Q11E 4Q11E 211E 212E 211E 212E Toshiba Sales 21,543,941 24,414,161 23,34,69 26,389,331 89,853,555 94,274,154 P/E Market cap (Wbn) OP 311, , ,52 1,69,296 3,512,6 4,237,149 P/B ,295 NP -36, ,825 24, ,38 1,232,31 1,863,459 ROE SanDisk Sales 1,369,553 1,458,2 1,62,855 1,773,542 6,223,564 7,45,875 P/E Market cap (Wbn) OP 363,9 376,19 413, ,363 1,627,25 1,766,919 P/B ,471 NP 3,254, , ,586 31,96 1,114,499 1,19,245 ROE Tong Yang Securities Inc.

7 Company Report Sector Report PC Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation 1Q11E 2Q11E 3Q11E 4Q11E 211E 212E 211E 212E HP Sales 37,17,73 36,656,354 36,475,451 39,335, ,511, ,217,543 P/E Market cap (Wbn) OP 4,254,139 4,138,774 4,113,79 4,68,382 17,315,991 18,169,765 P/B ,983 NP 3,254,351 3,148,469 3,13,643 3,58,29 13,76,956 13,822,751 ROE DELL Sales 16,836,343 17,84,272 17,939,82 17,686,96 69,79,515 72,365,542 P/E Market cap (Wbn) OP 851,352 1,15,734 1,32,995 1,18,686 4,241,843 4,482,687 P/B ,368 NP 59, ,68 724, ,442 3,132,572 3,229,871 ROE Acer Sales 6,57,887 6,314,475 7,211,82 7,818,624 27,61,241 3,566,78 P/E Market cap (Wbn) OP 178, ,795 24, , ,638 1,2,187 P/B ,9 NP 14, ,57 195,14 219,353 7,194 89,99 ROE ASUS Sales 3,72,521 3,113,739 3,581,757 3,89,821 13,676,598 15,486,764 P/E Market cap (Wbn) OP 123, , , ,351 58, ,47 P/B ,952 NP 134, , , , , ,78 ROE Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation Non-memory 1Q11E 2Q11E 3Q11E 4Q11E 211E 212E 211E 212E Intel Sales 13,11,419 13,321,188 14,228,554 15,46,995 55,638,425 59,17,854 P/E Market cap (Wbn) OP 4,19,862 4,16,447 4,65,232 5,178,617 17,878,918 18,98,83 P/B ,689 NP 3,113,61 2,934,626 3,42,156 3,812,956 13,142,288 13,682,36 ROE AMD Sales 1,81,883 1,777,944 1,912,521 2,29,822 7,514,696 7,957,211 P/E Market cap (Wbn) OP 85,985 12,38 178,642 23,844 63, ,969 P/B ,357 NP 43,277 74, , , , ,854 ROE TI Sales 3,759,929 3,935,32 4,126,937 4,48,799 15,84,49 16,261,942 P/E Market cap (Wbn) OP 1,113,198 1,2,783 1,36,59 1,264,968 4,841,614 5,48,34 P/B ,1 NP 772,1 833,368 9,76 869,69 3,429,574 3,55,13 ROE Foundry Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation 1Q11E 2Q11E 3Q11E 4Q11E 211E 212E 211E 212E TSMC Sales 4,61,69 4,454,14 4,825,995 4,678,55 18,177,213 19,94,18 P/E Market cap (Wbn) OP 1,444,823 1,621,45 1,85,93 1,697,763 6,646,526 7,217,51 P/B ,45 NP 1,383,194 1,541,948 1,7,65 1,579,862 6,168,455 6,596,667 ROE UMC Sales 1,126,337 1,197,14 1,337,245 1,342,854 5,112,27 5,795,477 P/E 8.5 N/A Market cap (Wbn) OP 17, , ,294 N/A 984,423 1,28,736 P/B N/A N/A 8,951 NP 175,57 2, ,929 N/A 938, ,325 ROE Tong Yang Securities Inc. 7

8 Semiconductor Weekly Comment [Appendix 3] Share performance DRAM makers: share performance 18 Samsung Hynix 16 Elpida Micron Feb-1 May-1 Aug-1 Nov-1 NAND flash memory makers: share performance 24 Samsung Toshiba 22 Hynix Sandisk Feb-1 May-1 Aug-1 Nov-1 PC makers: share performance Non-memory makers: share performance HP Acer Dell ASUS Samsung AMD Intel TI Feb-1 May-1 Aug-1 Nov-1 4 Feb-1 May-1 Aug-1 Nov-1 8 Tong Yang Securities Inc.

9 Company Report Sector Report Disclosures & disclaimers This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of Tong Yang Securities Inc. As of the publication date of this report, Tong Yang Securities Inc. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by Tong Yang Securities Inc. to any institutional investors or third parties prior to its publication. The analyst (s) of this report or the analyst (s) spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report. Analyst certification I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report. Stock and sector ratings Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low) that are based on the expected absolute return of a stock over the next 6-12 months. - Buy: Low Risk if a stock is expected to return 1% or more; High Risk if a stock is expected to return 2% or more - Hold: Low Risk if a stock is expected to return between -1 and +1%; High Risk if a stock is expected to return between -2 and +2% - Sell: Low Risk if a stock is expected to decline by 1% or more; High Risk if a stock is expected to fall by 2% or more Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting. - Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting Tong Yang Securities Inc. 9

10 Semiconductor Weekly Comment Tong Yang Securities International Network Seoul Head Office Tong Yang Securities Building 185 Euljiro 2-ga, Jung-gu Seoul, Korea Tel: Corporate website: Research Center Tong Yang Securities Building #23-8 Yeoido-dong Youngdeungpo-gu, Seoul, Korea Tel: Hong Kong Tong Yang Securities Hong Kong Limited Unit 328-9, 32/F, Alexandra House 18 Chater Road, Central, Hong Kong Tel: New York 15 East 52nd Street 25th Floor New York NY 122, U.S.A. Tel: Tokyo , Shin-Kokusai Building Maronouchi, Chiyoda-ku Tokyo, Japan 1-5 Tel: Ho Chi Minh Suite 295, Saigon Trade Center 37 Ton Dou Thang Street District 1, Ho Chi Minh City, Vietnam Tel: Manila Tong Yang Savings Bank Ground Floor, Chantham House 116 Valero Corner, Herrera Street Salcedo Village, Makati City Metro Manila, Philippines Tel: Phnom Penh #138, Norodom Boulevard Sangkat Tonle Bassac Khan Chamkarmorn Phnom Penh, Cambodia Tel: Tong Yang Securities Inc.

Semiconductors. Overweight. Sector Note. Samsung Electronics bets on 14nm FinFET

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