Post on 13-May-2022
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
10 March 2017 Asia Pacific/Japan Equity Research
Technology
Technology sector Research Analysts
Hideyuki Maekawa
81 3 4550 9723
hideyuki.maekawa@credit-suisse.com
Akinori Kanemoto
81 3 4550 7363
akinori.kanemoto@credit-suisse.com
Mika Nishimura
81 3 4550 7369
mika.nishimura@credit-suisse.com
COMMENT
Asia feedback (Semiconductor/SPE): mounting risks
■ Summary: As noted in our latest hardware outlook based on our Asia feedback (Hardware): Spring hasn't yet come published on 10 March, excessive
inventory in PCs and some Chinese smartphones are leading to cuts in production plans. We think the startup for new Chinese smartphones in spring and beyond will lag versus expectations, and note a component glut in the supply chain due to production plan slippages triggered by application processor (AP) supply delays. As we anticipated, risk appears to have mounted for a cutback in semiconductor production in the second half of 2Q 2017. There appears to be some excess inventory in both PC DRAM and mobile RAM, the supply–demand balance for which was tight previously, and a glut due to cuts in demand projections, so we anticipate a peak-out in DRAM prices. With the predominant outlook pointing to two new iPhone models, one with an increase to 64GB and the other with 256GB, we continue to look for an increase in installed NAND density on smartphones. In addition, enterprise demand appears to be robust; as this could lead to a sustained tightness in NAND supply–demand, we anticipate ongoing price increases not only in 1Q but also 2Q. As for semiconductor capex, Taiwan foundries are yet to start 7nm node mass production investment; we thus note a muted equipment order trend than anticipated previously. Meanwhile, 3D NAND investment appears to be firm, with concurrent development in multiple projects. To sum up, we see a limited number of positives, but expect mounting risks in semiconductor production, DRAM prices, and foundry SPE orders.
■ Key takeaways from our channel check: (1) Taiwan foundries’ 300mm
capacity utilization remains high at 90-95%. No change in plans to fully utilize the 28nm process, which is used mainly on Chinese smartphones. (2) The predominant outlook points to two new iPhone models, one with an increase to 64GB in installed NAND density and the other with 256GB. (3) An outlook for NAND price increases of 5–30% in 1Q and 5–20% in 2Q for all applications. (4) In terms of 64-layer 3D NAND development, SSD sample shipments are one to two months behind schedule, even at the leading makers. (5) With PC DRAM inventory above warehouse capacity in some cases, Chinese smartphone makers have also revised down 1H 2017 demand projections. (6) A sharp rise in server DRAM demand in tandem with the change in CPU platform and the resultant shift from 16GB to 32GB modules. (7) Concrete negotiations yet to begin on Taiwan foundries’ 7nm mass production. (8) Some initial inquiries for Chinese 3D NAND; technology appears to be Korean in origin. (9) Request for the postponement of delivery dates by Taiwanese OSATs due to delays in the startup of new APs. (10) After the new iPhone models, Chinese smartphones now looking at iris scanner; this could lead to back-end SPE (dicer) demand.
■ Stock calls: We forecast lackluster performance across the technology sector
due to mounting risks of a correction in semiconductors. We expect a correction in components to play the role of a catalyst. As for stocks, we downgrade Tokyo Electron and Hitachi Kokusai Electric to NEUTRAL, as the stocks lack catalysts for SPE orders. Once risks have played out and share prices have corrected, we see investors favoring back-end SPEs (Disco) with a good investment theme. Toshiba’s NAND business remains brisk, and we believe business conditions continue to be favorable for inviting bids for its memory business.
10 March 2017
Technology sector 2
Executive summary and investment implications
Semiconductors: Operating rates still high at Taiwan
foundries; DRAM supply–demand varies by
application/customer, but some inventories appear
excessive; further tightness in NAND supply
The leading foundry and LSI makers operating at full capacity; corrections begin at mid-size foundries
Since our November survey, we note signs of a rebound in Taiwan foundries’ 300mm
capacity utilization (input basis), one of the advance indicators we use for technology
stocks. Operating rates, having reached 90-95% for overall, and 28nm process mainly for
smartphone is 100% recently, are likely to remain high heading into 2Q. However, the risk
of inventory adjustments appears to have escalated due to sluggish PC production in 1Q,
Chinese smartphone inventory adjustments, and delays in new product launches initially
scheduled for 2Q. We view the current 100% operating rates and end-product production
trends as unbalanced.
Also, given swings in the market share of their customers, we think it is rather odd the
leading TSMC and Samsung Electronics are operating at full capacity. Considering
(1) lower volume on the 28nm node line due to Qualcomm’s shift to the 14nm node, (2) a
change in the 14nm node’s foundry from TSMC to Samsung, and (3) market share swings
in Chinese smartphones (from Mediatek to Qualcomm), it would be normal for TSMC to
cut back production, but the 28nm node line is currently operating at full capacity and
some observers have even mentioned increased output. Meanwhile, rivals such as UMC
and SMIC have faced corrections in their 300mm operating rates since the start of 2017,
which suggests a potential for market share gains by TSMC. However, we believe overall
demand is in a downtrend, delaying AP shipment for new products and see inventory
adjustments as highly likely unless Chinese smartphones register a seasonal recovery.
Also, the tightness in the discrete device demand-supply balance reported in our previous
survey is persisting. We also note negotiations for raising price in some products.
PC DRAM and some mobile DRAM inventories in over-supply; server DRAM in short supply
As we anticipated in our previous survey, the DRAM supply–demand balance began to
crumble starting in the latter part of 1Q 2017. For some manufacturers, PC DRAM
inventory has risen to fill the available warehouse space. We also note some glut in mobile
RAM due to twin impacts from Chinese smartphone inventory adjustments and delays in
new product launches scheduled for 2Q. Meanwhile, server DRAM demand has shifted
from 16GB to 32GB modules in tandem with the shipment of Intel’s Skylake CPU platform
and we note supply shortages due to a sharp rise in this demand. There appears to be
some variation in supply–demand conditions by application and customer, but overall the
supply is currently unbalanced. Despite of excessive inventory at downstream, as DRAM
maker inventories and market inventories are still low, we see little risk of a price
deterioration and still see room for a 10% increase in DRAM prices heading into 2Q.
Ongoing NAND supply tightness; prospects for raising price again in 2Q
NAND supply tightness has continued in place due to reduced 2D NAND supplies.
Increases in installed NAND density on smartphones and data center-use SSDs are
driving NAND demand. Prices have risen 5–30% QoQ in 1Q and should rise another 5–
20% in 2Q.
10 March 2017
Technology sector 3
The next generation iPhone 8 is likely to come in 64GB and 256GB NAND density
configurations (we had expected a 512GB version, but we believe this is yet to be
confirmed). With the majority of high-end Chinese smartphones equipped with 128GB, we
note a move from 32GB to 64GB on mid-range and low-end smartphones and anticipate
ongoing bit growth in smartphones in 2H 2017 (we previously forecast smartphone bit
growth to underperform NAND bit growth overall).
We expect 3D NAND adoption to increase with the spring model release of Chinese
smartphones and look for it to become mainstream in the autumn models. In the spring
models, supplies will be limited to that from Samsung, but we see prospects for Toshiba to
begin supplies for the autumn models. In addition to Samsung, Micron appears to be
moving towards approval of cSSDs for PCs and eSSDs for servers. Since Toshiba is
counting on 64-layer NAND, it plans to submit cSSD samples in 2Q. Overall, we note a
delay of one to two months in 64-layer NAND sample shipments at companies and expect
adoption to be limited to 48-layer NAND (32-layer NAND at some makers) for SSD
applications in 2017. Also, with regard to mass production of 64-layer and 72-layer NAND,
both Samsung and Toshiba have established a batch etching process; but SK Hynix and
Micron likely to use a two-pass etching process on two stacks of 32 and 36 layers with
inferior technical and cost performance.
Investment implications: Risk of a growing likelihood of semiconductor inventory adjustment across the technology sector; DRAM stocks bear close monitoring; continued supply–demand tightness in NAND stocks
Growing inventory adjustment risk at Taiwanese foundries is a negative for all technology
sector stocks. A QoQ sales decline heading into 2Q at Taiwanese foundries and
corrections in Chinese smartphones represent the consensus view in Asian equity
markets. However, until the severity of the corrections has been ascertained, we think it
will be difficult to regard the onset of inventory adjustments as the end of negative news.
For Japanese stocks, we do not specifically incorporate the risk of an adjustment in the
semiconductor inventory cycle, but if Taiwanese foundries pare back inventory,
subcontractors whose business is closely tied to the operating rates of Taiwanese
foundries will bear the largest risk of inventory adjustments.
The DRAM supply–demand situation varies considerably by application and customer, but
we do not see the current conditions as something that could trigger a major price collapse
overall. We also see no particular negative impact for the equity markets due to DRAM
prices. However, the market view, which has been overwhelmingly bullish on DRAM prices
until now, is getting increasingly divided. We believe this factor could restrict share price
upside.
We also note instances of NAND prices raised heading into 2Q due to further supply–
demand tightness. This presents a never-again opportunity for Toshiba’s memory
business (whose sale is currently under competitive bidding) to be assessed at the
maximum value.
10 March 2017
Technology sector 4
SPE: Foundry investments pause for front-end SPE,
but 3D NAND carries on. Initial inquiries from China
memory-related. Corrections in smartphone-related
orders for back-end SPE, but investment in
fingerprint/iris sensors
Front-end SPE: Drop-off period in Taiwan foundry investment before 7nm process investment; companies roll-out 3D NAND investment; a major inquiry from Chinese NAND
Orders linked to TSMC’s 10nm node mass production line capex, which have continued
without a break since March 2016, are almost at an end and we expect deliveries to be
completed within 1H 2017. We note investment in 7nm pilot lines, but have yet to see a
concrete plan for establishing a mass production line. However, as Taiwanese foundry
makers are planning to proactively invest in the 7nm process, we regard the present
merely as a drop-off period in business discussions.
Samsung is continuing investment in new 3D NAND capacity at the Pyeongtaek plant, but
we also note investment by Toshiba, SK Hynix, and Intel Dalian. Spending appears to be
steady and there are no major companies' planning changes here since our previous
survey. We understand that there are initial equipment inquiries related to Chinese NAND
investment and expect concrete negotiations to begin soon.
We have yet to confirm a proactive stance on DRAM investment as companies seem
cognizant of the risk that the startup for leading-edge processes may not be as swift as in
the past.
Judging from trends in package substrate material trends, we believe Intel’s 10nm process
start-up may have been delayed as we had anticipated; there is even the likelihood of the
third generation 14nm process (tick-tock-tock or perhaps tick-tock-tock-tock) being
prioritized.
Back-end SPE: Solid investment in fingerprint/iris sensors
While there is a seasonal rebound overall, we note requests for postponement of delivery
dates by OSATs due to delays in the start-up of new smartphone application processors
(APs), making market trends look mixed. However, as seen in 2016, fingerprint sensor
investment continues to track at high levels. Investment in iris sensors, a function we
expect on the 2017 model of the leading North American smartphone maker, has
commenced in 1Q 2017. Also, Chinese LED-related investment appears to have resumed
after a gap of a few years.
In FO-WLP/PLP-related investment, development is currently underway at different
companies, but we understand that there are no major investments for APs due in 2017 (in
line with our previous outlook). Korea’s SEMCO plans to invest in a new FO-PLP line in
late-3Q 2017 for PMICs. We note moves on a new 450mm development project in the
second-generation InFO-WLP (rolled out at AP mass production). In FO-PLP
development, OSATs and Taiwanese LCD panel makers have apparently begun
discussions with equipment makers as 3.5G line equipment can be used by both.
Investment implications: near-term preference order: memory front-end SPE, assembly back-end SPE, tester back-end SPE, foundry front-end SPE
We think there is a high risk of semiconductor inventory adjustments that would indirectly
limit upside for SPE-related stocks. Judging by current capex trends, business conditions
are not conducive to a major order recovery (except along specific themes) in either front-
end or back-end SPE. Overall, we see little reason to invest, although based on the
10 March 2017
Technology sector 5
business climate, our preference order would be memory front-end SPE (Tokyo Electron,
Hitachi Kokusai Electric), assembly back-end SPE (Disco), tester back-end SPE
(Advantest: 6857), and foundry front-end SPE (SCREEN: 7735).
We downgrade Tokyo Electron and Hitachi Kokusai from Outperform to NEUTRAL partly
due to a lack of new catalysts.
Back-end SPE stocks with promising company-specific themes would likely appeal after a
correction triggered by semiconductor inventory adjustment.
Figure 1: Semiconductor/SPE valuations (as of 9 March)
Source: Credit Suisse estimates, Thomson Reuters Datastream
Closing Price: 03/09/17Closing
Price:
Mkt Price EPS
Cap Cur TP % to TP P/E, x
3/16 3/17 3/18 3/16 3/17 3/18 3/17 3/17 3/17 3/17 3/17 3/17
A E1 E2 A E1 E2 % % x x x %
Semiconductor
Toshiba 6502 OUTPERFORM 867 205 460 124.6 -108.6 48.8 47.7 -2.0 4.2 4.3 0.0 47.9 1.6 0.3 3.4 96.7 -14.8 -56.0 0.6 -17.4 -57.9 -16.1
SPE
Hitachi Kokusai Electric 6756 NEUTRAL 268 2,608 2,560 -1.8 126.5 89.6 129.5 10.7 29.1 20.1 1.1 9.3 2.6 1.3 10.9 -50.4 4.9 21.1 109.6 2.3 19.2 93.0
Tokyo Electron 8035 NEUTRAL 1,906 11,615 10,500 -9.6 461.1 612.6 918.6 15.9 19.0 12.6 2.6 17.1 3.1 2.2 10.2 -39.5 2.9 13.8 59.5 0.3 11.9 42.8
SCREEN Holdings 7735 NEUTRAL 358 7,590 7,380 -2.8 79.4 548.2 651.6 56.1 13.8 11.6 1.0 19.5 2.4 1.2 9.5 -13.6 7.7 19.0 79.0 5.1 17.0 62.3
Disco 6146 NEUTRAL 635 17,720 16,000 -9.7 646.1 672.3 742.3 14.8 26.4 23.9 2.0 13.8 3.5 4.1 14.2 -46.2 9.2 35.1 75.4 6.7 33.1 58.8
Advantest 6857 UNDERPERFORM 347 1,978 1,390 -29.7 38.3 69.8 72.6 27.1 28.4 27.2 1.2 12.2 3.2 1.8 14.4 -54.8 -2.3 26.4 87.5 -4.8 24.5 70.8
JEOL 6951 OUTPERFORM 56 576 510 -11.5 42.3 -11.9 9.3 13.5 -48.3 62.2 1.2 -3.8 1.9 0.7 24.7 39.3 3.6 15.7 13.8 1.1 13.7 -2.9
NuFlare Technology 6256 NEUTRAL 86 7,190 5,820 -19.1 767.7 803.2 259.4 6.5 9.0 27.7 1.7 17.0 1.4 1.7 5.4 -1.3 12.2 27.9 35.2 9.6 26.0 18.5
Lasertec 6920 NEUTRAL 70 2,951 1,710 -42.1 143.2 134.2 136.6 8.7 22.0 21.6 1.6 13.3 2.8 3.3 13.1 -26.9 10.4 47.3 92.5 7.9 45.4 75.8
TOWEA 6315 OUTPERFORM 49 1,939 1,680 -13.4 71.6 129.9 173.8 10.0 14.9 11.2 0.5 14.4 2.1 1.7 8.7 -11.3 20.1 47.9 166.7 17.5 46.0 150.0
Micronics Japan 6871 UNDERPERFORM 39 962 775 -19.4 144.7 13.2 27.6 7.5 72.7 34.8 1.6 2.4 1.8 1.1 9.0 -45.5 2.8 -10.9 -9.2 0.2 -12.8 -25.8
Tokyo Seimitsu 7729 NEUTRAL 152 3,675 2,740 -25.4 234.6 223.4 224.7 9.4 16.5 16.4 1.8 11.3 1.8 1.7 7.9 -37.4 -2.1 15.2 74.3 -4.7 13.3 57.6
Company
3M 12M
Relative performance
%
1M 3M 12M 1M
EV /
SalesCS EPS
JPY, bn JPY JPY %
EV /
EBITDAROE PBR
Net
D/E
Absolute
performance %Code Rating
Dvd
Yld
10 March 2017
Technology sector 6
Figure 2: Japanese technology stocks' performance over the past six
months
Source: Thomson Reuters
-39.0%-11.0%
-4.2%-4.1%-2.5%
0.0%1.1%2.8%2.9%3.0%4.2%4.4%5.0%5.6%10.5%12.1%13.9%15.7%16.1%16.4%17.4%18.7%19.2%20.3%21.2%23.1%23.2%23.3%24.7%25.0%26.2%26.5%27.0%27.6%27.6%28.1%28.9%29.0%29.1%29.3%29.5%32.2%33.7%34.5%35.8%35.8%36.2%37.1%37.7%38.1%43.5%43.9%44.2%45.5%48.1%49.4%49.9%50.9%55.7%
69.9%165.7%
-100% 0% 100% 200%
TOSHIBAMEDIATEK
QUALCOMMPIONEER
JAPAN AVNS.ELTN.IND.SANDISK
INTELTAIWAN SEMICON.MNFG.
MITSUMINASDAQ
SONYNECTDK
CASIO COMPUTERNIKON
CIRRUS LOGICTOPIX ELECTRIC APPLIANCES
NIKKEI 225 STOCK AVERAGEJVC KENWOOD
NIDECSCREEN HOLDINGS
TEXAS INSTRUMENTSNIKKEI 225
HIROSEPANASONIC
MURATASK HYNIX
FUJITSUASML HOLDING
KYOCERATOKYO ELECTRONNISSHA PRINTING
QORVOSOXX
SAMSUNG ELECTRONICSMITSUBISHI ELECTRIC
LAM RESEARCHHITACHI
ALPINE ELECTRONICSSEAGATE TECH.APPLIED MATS.
KLA TENCORCITIZEN HDG.
APPLEADVANTEST
SHINKOIBIDEN
CLARIONTAIYO YUDEN
BROADCOMNGK SPARK PLUG
WESTERN DIGITALTERADYNE
SKYWORKS SOLUTIONSHITACHI KOKUSAI
DISCOSEIKO HOLDINGS
ALPSWACOM
JAPAN DISPLAYSHARP
6 month stock returns
10 March 2017
Technology sector 7
Semiconductor market outlook
Logic makers, foundries, CIS
Key takeaways
■ We understand inventory adjustment at Chinese smartphone makers (risks include
Qualcomm/Mediatek's APs, Omnivision's CIS) had no impact on semiconductor
production. Inventories of Qualcomm's MSM8996 AP for high-end smartphones were
excessive and production was adjusted, but there were no changes in production of
semiconductors for mid-range and low-end smartphones.
■ Capacity utilization at Taiwanese foundries (300mm input basis) remained high at 90-
95%. We expect a slight decline in utilization in 2Q but it should remain high. We
understand the largest maker won share away from the mid-tier manufacturer, which
adjusted capacity utilization from February.
■ TSMC continued to operate at full capacity in 28nm processes, which are heavily
weighted toward smartphones. However, utilization in 16nm/40nm processes is
expected to decline slightly heading into 2Q.
■ Korean LSI makers have been operating at full capacity at 300mm, input recently
having been very strong at 110% of production capacity. Qualcomm commenced
inventory adjustment in January, but this was offset by firm demand for 14nm
processes (for the company's own smartphones) and the take-off of 10nm process
production.
■ Mass-production at leading-edge 10nm processes is due to start in March for the new
iPhone while small-lot mass-production for the Galaxy S8 is due to start in 4Q. We
estimate AP yields using 10nm processes for the Galaxy S8 have been tracking at
around 40–50%.
■ Mediatek's Helio P35/X35 (10nm process) has been cancelled. The P30 is due to be
developed using 12nm processes (improved 16nm).
■ Korean LSI makers plan to expand new lines for 10nm processes and CIS production
capacity.
■ Delays in Intel's CPU technology roadmap. Selection of the substrate material for 10nm
processes was also part of the original 1Q 2017 mass-production plan, but we gather
no progress has yet been made. Conversely, we understand there is developing third-
generation materials for 14nm processes.
■ With regard to high-quality raw materials used by logic makers and foundries, there
have been production adjustments at midsize foundries, but we gather there are no
plans to reduce utilization in line with demand to build up raw material inventories. We
understand raw materials supply–demand has remained tight.
Utilization at Taiwanese foundries: Plan to maintain high capacity utilization
TSMC’ capacity utilization at 300mm (figure 3) remained high in 1Q at 90-95%. We gather
they expect no major adjustments in 2Q, utilization remaining high.
However, capacity utilization at UMC/SMIC, especially those using 28/40nm processes,
has started to decline by 10ppt or more, which we mainly attribute to corrections in
demand and market share losses. However, TSMC plans to maintain high capacity
utilization, helped by market share gains.
Taiwan foundries still at full tilt in 28nm
processes (largely smartphones); mid-tier
foundries starting to adjust
10 March 2017
Technology sector 8
By process, capacity utilization in 28nm processes (mainly Chinese smartphone makers)
is full operation in 1Q and 2Q. Utilization of production capacity in 16nm processes
declined due to cuts in iPhone 7 production, while in 40nm and wider processes, foundry
makers' production plans call for a slight adjustment in 2Q (figure 5). However, we think
there is probably risk of production adjustments in areas such as OmniVision's CIS,
production of which was ramped up on expectations of sales to vivo, which started
inventory adjustment, and APs for Chinese smartphones (mainly manufactured using
28nm processes).
We continue to forecast risk of production adjustments at foundries from mid-2Q as we
have for some time. However, we now confirm new concerns, including the impact of
higher bill of materials (BOM) costs on hardware sales prices, postponement of new
Chinese smartphone products in 2Q, and the state of Chinese smartphone makers'
inventories, and we think risk of substantial production adjustments has increased. We
think there will likely be major adjustments in 2017 in tandem with the two-year foundry
utilization cycle we believe exists.
With regard to mass-production using 10nm processes at TSMC, mass-production of APs
for new iPhones is due to start in March while Hi Silicon's 10nm process (Kirin 970) is due
to start being used for production in 2Q. Meanwhile, the development roadmap for
Mediatek's Helio P35/X35, which were to be mass-produced using 10nm processes has
been cancelled while the P30/X30 are due to be manufactured using 12nm processes
(improved 16nm process). As anticipated demand has been lost, we think spare capacity
will open up in 10nm processes. We think this is probably one of the reasons why the
orders for equipment for 7nm process mass-production investment from Taiwanese
foundries, which we discuss later, have not materialized.
Figure 3: Projected capacity utilization for Taiwanese foundry 300nm/200nm lines (input basis)
Source: Company data, Credit Suisse estimates
50%
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2010 2011 2012 2013 2014 2015 2016 2017
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300mm (Input) 200mm (Input) TSMC total utilization (sales)
FORECAST
iPhone-related 10nm production likely to
begin in March
10 March 2017
Technology sector 9
Figure 4: Projected quarterly utilization rates for
major Taiwanese foundry 300mm lines (input basis)
Figure 5: Projected quarterly utilization rates for
major Taiwanese foundry 300/200nm lines, by
process (input basis)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Samsung Electronics LSI: Operating at 110% capacity, mainly for own smartphones
Samsung Electronics' 300mm lines continue to operate at full capacity, as was also
revealed by the last survey (105-110% input vs. 14/10nm process production capacity).
Increased adoption in its own smartphone models by Exynos (Figure 7) and increased
adoption in production for Chinese smartphones at 14nm processes, which Qualcomm
won away from TSMC, have helped 14nm capacity utilization reach a high level. In
addition, production of 10nm Exynos 8895, which is due to be used in the Galaxy S8, and
the Qualcomm MSM8998 started in small lots in 4Q last year. Yields are still low (around
40–50%), but due in part to the early start of production, we think there will not be any
bottlenecks in terms of parts supply ahead of the Galaxy S8 launch.
However, inventories of the Qualcomm MSM8996 (AP for high-end smartphones) made
using 14nm processes have built up to over 20mn units. Production cuts started in
January, but as demand is firm (as noted above) it has not led to public capacity utilization
adjustments.
Moreover, if adoption of 14nm process Qualcomm APs in mid-range and low-end Chinese
smartphones increases, we expect shortages in 300mm LSI production capacity. In
addition, 10nm process mass-production has started and we expect adoption in high-end
units this year and in mid-range smartphones from next year. Accordingly, we understand
Samsung Electronics is considering expanding capacity at Line 17 (allotting a quarter of
the total space).
With regard to foundry partners, Qualcomm has decided on Samsung Electronics for
14nm/10nm mass-production, but has not yet made a decision as regards 7nm processes.
The stock market believes Qualcomm will likely select a TSMC that is a year ahead in
terms of 7nm process mass-production. We think the 7nm process foundry partner will be
decided based on Qualcomm's 7nm process roadmap and when Samsung Electronics will
be able to commence mass-production at 7nm. Qualcomm has not disclosed its 7nm
process roadmap, but according to package substrate makers, as current package
substrate structures are expected to continue from end-2018 through 1H 2019 release
products, we think this means the 10nm process generation will continue until end-2018.
91%92%
78%76%
88%
99%95%
91%91%
91%
75%
78%
89%
99%
94%
99%
94%
93%
30%
40%
50%
60%
70%
80%
90%
100%
110%
1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q
2013 2014 2015 2016 2017
300mm Fab
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q
2013 2014 2015 2016 2017
90nm 65nm40nm 28nm Poly-SiN28nm HKMG 20/16nm10nm
Brisk trends for 14/10nm processes
10 March 2017
Technology sector 10
Accordingly, we expect 7nm process APs to be released in 2019 and that Samsung
Electronics LSI maker will have put a mass-production structure in place by then. If
Samsung Electronics LSI can match Qualcomm's roadmap, we think Samsung Electronics
LSI maker, which has the largest customer for Qualcomm's high-end APs in its group, will
likely be the foundry.
Samsung Electronics LSI is also due to expand production capacity for CIS, supply–
demand for which has become tight due to demand for dual cameras in smartphones. As
there is no space for expansion on existing lines, we think the company will partly convert
Line 11, its oldest 300mm DRAM line (50k wafers/month capacity). We gather the
company already started to place equipment orders in February and that 300mm capacity
is due to be expanded by around 20% (+7k wafers).
Figure 6: Samsung Electronics LSI 14/20nm process capacity utilization
Source: Credit Suisse estimates
Figure 7: Samsung Electronics' share of smartphone AP
Source: Credit Suisse estimates
0%
20%
40%
60%
80%
100%
120%
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
Nov
Dec
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
Nov
Dec
Jan
Feb
Ma
r
Ap
r
Ma
y
Jun
2015 2016 2017
22%
41%50%
38%
39% 23%
34%
19%
9%
6%2%
17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2016 2017
Samsung Qualcomm Spreadtrum Marvell Mediatek
10 March 2017
Technology sector 11
Figure 8: Smartphone application processor maker technology roadmaps
Source: Credit Suisse estimates
NAND: Two new iPhones, possibly 256GB and 64GB
Survey points (market conditions)
■ Declining 2D NAND capacity has tightened supply across all applications again in 1Q.
■ Smartphone storage density continues expanding in 2017. China smartphone demand
is shifting to 128GB for eMMC for high-end/mid-range handsets and to 64GB for eMCP
for mid-range/low-end handsets.
■ The new iPhone is expected to offer two storage options, 256GB and 64GB (512GB
option also possible if Apple launches three models).
■ China smartphone manufacturers are to expand uptake of 3D NAND from spring
models.
■ The sufficient rate (bit supply relative to total customer demand) for China smartphones
is worsening quarterly and has fallen to less than 50% in some cases. Smartphone
manufacturer inventories remain depleted.
■ NAND pricing is forecast to rise 5–30% QoQ in 1Q and 5–20% QoQ in 2Q.
Survey points (3D NAND)
■ 3D NAND certification is proceeding for individual applications, and the product’s full-
fledged adoption in China smartphones is expected with spring models. Following
Samsung Electronics and Intel, Micron Technology’s China SSD certification is now
moving.
■ Development of 64-layer 3D NAND for the SSD market has been delayed by about one
month at all manufacturers. (The latest plans have Japanese majors sample-shipping
cSSD at end-April and Korean majors at end-May.)
■ Among Chinese SSD users, Alibaba and Lenovo are considering/have begun in-house
SSD assembly.
■ Although some PC manufacturers are behind their 1Q production schedules, SSD
procurement is unchanged, as their stagey is to build up inventory for 2H.
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Samsung
Mediatek
Hi Silicon
2014 2015 2016 2017
Apple
Qualcomm
2018
MSM8994
(20nm)
Exynos 7420
(14nm)
MSM8998
(10nm)
A8
(20nm)
A9
(16nm)
A11
(10nm)
A10
(16nm)
Kirin 950
(16nm)
X20/MT6797
(20nm)
X10/MT6795
(28nm)
MSM8996
(14nm)
X30
(10nm)
Kirin 930
(28nm)
Kirin 920
(28nm)
Exynos 8895
(10nm)
Exynos 8890
(14nm)Exynos 5422
(28nm)
A10X
(10nm)
A12
(7nm ?)
Exynos (7nm)
Kirin 960
(16nm FF+)
Kirin 970
(10nm)
10 March 2017
Technology sector 12
■ NAND manufacturers use two processes for 64- and 72-layer 3D NAND: Samsung
Electronics and Toshiba have one stack of 64 layers (one memory-hole etching
process), while SK Hynix and Micron Technology have two (two processes). The two
manufacturing processes’ performances and costs are expected to diverge sharply.
■ Smartphones are the main OEM application for 64-layer 3D NAND this year. Owing to
development delays, 3D NAND’s adoption for SSD is not expected to expand until
2018 (volume production and supply to start in 4Q 2017).
■ Adoption of 3D NAND for the MacBook, the largest cSSD user, has been postponed
until 2018 or after.
■ SK Hynix’s initial 3D NAND investment is in the M14 fab. The company is expected to
spend on retooling 2D NAND capacity to position it for 48- and 72-layer products, and
is considering stepping up retooling investment if 2D NAND demand shrinks more
rapidly than projected.
Survey points (SSD)
■ cSSD is to shift to 64 layers in 2H 2017, while eSSD is to remain at 48.
■ eSSD for the Skylake platform uses 48-layer 3D NAND. Skylake for enterprises is
scheduled for release in July 2017.
■ eSSD’s per-gigabyte price is expected to be about 30% higher than cSSD’s.
■ Non-Volatile Memory express (NVMe) is the main SSD interface for China data centers
this year (Serial AT Attachment (SATA) was previously). Legacy customers (e.g.,
banks) tend to prefer SATA.
■ Samsung Electronics and Intel have monopolized China’s eSSD market. Micron
Technology was accredited recently and has also entered. Toshiba supplies discrete
NAND.
NAND supply–demand outlook: 2D NAND supply to remain tight; new iPhone expected in 256GB and 64GB options
NAND supply is expected to continue tightening in through 2017 owing to increased
storage density for China smartphones and the iPhone 7 and reduced 2D NAND supply in
bit terms as manufacturers shift to 3D NAND. NAND manufacturers’ sufficient rate is
expected to remain at 70–80% in 1Q. Supply is becoming increasingly tight: 2D NAND
supply in bit terms has decreased 5–10% quarterly, and the sufficient rate for
manufacturers supplying mainly 2D NAND has dipped below 50% for China smartphones.
While some of the smartphone components that had been in short supply since 2H 2016
are now either fully or more readily available, NAND is still the component in shortest
supply.
3D NAND demand is also growing, and its adoption in smartphones and SSDs is
increasing. Manufacturers currently use 48- and 32-layer 3D NAND, and we expect 3D
NAND supply to remain tight, as capacity for these generations has not expanded.
Adoption of 64-layer 3D NAND is expected to increase with new smartphones (led by the
iPhone) launching in 2H 2017, but yields suggest supply will likely remain tight in 2H. We
also see oversupply risk in 2018, but think this depends on manufacturing yields.
Tighter supply-demand due to reduced planar NAND supply; greater
3D NAND uptake for smartphones, SSDs
10 March 2017
Technology sector 13
Figure 9: NAND supply-demand model: Greater-than-expected tightening due to iPhone 8’s use of
64GB/256B storage
Source: Credit Suisse estimates
Figure 10: 2D/3D NAND bit supply forecasts
Figure 11: 2D/3D NAND production capacity
forecasts
Source: Credit Suisse estimates Source: Credit Suisse estimates
On the demand side, the new iPhone is expected to offer two NAND storage density
options: 256GB and 64GB. (The iPhone 7 offers 32GB, 128GB, and 256GB.) As the
iPhone 7 volume breakdown is 43% low density, 41% medium density and 16% high
density, the new iPhone is expected to increase 256GB’s share to 57%. We estimate
demand for NAND for the new iPhone to rise 88% YoY if production volume for the new
handsets is unchanged in 3Q and 4Q, and view this as a positive change given our
previous view that demand for NAND for the iPhone would not grow. In previous iPhone
cycles, storage density was unchanged for second-generation handsets, but we expect
this model to break down. Some observers have questioned whether Apple may also
release a 512GB handset to preserve its three-model paradigm, but we see no supporting
evidence at this stage. We had previously forecast 3D NAND to be used for 128GB in
addition to 256GB, but the two options of 256GB and 64GB suggest that it will continue to
be used for 256GB and that NAND manufacturers will have the discretion to determine
whether 2D NAND or 3D NAND is used for 64GB. Put differently, as the per-gigabyte price
-5%
14%
8%4%
-6%
11%
18%
5%
-8%
4%
13%8%
5%
13%11%
-11%
-25%
-11%-10%
-16%
-28%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Oversupply
Supply shortage
22,186 22,436 23,098 21,681 19,965 18,500 17,363 16,181
1,966 3,221 4,636 6,954 9,504 14,503
19,530 24,040
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1Q16E 2Q16E 3Q16E 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
Pro
ductio
n (
mn G
B)
2D NAND 3D NAND
0%
10%
20%
30%
40%
50%
60%
70%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1Q16E 2Q16E 3Q16E 4Q16E 1Q17E 2Q17E 3Q17E 4Q17E
3D
NA
ND
% o
f to
tal capacity
3D
Mass p
roductio
nC
apacity (
K w
pm
)
2D Capacity 3D Capacity % of total NAND capacity
New iPhone likely to offer two storage options: 64GB or
256GB
10 March 2017
Technology sector 14
is based on 3D NAND cost, we see 3D NAND adoption increasing. However, if we
assume Toshiba and Samsung Electronics are the main NAND suppliers for 256GB and
SK Hynix is the main supplier for 64GB, SK Hynix’s 3D NAND volume-production system
suggests 2D NAND could be preferred.
Figure 12: Weighting by iPhone generation, storage option (based on four
quarters since launch)
Source: IDC, Credit Suisse
Figure 13: Shipment volume by iPhone generation, storage option (based on
four quarters since launch); equivalent volumes given for two quarters for
iPhone 8 to enable comparison with iPhone 7.
Source: IDC, Credit Suisse
49%
54%
68% 66%
51% 50%57%
51%
27%22% 22%
43%
1%
6%11% 12%
36% 38%
43%
42%
13% 12%
41%
16%
57%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
iPhone4
iPhone4s
iPhone5
iPhone5s
iPhone6
iPhone6s
iPhone7
iPhone8
iPhoneSE
256GB
128GB
64GB
32GB
16GB
1GB
0
20
40
60
80
100
120
140
160
180
iPhone4
iPhone4s
iPhone5
iPhone5s
iPhone6
iPhone6s
iPhone7
iPhone8
iPhoneSE
iPh
on
e s
hip
me
nt u
nits (
mn
)
256GB
128GB
64GB
32GB
16GB
8GB
1GB
2 quarters only
10 March 2017
Technology sector 15
Figure 14: Volume of NAND demand by iPhone generation, storage option
(based on four quarters since launch); NAND demand calculation based on
same two-quarter assumption for iPhone 8 to enable comparison with iPhone 7.
Source: IDC, Credit Suisse
China smartphone manufacturers are also increasing their adoption of 128GB for eMMC
for high-end/mid-range handsets, and we expect adoption of 64GB for mid-range/low-end
handsets to expand this year. With the 3D NAND supply structure becoming the
mainstream, 3D NAND’s minimum density is 32GB per chip (256Gb), and as two stacks
are needed for performance, minimum density is 64GB. Although 2D NAND still supports
smartphones with storage density of 32GB or less, we expect unit pricing to rise, as
tightening supply makes it difficult to secure volume.
We see production adjustments and bill of materials (BOM) cost growth as potential risks
for China smartphones. On the production side, the ongoing acute NAND supply shortage
makes it difficult to foresee the supply–demand balance worsening if we include inventory
demand as well. On the cost side, continuing competition to improve specs and
manufacturers’ growing adoption of 3D NAND suggest little risk of installed NAND density
growing less rapidly or decreasing because of BOM cost growth. Our view is that installed
density will continue expanding.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
iPhone4
iPhone4s
iPhone5
iPhone5s
iPhone6
iPhone6s
iPhone7
iPhone8
iPhoneSE
NA
ND
co
nsu
mp
tio
n m
n G
B
256GB
128GB
64GB
32GB
16GB
1GB
2 quarters only
10 March 2017
Technology sector 16
Figure 15: Chinese smartphone NAND density ratio trend estimates
Source: IDC, Credit Suisse estimates
Figure 16: NAND density: iPhone, Samsung, Huawei, Chinese smartphone
average
Source: IDC, Credit Suisse estimates
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2013 2014 2015 2016 2017
<1GB 1GB 4GB
8GB 16GB 32GB
64GB 128GB+ Ave density (GB)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
Avera
ge N
AN
D D
ensity
GB
/unit
Huawei Samsung iPhone Oppo China Average
10 March 2017
Technology sector 17
Figure 17: NAND total demand bit growth, mobile Phone bit growth
Source: Credit Suisse estimates
NAND prices: likely to keep rising in 2Q
NAND prices for smartphone and SSD applications are apparently up 5–30% in 1Q.
Increases of 5–20% QoQ are now under negotiation, meaning this uptrend is likely to
persist in 2Q.
We understand that while US makers discounted prices for low-end 3D NAND, prices for
SSD applications swung upward after product approvals, leading to a positive overall
trend.
Figure 18: 128Gb TLC NAND contract price trend
Source: DRAMeXchange, Credit Suisse
63%
132%
106%
90%
60%
21%
32%
55%
86%
77%
54%
34% 32%38%
97%
109%
76% 74%
33%
52%
39%45% 43% 40%
35%
26%30%
41%47% 44%
37%
25%32%
36%
63%67%
55% 57% 39%
52%
0%
20%
40%
60%
80%
100%
120%
140%
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16E
2Q
16E
3Q
16E
4Q
16E
1Q
17E
2Q
17E
3Q
17E
4Q
17E
Mobile Phone Bit Growth (%) NAND Total Demand Bit Growth (%)
iPhone6 128GB
iPhone7 256GBChina 32/64/128GB
iPhone864/256GB
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Nov-1
2
Jan
-13
Ma
r-13
Ma
y-1
3
Jul-1
3
Se
p-1
3
Nov-1
3
Jan
-14
Ma
r-14
Ma
y-1
4
Jul-1
4
Se
p-1
4
Nov-1
4
Jan
-15
Ma
r-15
Ma
y-1
5
Jul-1
5
Se
p-1
5
Nov-1
5
Jan
-16
Ma
r-16
Ma
y-1
6
Jul-1
6
Se
p-1
6
Nov-1
6
Jan
-17
US
D
NAND contract price TLC 128Gb 16384Mx8
5–20% price increases likely in 2Q
10 March 2017
Technology sector 18
3D NAND demand/development/production: greater US uptake in SSD applications
In terms of 3D NAND demand, approvals were limited to a few SSD applications in 2016,
but look likely to extend to a full-range of applications, including smartphones, cSSD and
eSSD in 2017 when 3D NAND uptake for mass-production lines should pick up. Nearly all
key Chinese smartphone makers look set to step up usage of 3D NAND for spring models
onward. South Korean makers have not switched yet, partly as few of their models have
high storage density. However, we understand they are mulling 3D NAND for high-storage
(128GB) flagship models due to come out in 2H 2017.
From the standpoint of cSSD demand among notebook makers, we note key PC makers
look likely to cut production targets but appear to be building up SSD inventory in
anticipation of 2H demand, so we expect limited negative impact on NAND supply–
demand.
On the demand-side, we understand the anticipated adoption of 3D NAND for the
MacBook this year has been postponed to “hedge” supply risk, as use of such chips in the
new iPhone put heavy upward pressure on demand. Those fearing oversupply following
maker investment in 3D NAND capacity should remember that the upcoming MacBook,
iPad and other products are likely to become major sources of demand.
On the supply-side, makers are responding with mass-production for 32- and 48-layer 3D
NAND, and are expected to mass-produce 64-layer chips in 2H 2017. However, in the
area of 64-layer development, we note cSSD/eSSD development is behind schedule at
the largest South Korean maker and its Japanese peer. Both companies have submitted
samples for use in the new iPhone model, which are currently under evaluation. Current
plans call for the Japanese maker and the largest South Korean maker to ship cSSD
samples at end-April and end-May respectively, meaning their products could be used as
early as in the autumn notebook models. We understand that eSSDs will rely mainly on
48-layer technology this year and shift to 64-layer chips from next year.
Lower-tier makers developing 64- and 72-layer chips are likely to use double-stack
designs (two stacks of 32-layer or 36-layer chips; the memory-hole etching process is
conducted twice) with inferior technical and cost performance to single-stack designs. We
thus see a wide gap opening up between the top and bottom makers of 64-layer products.
Development of 96-layer chips is unlikely to advance to mass production until makers
secure the appropriate single-etch memory hole technology. Some have development
roadmaps for 96-layer technology but we doubt they have set a date for mass production.
China server, data center demand: in-house SSD assembly at Alibaba, Lenovo
Although the Chinese server/datacenter market amounts to only one third of the demand
generated by US hyperscale datacenters, it continues to grow.
The eSSDs being shipped now are compatible with Broadwell platforms but are likely to
shift to Skylake architecture this year. A new Skylake CPU is slated for release in July that
should be compatible with 48-layer 3D NAND.
The typical eSSD interface has been SATA but looks likely to become NVMe in 2017.
The two main distribution channels for eSSD in China involve: (1) NAND makers supplying
SSDs directly to customers; and (2) NAND makers supplying NAND chips to local SSD
makers or to customers’ in-house SSD assembly plants. Samsung Electronics and Intel
dominated SSD supply, but Micron has started to secure approvals recently (for 32-layer
3D NAND products). Meanwhile, Alibaba and Lenovo in particular have plans for in-house
SSD assembly. Due to differing business models, Samsung Electronics is apparently not
providing support to local SSD makers (Memblaze, Shannon Systems) and in-house SSD
assembly plants, but Toshiba and Micron look likely to.
Greater 3D NAND uptake in cSSD/eSSD
64-layer NAND SSD development delayed at
Toshiba, Samsung Electric
Costs cloud prospects for 96-layer mass-
production
10 March 2017
Technology sector 19
We understand that Lenovo has begun in-house SSD assembly, while Alibaba is
considering it, and that Lenovo is making controllers in-house.
Figure 19: Enterprise SSD supply chain in China
Source: Credit Suisse estimates
Figure 20: Enterprise storage market (worldwide) Figure 21: Enterprise storage market (US)
Source: IDC, Credit Suisse Source: IDC, Credit Suisse
Discrete NAND SSD in-house
Hyper Scale
Tencent Intel
Alibaba Shannon Toshiba, Micron
Baidu Intel, (Lenovo ?)
Huawei Toshiba, Micron
SSD maker
Memblaze Toshiba
Shannon Toshiba
Set maker
Lenovo Toshiba, Micron
1.21 1.34 1.58
1.97
2.01
2.25
2.30 2.91
0.0
10.0
20.0
30.0
40.0
50.0
60.0
20
13Q
1
20
13Q
2
20
13Q
3
20
13Q
4
20
14Q
1
20
14Q
2
20
14Q
3
20
14Q
4
20
15Q
1
20
15Q
2
20
15Q
3
20
15Q
4
20
16Q
1
20
16Q
2
20
16Q
3
20
16Q
4
Exabyte
s
HDD Flash
0.40 0.43 0.50 0.67
0.65
0.83
0.79 1.05
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.020
13Q
1
20
13Q
2
20
13Q
3
20
13Q
4
20
14Q
1
20
14Q
2
20
14Q
3
20
14Q
4
20
15Q
1
20
15Q
2
20
15Q
3
20
15Q
4
20
16Q
1
20
16Q
2
20
16Q
3
20
16Q
4
Exa
byt
es
HDD Flash
Trend toward in-house SSD assembly
10 March 2017
Technology sector 20
Figure 22: Enterprise SSD shipments by capacity Figure 23: Enterprise SSD shipment mix by capacity
Source: TSR, Credit Suisse Source: TSR, Credit Suisse
Figure 24: Enterprise SSD shipments by maker Figure 25: Enterprise SSD share by maker
Source: TSR, Credit Suisse Source: TSR, Credit Suisse
Figure 26: PC SSD shipments by capacity Figure 27: PC SSD shipment mix by capacity
Source: TSR, Credit Suisse Source: TSR, Credit Suisse
0
200
400
600
800
1,000
1,200
1,400
Jan
Fe
bM
ar
Apr
Ma
yJun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Aug
Se
pO
ct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
eJuly
Au
gS
ep
Oct
No
vD
ec
Jan
2013 2014 2015 2016 2017
Un
its (
k p
cs)
Enterprise shipment by capacity
<100GB 101-199GB 200-399GB 400-599GB
600GB< 600-999GB 1TB-1.9TB >2TB
0%
20%
40%
60%
80%
100%
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Apr
Ma
yJun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Au
gS
ep
Oct
Nov
De
cJan
Feb
Ma
rA
pr
Ma
yJun
eJuly
Au
gS
ep
Oct
No
vD
ec
Jan
2013 2014 2015 2016 2017
Un
its (
k p
cs)
Enterprise shipment by capacity
<100GB 101-199GB 200-399GB 400-599GB
600GB< 600-999GB 1TB-1.9TB >2TB
0
200
400
600
800
1,000
1,200
1,400
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
Nov
Dec
Jan
2013 2014 2015 2016 2017
Units (
k p
cs)
Enterprise shipment by supplier
Samsung IntelSandisk (Fusion-io) WDC (STEC)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan
Fe
bM
ar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Fe
bM
ar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Fe
bM
ar
Apr
May
June
July
Aug
Sep
Oct
Nov
Dec
Jan
2013 2014 2015 2016 2017
Units (
k p
cs)
Enterprise shipment by supplier
Samsung Intel Sandisk (Fusion-io) WDC (HGST/Sandisk) WDC (STEC) Others
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan
Fe
bM
ar
Apr
Ma
yJun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Feb
Ma
rA
pr
Ma
yJun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
eJuly
Au
gS
ep
Oct
No
vD
ec
Jan
2013 2014 2015 2016 2017
Un
its (
k p
cs)
PC by density
<32GB 33-64GB 65-128GB 129-256GB 256GB 512GB >1TB
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
No
vD
ec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
No
vD
ec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
No
vD
ec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Oct
No
vD
ec
Jan
2013 2014 2015 2016 2017
Un
its (
k p
cs)
PC by density
<32GB 33-64GB 65-128GB 129-256GB 256GB 512GB >1TB
10 March 2017
Technology sector 21
Figure 28: PC SSD shipments by maker Figure 29: PC SSD share by maker
Source: TSR, Credit Suisse Source: TSR, Credit Suisse
Chinese makers’ entry into NAND market
Yangtze River Storage Technology (YRST) still seems to have not yet obtained foreign
support in the form of capital tie-ups and technology licensing for its entry into the NAND
market. Even so, the company began plant construction at end-2016 and we understand it
is now in initial talks with equipment makers (for 100k-wafer capacity).
We thought setting up NAND production would be difficult without technology licensing,
but equipment lists, plant layouts and other info have seemingly leaked out of South
Korea. Access to such info would likely put YRST on track to produce NAND. However,
the victim of the leak has apparently asked equipment makers not to sell the listed items;
their response will be key, in our view.
We also gather that YRST is developing 32-layer technology, and plans trial production
runs in 2H 2018, followed by mass production in 2019 (Figure 30).
Figure 30: NAND makers' technology roadmap
Source: Credit Suisse estimates
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Feb
Ma
rA
pr
Ma
yJun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Apr
Ma
yJun
Jul
Au
gS
ep
Oct
Nov
De
cJan
Fe
bM
ar
Ap
rM
ay
Jun
eJuly
Au
gS
ep
Oct
No
vD
ec
Jan
2013 2014 2015 2016 2017
Un
its (
k p
cs)
PC shipment by supplier
SanDisk WDC (HGST/Sandisk)Intel Toshiba
0%
20%
40%
60%
80%
100%
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Apr
May
Jun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
Jul
Au
gS
ep
Oct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
June
July
Aug
Se
pO
ct
No
vD
ec
Jan
2013 2014 2015 2016 2017
Un
its (
k p
cs)
PC shipment by supplier
SanDisk WDC (HGST/Sandisk)Intel Toshiba
1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 1Q 19 2Q 19 3Q 19 4Q 19
3D NAND 32 Layers
48 Layers
64 Layers
72 Layers
96 Layers
Leak of equipment list and technology
10 March 2017
Technology sector 22
DRAM: Supply–demand eased depending on
applications and customers
Key takeaways
■ Excluding inventory demand, PC DRAM and mobile DRAM were in oversupply in 1Q
2017. Server DRAM supply–demand was tight. There were therefore differences in
supply–demand in terms of customers and applications.
■ DRAM makers flexibly change their product mixes. We expect Samsung Electronics
plans to increase PC/server DRAM supply from March output.
■ DRAM inventories are in the market, but have dried up at DRAM makers. However,
some PC makers have secured sufficient inventories.
■ With regard to PC DRAM, PC demand is lower than expected, but PC makers are
building up inventories ahead of expected tight supply–demand in 2H 2017.
■ In mobile RAM, as inventories at some Chinese smartphone makers are excessive,
they are passing some of their allocation to midsize and small manufacturers. Supply
of mobile RAM to Chinese smartphone makers is balanced between actual demand
and demand to build up inventories.
■ In server DRAM, due to the adoption of the Skylake platform, DRAM module capacity
has expanded sharply from 16GB to 32GB. Density per server has also increased.
■ There is scope for an increase in DRAM prices of nearly 10% (the price of 4GB
modules rising from $25–26 to $27–28).
■ Investment in leading-edge processes by DRAM makers looks weak and is limited.
DRAM supply–demand: Different depending on applications, customers
DRAM supply–demand has turned around from being tight at one point, and due to lower-
than-expected PC production and inventory adjustment at some Chinese smartphone
makers, PC DRAM and mobile RAM is in oversupply on an actual demand basis. We are
seeing adjustments at some Chinese smartphone makers due to excess DRAM and
product inventories. The only product area in which supply–demand is still tight is server
DRAM, as supply is limited whereas demand has risen sharply. We think that to date, the
largest maker in particular, based on a focus on earnings in 1Q 2017 concentrated on
supply allocation for servers, which carry the lowest margins, aiming to maximize earnings
derived from setting aside some of its allocation for PC DRAM and mobile RAM. However,
we gather there was a production shift from mobile RAM to PC/server DRAM in January,
and that there are concerns about the impact on PC DRAM supply–demand of the output
contribution in the second half of March. We expect supply demand continue to be
mismatched as PC DRAM and server DRAM data width are different.
On the demand front, with regard to DRAM for servers, as Intel's Skylake platform was
released last year and DRAM modules were upgraded from 16GB to 32GB, DRAM per
server in servers for data centers has increased sharply.
With 3GB and 4GB now mainstream in Chinese smartphones, we think bit growth
henceforth will likely be gradual. In smartphones, the spread of LP DDR4 is a theme this
year, but we think it will be adopted in mid-range smartphones (priced at RMB2,000 and
higher) only in 2H 2017 at the earliest.
On the supply front, excluding Samsung Electronics, companies were struggling to
improve yields at 20nm processes, but we understand they are seeing improvement. We
did not find a single DRAM maker that was bullish on capex, as cutting costs due to
process migration has become difficult due to protracted yield improvement.
Glut due to slower mobile-RAM demand;
closer look may reveal excess PC DRAM
inventory
10 March 2017
Technology sector 23
Figure 31: DRAM supply-demand model
Source: Credit Suisse estimates
Figure 32: Mobile RAM supply-demand model Figure 33: PC DRAM supply-demand model
Source: Credit Suisse estimates Source: Credit Suisse estimates
6%
1%
-4%
12%
7%7%
-4%
12%
5%
3%
-5%
14%
1%
0%
-13%-15%
-10%
-5%
0%
5%
10%
15%
20%
1Q
04
2Q
04
3Q
04
4Q
04
1Q
05
2Q
05
3Q
05
4Q
05
1Q
06
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
Oversupply
Supply shortage
13%
24%
14%
-9%
5%6%
14%
0%
4%2%
3%
-1%
11%
3%
-3%
-8%
0%
-6%
1%
4%
21%
-4%
-1%
-8%
-10%
-5%
0%
5%
10%
15%
20%
25%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
3Q
17
1G
b e
quiv
. m
n u
nits
Demand Supply Demand/supply sufficiency rate
13%
24%
5%0%
15%
6%
-9%
-26%
-2%
8%
0%
-6%
13%10%
13%
-2%
22%
16%
4%
-13%
8%5%
0%
-19%
-30%
-20%
-10%
0%
10%
20%
30%
40%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,0001Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
3Q
17
1G
b e
quiv
. m
n u
nits
Demand Supply Demand/supply sufficiency rate
10 March 2017
Technology sector 24
Figure 34: Chinese smartphone RAM density trend
Source: Company data, Credit Suisse estimates
Figure 35: Server DRAM average density
Source: DRAMeXchange
DRAM inventories: Some customers have excess inventories
DRAM maker and distributor inventories are very low. However, due to sluggish sales,
mobile RAM inventories at some Chinese smartphone makers are excessive. We
understand that in mobile RAM, these makers have been passing some of their allocations
on to midsize and small smartphone makers, which have low inventories. In PC DRAM,
PC makers purchase inventory when demand is sluggish. Already some manufacturers
have been saying they have no room for more inventories also in PC DRAM.
DRAM inventory may be quietly accumulating at downstream producers, meaning their
inventory levels may become more apparent when demand slumps.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
6GB 4GB 3GB 2GB 1GB 512MB Ave DRAM (GB)
117.9
133.0 141.9 144.8 151.2
173.7
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2014 2015 2016 2017
Serv
er
DR
AM
density/
box (
GB
)
10 March 2017
Technology sector 25
DRAM prices: We see room for prices to rise by around 10%, but this is broadly the peak
DRAM makers plan to raise PC DRAM prices to $27–28 (from around $25–26 now).
However, this appears to be the upper limit given PC BOM costs and DRAM market
conditions.
We think it will be difficult to raise DRAM price, as we have heard examples of demand
having slowed down and some PC makers have raised prices due to higher BOM costs.
Figure 36: DDR4 4GB module large lot price trend
Source: Company data, Credit Suisse estimates
LP DDR4 adoption
LP DDR4 is being adopted in high-end smartphones. We think adoption in mid-range
Chinese smartphones (priced at RMB2,000 or around $290 and higher) will likely increase
in tandem with the launch of APs that support LP DDR4. However, we think this will only
happen in 2H 2017. However, there are as yet no signs of moves to use LP DDR4 in low-
end smartphones. Compared with when LP DDR2 was replaced by LP DDR3, support is
modest in migration to LP DDR4 and the pace of change feels slow.
Several major Chinese smartphone makers have expressed interest in high-speed (3GHz
to 4GHz) LP DDR4 (LP DDR4X) and we think adoption will start. However, we think North
American and Korean smartphone makers do not yet have any adoption plans. The
technology looks set for use in spring models onward, along with the new iPhone.
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
26.00
Au
g
Se
p
Oct
No
v
De
c
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
July
Au
g
Se
p
Oct
No
v
De
c
Jan
Fe
b
2015 2016 2017
US$
We think LP DDR4 will be adopted in mid-
range smartphone only in 2H 2017 at the
earliest; expecting high-speed LP DDR4 to be adopted in high-end Chinese smartphones
10 March 2017
Technology sector 26
Figure 37: Chinese smartphone breakdown by ASP
Source: IDC
DRAM 1xnm process migration
In terms of 1xnm processes at the largest DRAM maker, PC ODM was approved in
November last year and mass-production has started, but there are no signs of a mass
shift to 1xnm. Compared with processes to date, the yield improvement curve has been
gradual and productivity has declined, so we think we cannot expect ROI as high as in the
past.
0%
20%
40%
60%
80%
100%
200
7Q
1
200
7Q
3
200
8Q
1
200
8Q
3
200
9Q
1
200
9Q
3
201
0Q
1
201
0Q
3
201
1Q
1
201
1Q
3
201
2Q
1
201
2Q
3
201
3Q
1
201
3Q
3
201
4Q
1
201
4Q
3
201
5Q
1
201
5Q
3
201
6Q
1
201
6Q
3
$0<$50
$50-$100
$100-$200
$200-$300
$300-$400
$400-$500
$500-$600
$600<
No sign of bullish stance on 1xnm
process migration
10 March 2017
Technology sector 27
SPE capex trends
Front-end SPE capex: Taiwanese foundries ease up;
3D NAND firm; initial inquiries picking up in China
Key points
■ In leading-edge technology investment among TSMC, 10nm process expansion is set
to continue through 2Q 2017, but then come to an end. A mini-line (several thousand
wafers/month) is scheduled to start up in 2Q 2017 at a 7nm process mass-production
plant. We understand no concrete discussions are underway so far for the period
beyond this.
■ TSMC operated 300mm operations in Nanjing (China) are moving from plants in
Hsinchu and Tainan (both Taiwan) around July.
■ Samsung Electronics is expanding at its Austin (US) plant (14/10nm) and newly adding
10nm production on Line 17. CIS production capacity is also slated for expansion.
■ There are no major changes in investment by Samsung Electronics in new 3D NAND
plant, and we expect such investment flows to remain steady. An expansion of 80,000–
90,000 wafers (we had forecast 70,000) is planned by end-2017. The bulk of mass-
production plans are for 64-layer products.
■ SK Hynix also plans to build 36-layer 3D NAND capacity on its M14 line. Its plans also
include converting existing 2D NAND lines to 3D NAND if 2D demand drops.
■ Additional investment in Nanya Fab3N is going ahead for the purpose of expanding
monthly capacity from the current 10,000 wafers to 38,000 by end-3Q 2017.
■ We understand there are additional delays in 10nm development at Intel.
■ Initial SPE inquiries have started coming in from Chinese 3D NAND makers. Early
indications point to demand for production capacity of 100,000 wafers/month.
TSMC capex trends: Plan for 7nm mass-production line still undisclosed
TSMC built 35,000 wafers of monthly 10nm production capacity for the iPhone/iPad,
HiSilicon, and Mediatek up to end-2016. Another 20,000 wafers of capacity is planned for
1H 2017 and construction still appears to be progressing on the schedule we confirmed
three months ago. This totals about 55,000 wafers of 10nm capacity added. In the
intervening three months, however, Mediatek's Helio P35 has cancelled a 10nm project
and it now looks as though production for the iPhone could be peaking out, thus leading to
an unexpected surplus.
Equipment for next-generation 7nm process development and test lines amounting to
several thousand wafers/month has already been delivered. A 7nm process production
line is planned for Taichung, and investment in a mini-line (several thousand
wafers/month) for plant certification at Fab 15 P5/6 is planned for 2Q 2017. That much is
unchanged from three months ago, but no concrete expansion plans for the resulting
production line have thus far appeared. This is probably no more than a matter of timing,
but our sense is that such specifics are by now somewhat overdue. Mediatek’s above-
mentioned project cancellation necessitated an earlier reuse of equipment from 10nm
process for 7nm process, and that is consistent with a delay to the start of new
negotiations.
That said, we believe that preparation for 7nm process products for the new 2018 iPhones
will require ordering production-line equipment by no later than 3Q 2017.
Taiwanese foundries plan for 7nm mass-production line still
undisclosed
10 March 2017
Technology sector 28
Samsung Electronics capex trends: Expanding 10nm process; additional CIS line expansion
As mentioned above, production using leading-edge technology at the top Korean logic-
chip maker remains at full capacity. One reason is rising use of its proprietary Exynos AP
in its own smartphones. Another is that it won orders from Qualcomm for 14/10nm process
products. Investment to expand 14/10nm capacity at its Austin plant has already begun,
and it also plans to launch a new line in Korea.
We understand that Line 17, which is divided into four sections, has already had DRAM
assigned to two of these sections and 3D NAND assigned to a third. The remaining
section could therefore still be assigned to logic-chip production.
Likewise in CIS, the company expects demand from adoption of dual-lens systems for
smartphones to increase still further. It has also decided to convert its oldest DRAM line,
Line 11, to the task. We understand orders from device makers have already started
coming in.
3D NAND capex trends: Investment continuing
Samsung Electronics, in addition to investing in the conversion of its existing Line 16 to 3D
NAND and taking delivery of equipment for 3D NAND production on Line 17, also started
taking equipment deliveries at its Pyeongtaek plant in December 2016. It has since been
increasing capacity step by step. We understand it plans to reach capacity of 80,000–
90,000 wafers/month by end-2017 (we had forecast 70,000). The manufacturer plans to
start up with 48-layer products, with mass production then mainly consisting of 64-layer
products. However, 64-layer SSD sample shipments are behind schedule, and we surmise
that the actual shift to 64-layer production will depend on certification timing. SK Hynix also
plans new 36-layer 3D NAND capacity for Phase 2 of M14, though this product is not cost
competitive.
Figure 38: Samsung Electronics: Pyeongtaek plant
(end-February)
Figure 39: Samsung Electronics: Pyeongtaek plant
(end-February)
Source: Credit Suisse Source: Credit Suisse
Korean logic-chip plans include expanded
10nm; increased CIS capacity
10 March 2017
Technology sector 29
Figure 40: Pyeongtaek plant near end of
construction (end-November)
Figure 41: Pyeongtaek plant near end of
construction (end-November)
Source: Credit Suisse Source: Credit Suisse
Figure 42: Pyeongtaek plant during construction
(end-August)
Figure 43: Pyeongtaek plant during construction
(end-August)
Source: Credit Suisse Source: Credit Suisse
Capex trends in China: Initial inquiries for Chinese NAND
There are three main current Taiwanese equipment investment plans in China. At UMC’s
Xiamen plant, about 10,000 wafers of month 40nm process capacity already reached
mass production by end-2016, and 28nm process test production has also begun, with
expansion to 10,000 wafers/month planned. Powerchip’s Hefei plant, which makes LCD
drivers, was scheduled to take equipment deliveries in 2Q 2017, but we understand this is
being pushed back into 2H. Finally, TSMC’s Nanjing plant plans to take equipment
deliveries in July 2017, though most of this is to be transferred 20/16nm process
equipment from existing lines in Taiwan.
Phase 2 investment at Intel’s Dalian plant is also starting, with plans to raise monthly
capacity to 15,000–20,000 wafers in 2H 2017.
XMC (in Wuhan), a subsidiary of Yangtze River Storage Technology, started building a
plant at end-2016. Test production is slated for 2018 followed by full-scale production in
2019. The company has already started making initial inquiries with equipment makers,
and we understand that this move indicates interest in equipment corresponding to a
capacity of some 100,000 wafers, and that production capacity could reach 50,000 wafers
by end-2018. We understand further that equipment lists, process information, and other
Chinese 3D NAND makers now apparently receiving initial general
inquiries
10 March 2017
Technology sector 30
data was leaked out from Korean makers, but so long as the products are to be used
solely within China, a lawsuit for IP infringement would be difficult to pursue, in our view.
According to the leaked information, the plans call for 32-layer 3D NAND to be followed by
48-layer and then 64-layer. As such, this would be a fairly difficult course for XMC to
pursue all on its own. According to the roadmap, the company plans 32-layer technology
for 2H 2018 and 64-layer for 2H 2019 (Figure 44).
Front-end SPE maker orders
Several companies reported record-high orders in 4Q 2016. Naturally, a reaction is
expected in 1Q 2017, but we expect orders to remain high due mainly to a build-up of
NAND, DRAM, CMOS image sensors (CIS), and LSIs.
From 2Q, we expect investment in the new NAND plant by Samsung Electronics to peak
and orders to decline to the level seen in 1H last year, due mainly to declines in several
small-lot DRAM, CIS, and other projects.
We think the focal point from now on will be the timing of moves in 7nm processes by
TSMC and Chinese 3D NAND. We expect orders associated with 7nm processes at
TSMC to start to come on stream in 3Q, and orders in Chinese 3D NAND to commence in
3–4Q. As Chinese 3D NAND investment is in 32-layer devices, the value of the investment
could be small compared with investment in the new plant by Samsung Electronics.
However, after these two projects end, the only major new plant investment on the horizon
is Toshiba's Yokkaichi Y6 fab, and we think that on an order basis, 4Q 2016–1Q 2017 and
2H 2017 will be peaks in terms of major cycles (the next will be from 2019).
Orders remained firm in Jan–Mar, especially for
3D NAND; expecting decline from Apr–Jun if foundries do not invest
in 7nm processes
10 March 2017
Technology sector 31
Figure 44: Semiconductor maker equipment ordering plans
Source: Credit Suisse estimates
Delay risk in Intel's 10nm logic-chip project
Our research at Semicon Japan confirmed delays in Intel’s plans to invest in 10nm
process mass production lines (adding 14nm process investments instead). This time, our
research found no further progress on selecting package substrate materials, a step that
had been planned for completion in 1Q 2017. Judging from past patterns, this suggests
that mass production will not be achieved within 2017. However, new 14nm projects are in
the works, and in terms of the tick-tock strategy used in the past, this represents a tick-
tock-tock strategy for 14nm process, which now appears on the verge of becoming tick-
tock-tock-tock. Overall, the peak for 10nm process equipment deliveries, which we had
expected for 1H 2017, looks set to arrive only later.
2016 2017 2018
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Foundry/Logic 10nm FinFET Fab12 P7
10nm FinFET Fab15 P5
7nm FinFET Fab15 P6
16nm FinFET+ Nanjing
Samsung 10/14nm FinFET S2 (Austin)
10nm FinFET Line 17
Intel 10 nm Israel
UMC 40/28nm XiaMen, China
Powerchip 90nm Hefei, China
GlobalFoundries Dhengdu, China
DRAM Samsung Line 17
SK Hynix M14
Micron 1xnm ex-Elpida Hiroshima * 1xnm migration pushed out to 1Q17
ex-Rexchip * 1xnm process migration in 1Q17
Nanya Fab3AN
Winbond ?
NAND Samsung 3D NAND 48 Layers Xi-an
Line 16 ** Conversion from DRAM to Planer/3D.
3D NAND 48 Layers Line 17
3D NAND 48/64 Layers Line 18 (Pyongteak)
Toshiba 3D NAND 48 Layers Fab2
3D NAND 64 Layers
Micron 3D NAND 32 Layers Singapore
3D NAND 64 Layers Singapore ? (maybe floating gate structure)
SK Hynix 3D NAND 48 Layers
3D NAND 72 Layers
14nm M12
Intel 3D NAND Fab68, Dalian
Yangtze River 3D NAND 32 Layers Wuhan, China
Timing of order placement
Equipment installation
R&D / Pilot Production
Mass production
* 1xnm process migration in 2H 2016
* 14nm process migration
10 March 2017
Technology sector 32
Figure 45: Tokyo Electron: Quarterly order
estimates Figure 46: Screen: Quarterly order estimates
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 47: Hitachi Kokusai Electric: Quarterly order
estimates
Source: Company data, Credit Suisse estimates
106.4
76.066.9
91.3
108.297.7
151.4143.3
154.2
136.6140.5
164.3179.3
153.5
122.8
158.0
188.7
197.5195.7
267.1
200.0
170.0
200.0220.0
230.0
200.0
170.0
200.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Ja
n-1
2A
pr-
12
Ju
l-12
Oct-
12
Ja
n-1
3A
pr-
13
Ju
l-13
Oct-
13
Ja
n-1
4A
pr-
14
Ju
l-14
Oct-
14
Ja
n-1
5A
pr-
15
Ju
l-15
Oct-
15
Ja
n-1
6A
pr-
16
Ju
l-16
Oct-
16
Ja
n-1
7A
pr-
17
Ju
l-17
Oct-
17
Ja
n-1
8A
pr-
18
Ju
l-18
Oct-
18
0
50
100
150
200
250
300
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
E2Q
E3Q
E4Q
E1Q
E2Q
E3Q
E4Q
ECY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018
TO
PIX
rela
tive
P/B
(x)
SP
E O
rder
(¥ b
n)
Order TOPIX rel P/B
29.3
38.3
25.5 29.0
35.0 35.1 40.7
45.1
35.1 36.6 36.9
41.1 45.9
38.1 36.8
38.6
48.1 49.1 53.4
64.8
59.0
44.0 46.0
55.0 58.0
52.0
37.0 37.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Ja
n-1
2A
pr-
12
Ju
l-12
Oct-
12
Ja
n-1
3A
pr-
13
Ju
l-13
Oct-
13
Ja
n-1
4A
pr-
14
Ju
l-14
Oct-
14
Ja
n-1
5A
pr-
15
Ju
l-15
Oct-
15
Ja
n-1
6A
pr-
16
Ju
l-16
Oct-
16
Ja
n-1
7A
pr-
17
Ju
l-17
Oct-
17
Ja
n-1
8A
pr-
18
Ju
l-18
Oct-
18
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
1Q
2Q
3Q
4Q
1Q 2Q
3Q
4Q
1Q
2Q
3Q 4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
E2Q
E3Q
E4Q
E1Q
E2Q
E3Q
E4Q
E
CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018
TO
PIX
rela
tive P
/B (
x)
SP
E O
rder
(¥bn)
Order TOPIX rel P/B
13.215.0
9.112.0
15.1
20.3
14.9
35.2
25.6
13.916.6
26.2
32.1
29.9
13.0
14.5
24.0
23.223.4
32.432.0
20.018.0
25.027.0
30.0
20.020.0
0.0
0.5
1.0
1.5
2.0
2.5
Ja
n-1
2A
pr-
12
Ju
l-12
Oct-
12
Ja
n-1
3A
pr-
13
Ju
l-13
Oct-
13
Ja
n-1
4A
pr-
14
Ju
l-14
Oct-
14
Ja
n-1
5A
pr-
15
Ju
l-15
Oct-
15
Ja
n-1
6A
pr-
16
Ju
l-16
Oct-
16
Ja
n-1
7A
pr-
17
Ju
l-17
Oct-
17
Ja
n-1
8A
pr-
18
Ju
l-18
Oct-
18
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
E2Q
E3Q
E4Q
E1Q
E2Q
E3Q
E4Q
E
CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018
Rela
tive P
/B (
x)
SP
E o
rder
(consolid
ate
d, (¥
bn)
Order TOPIX rel P/B
10 March 2017
Technology sector 33
Back-end SPE: Sensor-related investment firm; no
significant progress in FO-WLP/PLP
Key points
■ We believe the major Taiwanese OSAT companies will request that delivery and
installation of new equipment be delayed as a result of the release of new smartphone
APs being pushed back (by around three months, we believe).
■ Assembly SPE investment among OSATs remains firm in the areas of fingerprint
sensor and NAND equipment.
■ There has been additional investment in certain types of InFO-WLP-related SPE to
cope with an increase in volume in 2017. A number of 2G InFO-WLP projects are
taking place simultaneously and a new type of 450mm FO-WLP is under consideration.
In addition, construction of new plants is scheduled to be completed in 2018.
■ LCD manufacturers AUO and Innolux are considering FO-PLP production with a view
to resuming use of existing 3.5G lines.
■ A US memory manufacturer is planning to establish a back-end processing line at its
Taichung facility. It will conduct mobile RAM testing there initially and eventually
construct an assembly line.
■ We have confirmed investment in SPE related to iris sensors, which are widely
expected to be used in the new iPhone.
■ Large-scale LED-related SPE investment (mainly in China) has resumed after a pause
of several years.
Capex trends at OSATs
Assembly SPE capacity utilization at Taiwanese OSATs is down moderately QoQ, but is
still high relative to a normal 1Q since foundry 300mm capacity utilization remains high.
However, the OSATs remain cautious in their stance toward investing in augmenting
manufacturing capacity. The release of new smartphone APs has been pushed back, and
in connection with this, we believe the OSATs have asked for the delivery of already
ordered equipment to be delayed. However, we think the delay will be short, as the
technological issues have already been solved. We do not foresee the OSATs asking for a
delay of equipment delivery or canceling orders outright because of a correction in
semiconductor market prices.
Amid these developments, capex among OSATs remains strong in the areas of SPE for
fingerprint sensors and NAND. OSATs made investments in the latter half of 2016 in
connection with a shift in production from 200mm wafers to 300mm wafers. We now
believe they are investing in equipment to meet increased demand for fingerprint sensors
for use in mid-range and low-end smartphones. (Business plans for 2017 among major
OSATs involve a YoY increase in investment related to fingerprint sensors.)
Strong investment at OSATs related to
fingerprint sensors, NAND
10 March 2017
Technology sector 34
Figure 48: OSATs: Assembly SPE capacity utilization forecasts
Source: Company data, Credit Suisse estimates
FO-WLP/PLP: No progress toward mass production, but LCD panel makers starting to consider adoption
The InFO-WLP manufactured by TSMC is projected to have essentially the same specs as
the 10nm-process APs going into mass production in 2017. However, with volumes rising,
we believe the Taiwanese foundries are placing additional orders for certain types of
equipment, such as molding systems. Significant spec changes are expected for 2G in
2018, and at present several projects are under consideration. This involves more than a
simple narrowing of line widths to, for example, from 5μm down to 2μm on the rewire
layer. Specifically, there are two main approaches under consideration. The first approach
is InFO+TSV technology, in which the DRAM is connected to the TSV attached to the AP,
rather than to the POP package. The second approach is a technology in which the AP
and the DRAM are mounted horizontally, rather than using a POP structure, making the
package extremely thin. In addition, 450mm FO-WLP has recently started to be
considered. In addition to existing mass production lines, new factories are currently being
built and are scheduled to go into operation in 2018.
We believe Samsung Electronics is pursuing two next-generation package development
projects, one in-house and one at subsidiary SEMCO. In the company’s own project, an
interposer PoP package similar in structure to Shinko Electric’s MCeP is currently under
development, but we believe yields are still only around 50%, so there are a number of
issues to solve before mass production can begin. In the other project, SEMCO is making
progress in FO-PLP development and expects to begin mass production of FO-PLP APs
as early as 2018. The company plans to initially gain experience in mass production of
FO-PLPs for devices with small chip sizes such as PMICs and modems, and to invest in
mass production equipment around September 2017. However, the company’s intra-group
smartphone and LSI business units have expressed no interest in adopting FO-WLP/PLP
for their APs.
Qualcomm is also reluctant about adopting FO-WLP/PLP for its APs. Qualcomm uses
Shinko Electric’s MCeP technology in its 10nm-process packages and expects to continue
doing so through its new products to be developed in 2H 2018 (for release in 1H 2019).
For that reason, we do not expect Qualcomm to have 7nm-process products until 2019 at
the earliest.
Amkor Technology Korea has finished constructing a K5 line, and we believe it has begun
full-scale SWIFT development.
40%
50%
60%
70%
80%
90%
100%
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 E
Taiwan Assemblyprocess utilization
Assembly
FO-WLP/PLP: No major progress, considering
450mm InFO
10 March 2017
Technology sector 35
Taiwanese LCD panel manufacturers AUO and Innolux have expressed interest in FO-
PLP production as a means of resuming use of their existing G3.5 lines. They have
already begun meeting with equipment manufacturers. Although AUO and Innolux are
capable of utilizing such equipment, this would be their first experience in back-end
semiconductor assembly. Since they are only at the examination stage, we think that at
this point it is hard to expect any particular level of demand for equipment.
Tester market trends: Tester investment may be peaking right now
In light of DRAM demand and technological changes, smartphone manufacturers are
increasingly shifting from LP DDR3to LP DDR4 for mobile RAM (mainly in their flagship
models). We believe they will do the same for their mid-range and low-end models in 2H
2017. We also project that Chinese smartphone manufacturers will adopt faster LP DDR4
in their spring models (moving from 3Gbps speeds to 4Gbps). Samsung Electronics made
a large-scale investment in front-end fabrication process testers in December 2016.
However, any contraction of test periods as a result of increased tester throughput would
not likely lead to demand for back-end assembly process testers in 2H.
In addition, owing to a change in testing procedures, a major Korean DRAM manufacturer
has adopted hybrid testers (made by a local Korean tester manufacturer) that carry out
both burn-in and core tests. The company also plans to reduce the number of front-end
fabrication process tests. We think it will also purchase back-end process testers primarily
from a local company.
In the wake of an increase in 3D NAND manufacturing capacity at Samsung Electronics,
demand for NAND wafer probe testing equipment increased in 1Q. As with DRAM, local
Korean tester manufacturers have a presence in this field, and we believe one such
company (YIK, formerly the Korean subsidiary of Yokogawa Electric) has a nearly 50%
share of the market for front-end fabrication process testers (with the remaining market
share belonging to Advantest).
We believe Qualcomm is likely to delay the release of new AP products and thus see a
risk of demand for logic testers being pushed back as well.
Figure 49: Disco ‒ Quarterly orders forecasts Figure 50: Advantest ‒ Quarterly orders forecasts
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
21.8
26.6 26.1
19.3
24.1
28.4
25.2 23.4 26.1
35.5
31.3
27.5
35.0 34.5 33.4
28.0 30.8
32.1 33.3 31.7
37.0
40.0
35.0 33.0
35.0 38.0
35.0 33.0
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
Ja
n-1
2A
pr-
12
Ju
l-12
Oct-
12
Ja
n-1
3A
pr-
13
Ju
l-13
Oct-
13
Ja
n-1
4A
pr-
14
Ju
l-14
Oct-
14
Ja
n-1
5A
pr-
15
Ju
l-15
Oct-
15
Ja
n-1
6A
pr-
16
Ju
l-16
Oct-
16
Ja
n-1
7A
pr-
17
Ju
l-17
Oct-
17
Ja
n-1
8A
pr-
18
Ju
l-18
Oct-
18
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
1Q
2Q
3Q
4Q 1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q 4Q
1Q 2Q
3Q
4Q
1Q
E2Q
E3Q
E4Q
E1Q
E2Q
E3Q
E4Q
E
CY2012CY2013CY2014CY2015CY2016CY2017CY2018
TO
PIX
rel P
/B (
x)
Ord
er
(¥ b
n)
Order TOPIX rel P/B
34.3
46.2
25.3 24.4
29.8
39.5
21.4
27.4
39.1
49.2
38.2 38.7
50.2
44.0
27.1
39.8 40.6 43.8
28.5
44.0 39.0 44.0
38.0 35.0
40.0
37.0 35.0
43.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Ja
n-1
2A
pr-
12
Ju
l-12
Oct-
12
Ja
n-1
3A
pr-
13
Ju
l-13
Oct-
13
Ja
n-1
4A
pr-
14
Ju
l-14
Oct-
14
Ja
n-1
5A
pr-
15
Ju
l-15
Oct-
15
Ja
n-1
6A
pr-
16
Ju
l-16
Oct-
16
Ja
n-1
7A
pr-
17
Ju
l-17
Oct-
17
Ja
n-1
8A
pr-
18
Ju
l-18
Oct-
18
0.0
10.0
20.0
30.0
40.0
50.0
60.0
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
E2Q
E3Q
E4Q
E1Q
E2Q
E3Q
E4Q
E
CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018
TO
PIX
rel P
/B (
x)
Ord
ers
(¥ b
n)
Order TOPIX rel P/B
Taiwanese LCD panel makers interested in
FO-PLP
DRAM testers: Faster LP DDR4, adoption of LP DDR4 for Chinese
mid-range smartphones driving
investment.
NAND testers: Demand increasing owing to
new factories
10 March 2017
Technology sector 36
Companies Mentioned (Price as of 09-Mar-2017) AUO (AUO.N, $3.84) Advantest (6857.T, ¥1,978) Alibaba Group Holding Limited (BABA.N, $103.24) Amkor Technology Inc. (AMKR.OQ, $10.55) DISCO (6146.T, ¥17,720) Hi Silicon (Unlisted) Hitachi Kokusai Electric (6756.T, ¥2,608) Innolux Corporation (3481.TW, NT$12.25) Intel Corp. (INTC.OQ, $35.82) Lenovo Group Ltd (0992.HK, HK$4.66) MediaTek Inc. (2454.TW, NT$218.0) Memblaze (Unlisted) Micron Technology Inc. (MU.OQ, $25.15) Nanya Technology (2408.TW, NT$46.55) OmniVision Tech (OVTI.OQ^A16) OmniVision Tech (OVTI.OQ^A16) Powerchip (5346q.L, $0.0) QUALCOMM Inc. (QCOM.OQ, $57.97) SCREEN (7735.T, ¥7,590) SK Hynix Inc. (000660.KS, W48,000) SMIC (0981y.F, €6.063) Samsung Electro-Mechanics (009150.KS, W58,600) Samsung Electronics (005930.KS, W2,010,000) Shannon Systems (Unlisted) Taiwan Semiconductor Manufacturing (2330.TW, NT$184.5) Tokyo Electron (8035.T, ¥11,615) Toshiba (6502.T, ¥205) United Microelectronics (2303.TW, NT$12.1) Vivo (Unlisted) XMC (Unlisted) Yangtze River Storage Tech (Unlisted) Yokogawa Electric Corp (6841.T, ¥1,793)
Disclosure Appendix
Analyst Certification Hideyuki Maekawa, Akinori Kanemoto and Mika Nishimura each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
10 March 2017
Technology sector 37
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10 March 2017
Technology sector 38
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