EQUITY RESEARCH
USA | Semiconductors
Semiconductors
Microcontrollers: The Anti-Cyclical Semis
We forecast 55%-95% EPS growth at the median for our MCU stocks over the next 5
yrs as we believe the drivers of the double-digit, monotonic FCF/shr growth that MCU
stocks posted through inventory corrections and COVID over the past 5 years remain in
place, namely: 1) Consolidation, 2) Outsourcing, 3) Capital Return. Our top MCU picks
are MCHP and NXPI as they enter capital return cycles that we think translates to P/E
expansion of 2-to-4 turns vs peers.
Anti-Cyclical Semis. MCU companies posted double-digit FCF/Shr growth over the past
5 years. More importantly, the growth has increased monotonically even through the
recent inventory corrections and COVID-19 crisis.
Three Secular Trends Driving Consistent FCF/Shr Growth, which we think are in place for
the next 5-to-10 years:
1. Consolidation - driving pricing power and OpEx leverage;
2. Outsourcing - translating to more variable cost structures.
3. Higher Capital Return - particularly buybacks, leading to levered FCF/Shr growth
EPS Sensitivity Suggests 55%-95% EPS Growth over 3-to-5 Years at the Median
•
•
Base Case Assumes: 6% revenue CAGR, Op Margins expand 100bps/yr
Bull Case Assumes 9% revenue CAGR, Op Margin 200/bps/yr
These assumptions compare to Op Margin expansion of 175bps-200bps/yr over the past
10 years, and 4% MCU revenue CAGR over 5 years. We are more optimistic on revenue
growth based on our view that MCUs benefit as IoT plays under our "4th Tectonic Shift
in Computing" thesis.
Expect Relative P/E Expansion for MCHP and NXPI of 2-to-4 Turns. We show a high
correlation between P/E and both capital return and net leverage ratio. We think both
MCHP and NXPI P/E ratios benefit from increasing capital return starting in 2021. We
think MCHP benefits additionally from lowering its net leverage ratio.
Expect More Consolidation. Six companies account for 80% of the MCU market, but
history tells us that the natural order is for that number to be three. We also note that
34 companies account for 20% of the MCU market. Our M&A frameworks indicate that
SLAB, SFM, Nuvoton, CEC and Seiko Epson might be attractive targets.
Chart 1 - Summary of 5yr Base and Bull Case
Chart 2 - 5-Yr, Double-Digit, Monotonic
FCF/Shr Growth Even Through Inventory
Corrections and COVID
$12
Financial
Crisis
$8
$4
US &
European
Debt
Crisis
2018-2020
Inventory
Correction
2015
Inventory
Correction
NXPI
TXN
$0
IFX
STM
-$4
.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
Key Takeaway
FCF/Share, $
June 3, 2021
Source: Jefferies, FactSet
Links to Related Research:
Analog Renaissance 2.0 - Semis You Can
Own Through the Next 4 Cycles
The 4th Tectonic Shift in Computing: To a
Parallel Processing / IoT Model
FCF and Capital Return Handbook - 2018
Edition
MCHP C1Q21 Earnings: Beat & Raise:
Backlog Growing, Expect Tightness
Through '21. Reiterate Buy
NXPI 1Q21 Earnings: Beat & Raise:
Entering Capital Return Cycle - Reiterate
Buy
Mark Lipacis *
Equity Analyst
(415) 229-1438
mlipacis@jefferies.com
Natalia Winkler, CFA *
Consensus C21E
Jefferies
C21E vs 5-yr
Jefferies
C21E vs 5-yr
EPS
5-yr Base
Base, %
5-yr Bull
Bull, %
NXPI
$9.61
$16.12
68%
$21.47
123%
MCHP
$7.58
$12.20
61%
$15.64
106%
STM
$1.71
$2.21
29%
$3.24
90%
. TXN
$7.46
$11.18
50%
$14.13
89%
Source: Jefferies
Equity Associate
(415) 229-1511
nwinkler@jefferies.com
Vedvati Shrotre *
Equity Associate
(415) 229-1574
vshrotre@jefferies.com
^Prior trading day closing price unless
otherwise noted.
Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on
pages 40 to 46 of this report.
* Jefferies LLC / Jefferies Research Services, LLC
EQUITY RESEARCH
USA | Semiconductors
Section 1: Summary...................................................................Pg 3
Section 2: MCU Industry Overview.............................................Pg 9
Section 2.1: Total MCU.............................................................................Pg 12
Section 2.2: 32-bit MCU............................................................................Pg 15
Section 2.3: 16-bit MCU............................................................................Pg 16
Section 2.4: 8-bit MCU..............................................................................Pg 17
Section 2.5: HDD and DRAM Industry Consolidation Case Studies.........Pg 18
Section 3: M&A Analysis..............................................................Pg 19
Section 4: MCU Players' Overview and EPS Sensitivity Analysis...Pg 20
Section 4.1: Microchip..............................................................................Pg 21
Section 4.2: NXPI......................................................................................Pg 23
Section 4.3: STMicroelectronics..............................................................Pg 25
Section 4.4: Texas Instruments ..............................................................Pg 27
Section 4.5: Renesas................................................................................Pg 29
Section 4.6: Infineon.................................................................................Pg 31
Appendices..................................................................................Pg 33
Appendix 1: Tectonic Shifts in Computing - PC and Cellphone Case Studies..Pg 34
Appendix 2: Valuation Table..............................................................................Pg 38
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
2
EQUITY RESEARCH
USA | Semiconductors
Section 1. Summary
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
3
EQUITY RESEARCH
USA | Semiconductors
Chart 3 - MCU Monotonic, Double-Digit FCF/Shr Growth Through Cycles
FCF/Shr Over Time w/ 5-yr CAGR
US &
European
Debt Crisis
Financial
Crisis
$10
2015
Inventory
Correction
2018-2020
Inventory
Correction
Over the past 5 years, FCF/shr CAGR has
been double digits, with TXN and NXPI's
growth occurring largely organically in the
low double digits, and MCHP posting a 21%
CAGR with help from M&A, and IFX and
STM posting 23% and 16% FCF/shr growth
CAGRs off of lower numbers
$8
NXPI*,
12%
TXN,
10%
FCF/Share, $
$6
$4
MCHP,
21%
$2
$0
-$2
STM,
16%
IFX,
23%
1) Consolidation - driving higher profitability
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
-$4
This kind of "growth through cycles" is not
consistent with what traditionally would
be thought of as normal semiconductor
operating performance, we attribute it to:
.
Source: company data, Jefferies, FactSet. NXPI 2018 FCF/Shr is shown pro-forma, excluding $2bn
QCOM deal break-up fee.
Chart 4 - The MCU Industry Consolidation
40%
35%
Samsung
Fujitsu
Market Share
70%
Texas Instruments
STMicroelectronics
50%
30%
(2010-2018)
30%
Infineon
60%
40%
Cypress
Spansion
Atmel
Freescale
Microchip
NXP
NEC
(2012-2019)
25%
20%
15%
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0%
2002
Increase
Incr/yr
14%
175 bps/yr
15%
210 bps/yr
Aggregate MCU
EBIT Margin
30%
25%
20%
15%
Total MCU
Herfindahl Index
.
10%
5%
0%
5%
Mitsubishi + Hitachi = Renesas
0%
.
Trough-to-trough
EBIT
10%
20%
10%
Peak-to-peak
Total EBIT
-5%
Total MCU Herfindahl Index ex Renesas
-10%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Panasonic
Toshiba
Herfindahl Index
80%
3) Higher Capital Return - which has led to
levered FCF/Shr growth
Chart 5 - MCU Herfindahl Index vs. MCU EBIT Margin
100%
90%
2) Outsourcing - more variable cost
structures
MCU EBIT Margin (%)
$12
MCU companies have largely posted
monotonic FCF/share growth over the past
ten years, even through the most recent
inventory corrections and COVID-19 crisis
Source: Jefferies, Gartner. MCU market share calculated based on revenue. Source: Jefferies, Gartner, FactSet. Aggregate MCU EBIT margin includes
ATML+MCHP, FSL+NXPI, TXN, STM, IFX, Renesas, CY
MCHP revenues based on reported MCU segement.
The MCU industry has consolidated from 10 companies
accounting for 80% of the market in 2010, to 6 companies today.
We think that the 2011 nuclear disaster in Japan led Asian
customers to diversify away from Renesas. The effect has been
increased industry concentration in MCUs outside of Renesas
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
MCU operating margins have expanded by 14%-15% over the
past 10 years. We attribute this largely to increased industry
concentration. The grey line shows the Herfindahl Index (measure
of industry concentration) of the MCU industry ex Renesas
4
EQUITY RESEARCH
USA | Semiconductors
Chart 6 - TXN and NXPI Best Practices in Cap Rtn, Expect MCHP to Follow
$18
$15
Net Capital Return/Share, $
US &
European
Debt
Crisis
Financial
Crisis
2018-2020
Inventory
Correction
2015
Inventory
Correction
$12
We believe that MCHP is entering a capital
return cycle after a long period of M&A, and
has the highest probability in our coverage
universe to see the highest growth in its
capital return per share over the next 3-to-5
years
NXPI
$9
MCHP
$6
$3
Within MCUs, TXN and NXPI have exhibited
best practices of capital return, i.e., they both
have executed on their policies to return
100% of FCF to shareholders over time
We also believe NXPI enters a material capital
return cycle in 2021
TXN
STM
$0
IFX
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
-$3
.
Source: Jefferies, FactSet, company data
Chart 7 - Peak-to-Trough MCU EBIT Decline by Cycle
2009-'10
2010-'12
2015-'16
2018-'20
0%
-5%
-2%-2%
-3%-4%
-5%
-8%
-9%
-10%
-15%
-11%
-12%
-20%
-25%
-20%
-22%
-30%
-35%
.
-5%-4%
Peak-to-trough cycle operating margin
declines have shrunk to mid-to-high single
digits recently, from 12%-33% during the
World Financial Crisis, reflecting more stable
operating models for MCU companies
-29%
-33%
NXPI
MCHP
TXN
STM
Source: Jefferies, company data
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
5
EQUITY RESEARCH
USA | Semiconductors
Chart 8 - Depreciation as % of Sales
Chart 9 - Capex as % of Sales
26%
25%
24%
22%
20%
Capex, % of Sales
Depreciation, % of Sales
20%
15%
10%
18%
16%
14%
12%
10%
8%
6%
5%
4%
2%
TXN
MCHP
STM
IFX
NXPI
.
We think lower fixed costs have driven more stable margins. MCU
companies' depreciation expenses have declined by 200bpsto-1,000bps over 10 years, due in part to increased outsourcing
Chart 10 - Analog/MCU P/E Declines with B/S Leverage
MXIM
Price / Earnings (NTM)
Price / Earnings (NTM)
28
y = -1.5403x + 24.3
R² = 0.5312
24
ADI
22
STM
20
NXPI
ON
MCHP
2020
2019
2018
2016
2015
2014
2013
2017
IFX
y = 7.6024x + 18.273
R² = 0.8485
MXIM
26
ADI
24
22
TXN
STM
20
18
18
MCHP
ON
16
16
(2)
.
STM
Chart 11 - Analog/MCU P/Es Expand w/ Capital Return
30
TXN
MCHP
Lower depreciation expense has followed lower
CapEx intensity, and translates to both higher
FCF margins and consistent capital return
30
26
TXN
Source: Jefferies, FactSet, company data
Source: Jefferies, FactSet, company data
28
2012
2010
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
NXPI
.
2011
0%
0%
(1)
1
2
3
4
Net Debt / EBITDA (TTM)
5
0%
6
Source: Jefferies, Factset, company data. Using latest reported Net
Leverage and TTM EBITDA. Ex IFX due to CY acquisition
There is a high correlation between P/
E and leverage for MCU and analog stocks
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
.
25%
50%
75%
100%
125%
150%
Net Capital Return / Net Income - 3 Year Avg.
Source: Jefferies, Factset, company data. Net Cap Return/Net Income 3 yr.
Avg (2018-2020). Net Capital Return is dividend plus share buyback minus
cash from share/options issuance. Ex NXPI due to QCOM pmt in 2018, ex
IFX due to CY acquisition.
There is also a high correlation between P/E and
capital return for MCU and analog stocks - investors
pay more for earnings if it is returned to them
6
EQUITY RESEARCH
USA | Semiconductors
Chart 12 - MCHP FCF/Share and Net Capital Return/Share
Chart 13 - MCHP To Reach Sub-3x Leverage Ratio in C4Q21
MCHP Leverage Ratio Trend
$9
Net Capital Return/Share
$8
FCF used for M&A
debt paydown
$6
MCHP Net Leverage Ratio, x
$5
$4
$3
$2
$1
$0
-$1
4.0x
3.0x
2.0x
We forecast MCHP to
reach its target "below
3x" leverage 4Q21
1.0x
0.0x
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
.
5.0x
.
Source: Jefferies, company data
C2Q16
C3Q16
C4Q16
C1Q17
C2Q17
C3Q17
C4Q17
C1Q18
C2Q18
C3Q18
C4Q18
C1Q19
C2Q19
C3Q19
C4Q19
C1Q20
C2Q20
C3Q20
C4Q20
C1Q21
C2Q21E
C3Q21E
C4Q21E
C1Q22E
FCF/Share and NCR/Share $
$7
6.0x
Forecast
FCF/Share
Source: Jefferies, company data
MCHP's capital return (grey bar) has trailed its FCF/Shr growth (red line) as it has focused its cash flow on deleveraging its
balance sheet. We think its capital return could accelerate once its net-leverage ratio crosses 3x, which we forecast by 4Q21.
Should MCHP return to its historical dividend ratio of 50%, we estimate its dividend would increase to $4.50 from $1.50 in 2022
Chart 14 - NXPI FCF/Share and Net Capital Return/Share
$20
FCF/Share and NCR/Share $
Net Capital Return/Share
$15
FCF/Share
Forecast
Should NXPI decide to maintain its target net
leverage ratio of 2x, we estimate that it will
return $15/shr to shareholders in 2021, which
would be 3x its capital return in 2020
Portion attributed to
QCOM termination fee
$10
$5
$0
.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
-$5
Source: Jefferies, company data; Jefferies forecast 2021-2022
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
7
EQUITY RESEARCH
USA | Semiconductors
We Expect 55%-95% EPS Growth for our MCU Stocks over the Next 5 Years at the Median
Our EPS base case scenarios assume EBIT margins expand by 100bps/yr and revenues
increase at a CAGR of 6%. Our bull case assumes EBIT margins expand by 200bps/yr and
revenues increase at a 9% CAGR.
Our base case EBIT margin expansion assumption appears conservative to the 10-yr
175bps-210bps/yr expansion the group experienced over 10 years, but in line with the
100bps/yr it has posted over the past 5 years.
Our revenue CAGR assumption of 6% in the base case and 9% in the bull case is above
the 4% the group experienced over the past 5 years, but considering that M&A the group
experienced resulted in difficult to quantify divestitures, and our view that MCU companies
will benefit as critical suppliers to the IoT industry described in our "4th Tectonic Shift in
Computing" thesis, we think 6% and 9% revenue CAGRs for our base and bull case scenarios
are reasonable.
Our 5-yr base case indicates 30%-70% EPS growth, and our 5-yr bull case indicates
90%-125% EPS growth.
Chart 15 - Summary of Base and Bull Case
Consensus
C21E EPS
.
Jefferies C21E vs 3-yr
Jefferies C21E vs 3-yr
Jefferies C21E vs 5-yr
Jefferies C21E vs 5-yr
3-yr Base
Base, %
3-yr Bull
Bull, %
5-yr Base
Base, %
5-yr Bull
Bull, %
NXPI
$9.61
$13.15
37%
$15.78
64%
$16.12
68%
$21.47
123%
MCHP
$7.58
$10.22
35%
$11.92
57%
$12.20
61%
$15.64
106%
STM
$1.71
$1.75
3%
$2.26
32%
$2.21
29%
$3.24
90%
TXN
$7.46
$9.47
27%
$10.93
47%
$11.18
50%
$14.13
89%
Source: Jefferies, FactSet
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
8
EQUITY RESEARCH
USA | Semiconductors
Section 2. MCU Industry Overview
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
9
EQUITY RESEARCH
USA | Semiconductors
Chart 16 - MCU Segment Revenue
25
'09-'20 '11-'18
4%
4%
Revenue by Subsegement, US$ bn
Total
20
Microcontrollers
(MCUs)
are
single
integrated circuits that contain one or
more CPUs (processor cores), memory
and programmable input/output peripherals.
MCUs with higher data bus width
(e.g., 32-bits) would typically have higher
performance.
32-bit MCU
11%
16-bit MCU
0%
11%
0%
8-bit MCU
-1%
-3%
15
According to Gartner: the total MCU market
grew at a 4% CAGR trough-to-trough
(2009-2020) and 4% CAGR peak-to-peak
(2011-2018)
10
32-bit MCU segment grew at 11% trough-totrough and peak-to-peak
5
16-bit MCU segment remained flat for these
periods
32-bit MCU
.
16-bit MCU
2025E
2024E
2023E
2022E
2020
2021E
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
8-bit MCU
8-bit MCUs declined at a 1% CAGR trough-totrough and declined at a 3% CAGR peak-topeak
Source: Gartner
Chart 18 - MCU Op Margins Increasing >100bps/yr
75
100%
TXN
IFX
60%
Fujitsu
STM
MCHP
40%
20%
ATML
NXPI
Freescale
TXN
CY
IFX
STM
MCHP
NXPI
2010
2020
Source: Jefferies, Gartner
Over the past 10 years, the MCU industry has consolidated
from 10 companies accounting for 80% of the market to six
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
.
60%
40%
Aggregate MCU
Semi GM (%)
30
Aggregate MCU
Semi OM (%)
15
0
0%
80%
Aggregate MCU
Semi Revs ($) incl.
NXPI
45
Renesas
Renesas
.
60
Aggregate MCU
Semi Revs ($)
excl. NXPI
MCU Semis 5-Year Growth
Revs:
20%
4% CAGR
GM:
42 bps/yr
OM:
113 bps/yr
0%
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12
4Q12
2Q13
4Q13
2Q14
4Q14
2Q15
4Q15
2Q16
4Q16
2Q17
4Q17
2Q18
4Q18
2Q19
4Q19
2Q20
4Q20
80%
Quarterly TTM Revenues , $bn
Others
Others
TTM Quarterly Margins, %
Chart 17 - MCUs Consolidated Between 2010-20
Source: Jefferies, company data, FactSet. MCU sample includes: TXN
+NSM, MCHP+ATML+MSCC, NXP+FSL, Renesas+ISIL, STM, IFX+IRF, CY
+SPSN. NXPI added to the sample in 2Q2011.
Over the past 5 years, our sample set of MCU companies
and their acquisitions shows 4% revenue CAGR and
Op Margin improvement of over 100bps per year
10
EQUITY RESEARCH
USA | Semiconductors
Chart 19 - NXPI and MCHP - Highest MCU Exposure
MCUs as % of Total Revenues (2019)
Chart 20 - STM and TXN - Highest Direct Sales
100%
100%
90%
49%
65%
60%
78%
78%
89%
40%
35%
10%
22%
22%
MCU
.
STM
IFX*
NXP
Renesas
MCHP
0%
40%
STM
50%
49%
44%
IFX
MCHP
NXPI
Distribution
Source: Jefferies, FactSet, company data
STM and TXN have the highest exposure to direct
sales, while MCHP and NXPI employ a more
balanced approach between direct and distributors
Chart 22 - NXPI and TXN favor Internal Backend Manufacturing
100%
80%
45%
70%
80%
75%
70%
39%
70%
50%
40%
30%
55%
20%
20%
25%
30%
61%
30%
Outsourced
In-house
Source: Jefferies, FactSet, company data
TXN and STM favor internal manufacturing of wafers, while
NXPI and MCHP use foundries more for their wafer production
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
80%
70%
60%
70%
.
60%
58%
55%
40%
43%
45%
50%
40%
30%
20%
10%
30%
0%
NXPI
MCHP
NXPI
IFX
Renesas
STM
0%
90%
MCHP*
% of Total Back-End Manufacturing
100%
90%
TXN
% of Total Front-End Manufacturing
TXN
Direct Sales
.
Chart 21 - TXN and STM favor Internal Wafer Manufacturing
.
63%
0%
MCHP and Renesas have the highest exposure to MCUs, each
with over 50% revenue exposure. TXN has the least at 11%
10%
73%
10%
11%
Source: Jefferies, Gartner; *IFX is pro-forma IFX+CY
60%
56%
50%
20%
Other Revenues
51%
60%
30%
51%
50%
STM
20%
55%
37%
70%
50%
30%
27%
TXN
70%
45%
80%
% of Sales
80%
TXN
% MCU Exposure (2019)
90%
Outsourced
In-house
Source: Jefferies, company data; MCHP 53% of assembly and 57% of test
in-house.
On the backend, which includes packaging, assembly and
testing of chips, NXPI and TXN favor internal sourcing
11
EQUITY RESEARCH
USA | Semiconductors
Section 2.1 Total MCU Market Concentration Analysis
Chart 23 - Total MCU Market Share
Renesas, NXPI and MCHP are the top 3
overall MCU players with 18%, 17% and 15%
market share, respectively
100%
90%
Panasonic
Toshiba
80%
Samsung
Fujitsu
Market Share
70%
Cypress
Spansion
Infineon
Texas Instruments
60%
STMicroelectronics
50%
Atmel
Freescale
40%
30%
Microchip
NXP
NEC
Mitsubishi + Hitachi = Renesas
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
.
___________________________________
Notable acquisitions that have changed the
competitive landscape:
•
20%
10%
Smaller players with 0.4%-1.1% market share
in declining market share order are: CEC
Huada, SLAB, Denso, Unigroup Guoxin,
Nuvoton, Shanghai Fudan, Datang, Holtek,
Sino Wealth, Panasonic, MXIM, LFUS and
Nationz Technologies
•
•
•
•
Mitsubishi + Hitachi + NEC =
Renesas
NXP + Freescale
Atmel + Microchip
Fujitsu MCU / Spansion + Cypress
Infineon + Cypress (16-Apr-2020)
Source: Jefferies, Gartner. MCU market share calculated based on revenue. MCHP revenues based
on reported MCU segement.
We expect the MCU industry will continue to
consolidate
Chart 24 - Total MCU Herfindahl Index
Total MCU market HHI has increased to
11.8% from 8.3% over the last 10 years, which
we think explains a lot of the positive pricing
commentary from and margin expansion at
the analog companies
40%
35%
Concentrated: >25% (Less Competitive)
Given Renesas' 40% exposure to its home
market of Japan, with sizeable portion of
legacy sockets, we believe that consolidation
analysis ex-Renesas is indicative of the
broader, global market. Excluding Renesas,
the total MCU HHI increased to 12.6% from
7.5% over the past decade
25%
Moderate: 15% to 25%
20%
15%
MCU Market
10%
On an aggregate basis, the HHI is still low,
suggesting more room for consolidation
MCU Market ex-Renesas*
5%
2020
2019
2018
2017
2016
2015
2014
2013
2012
2010
2009
2008
2007
2006
2005
2003
2002
2004
Unconcentrated: <15% (More Competitive)
0%
2011
Herfindahl Index
30%
.
Source: Jefferies, Gartner. The Herfindahl Index is calculated by summing squares of the market
shares of top 50 participants
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
12
EQUITY RESEARCH
USA | Semiconductors
0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
.
.
-0.6
Source: Jefferies, Gartner, FactSet. Average MCU stock performance
includes NXPI, MCHP, TXN, IFX, STM, Renesas. Relative performance
is indexed to 31-Dec-2002. 2020 number is adjusted to account for CY
acquisition.
Source: Jefferies, Gartner, FactSet. Aggregate MCU EBIT margin includes
ATML+MCHP, FSL+NXPI, TXN, STM, IFX, Renesas, CY
Consistent with previous case studies we have
published on industry concentration, MCU EBIT
margins have increased as the industry consolidated
Also consistent with our HDD and DRAM case
studies, MCU stocks have outperformed the S&P500
as the market has become more concentrated
Chart 27 - MCU Pricing Commentary
Date
Jan-19
Company
STM
Commentary
President-Sales: In this moment, we are not seeing any price abnormality situation for Q1. So, Q1
price negotiations are according to a standard pattern.
Feb-19
TXN
MCU Performance Relative to SPX
-10%
Total MCU Herfindahl Index ex Renesas
-0.3
Total MCU Herfindahl Index ex-Renesas
2020
5%
2019
-5%
2018
5%
2017
0%
0.3
0.0
10%
10%
0%
Total MCU Herfindahl Index
15%
2016
5%
2015
Total MCU
Herfindahl Index
0.6
20%
2014
10%
25%
2013
15%
1.2
0.9
2012
15%
30%
2011
Aggregate MCU
EBIT Margin
20%
2010
20%
210 bps/yr
MCU Stocks Performance
Relative to SPX
2009
25%
15%
35%
2008
(2012-2019)
25%
2007
Trough-to-trough
175 bps/yr
2002
Herfindahl Index
30%
Incr/yr
14%
2006
(2010-2018)
Increase
1.5
2005
Peak-to-peak
40%
2004
35%
EBIT
Herfindahl Index
Total EBIT
Chart 26 - MCU Herfindahl Index vs Relative Stock Performance
30%
MCU EBIT Margin (%)
40%
2003
Chart 25 - MCU Herfindahl Index vs. MCU EBIT Margin
MCU management teams noted stable
pricing even during the 2019 inventory
correction
Head of IR: "there can be tens, if not hundreds of specs that an engineer is considering. And the
average sales price of a product in the market overall is about $0.35. And out of those hundreds of
specifications they're looking at, pricing is always a concern, but it just very rarely is one of the top
concerns. So you can't sell a $0.35 part for $3.50. But that's just not usually one of the top things
that a customer is concerned about. But really looking at the functionality of the device and how it
works inside of their design."
Feb-19
NXPI
CEO: I would say that the general environment on pricing is okay. I don't think that we would say
that it's poor for us at all. ...I wouldn't say that the pricing environment is problematic. It's very
healthy right now.
Feb-19
MCHP
CFO: We're in... a good environment from ASP perspective. We've been holding ASPs relatively flat
with customers and having good success with that. And so, as our cost structures improve, we
think that we can continue to get gross margin improvement over the course of time as the
Feb-19
CY
revenue environment becomes a little bit more constructive.
CFO: Since launching Cypress 3.0, our gross margins have improved 1,080 basis points. That’s over
2.5 years. So how did we get there? The first thing was pricing discipline. We’ve got a religion over
pricing… So that gave us 240 basis points.
Feb-19
MCHP
CEO: "In an open meeting where it's being recorded, the last thing I want to talk about is pricing
Apr-19
CY
power."
CEO: (On Automotive) ...Basically regardless of what’s going with the macro, pricing is very stable.
It’s very stable across all of our businesses including... But even across the other businesses we
don’t see any pricing pressure.
May-19
MCHP
CFO: And so we've seen pricing be very, very stable in this environment. When we compete against
our top tier competitors, we're competing against product specs and technical support and it's not
a pricing discussion. Obviously, price is important to the customer, but that's not what ultimately
.
wins you that design.
Source: Jefferies, Factset
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
13
EQUITY RESEARCH
USA | Semiconductors
Chart 28 - MCUs Pricing Commentary (Continued)
Date
Jun-19
Company
TXN
Commentary
VP IR: "Again, a microcontroller, the average selling price might be somewhere between $0.50 and
$0.75. And you got the added software infrastructure that's over it that makes it harder to switch.
MCU management teams also noted pricing
discipline and a benign pricing environment
in 2020-21
Can they switch? Sure. But are they going to switch for $0.10 or a $0.05. It's just too much work to
do. So, you got to be very selective."
Jun-19
MCHP
CFO: we're having great success in holding pricing flat. We're being fair with our customers; we're
not raising prices on customers, but really holding pricing flat in this environment. And that's a
change from where it was just a few years ago where you'd see 1%, 2%, 3% ASP decline per year.
Jun-19
MCHP
CFO: "what we've seen in this cycle which is different than others is ASPs or the average selling
prices, the pricing pressure that's coming in other cycles, really haven't been there. And we think
that's a factor of industry consolidation and a lot of the poor players in terms of pricing model,
business model had been taken out through acquisitions. And so, prices have held up quite well
and that has obviously helped in where gross margins are..."
Jun-19
TXN
CFO: "We're going to have the lowest cost player in an industry where price is not the number one,
number two, number three, maybe number five care about, but it still puts you in a good position
to compete and then generate more free cash flow."
Aug-19
MCHP
CEO: "I would say that the pricing has held up in this environment better than really it has held up
in any business cycle before. Microchip pricing in general held up in the prior business cycle also
because so many of our products are proprietary. ...I would say 95% of what we make today across
various different business unit is proprietary... Now, especially in this cycle, I think could be
somewhat driven by the consolidation industry have seen... I think result of all that is that the
Aug-19
MCHP
pricing has held up."
CFO: "And then the other factor is that pricing has been pretty benign in this environment. So
we've been in a very favorable pricing situation, where we're holding pricing flat with customers
and having great success with that. So as pricing has held flat and we're continuing to make cost
reductions in our factories, that's a good lever for gross margin."
Sep-19
NXPI
CEO: "If you look at the gross margin deterioration... for the industry, the deterioration is not nearly
as significant in this downturn as it has been in a number of previous downturns. So, I think that
talks more about the fundamentals of the industry and how it's changed (vs a decade ago)... you
can't just say, well, look, you got to have a 20% cost reduction or I'm going to substitute a different
alternative."
Feb-20
NXPI
Head of IR: "we have annual price concessions we give to our customers. So, there's usually always
like a gross margin headwind from Q4 to Q1. It's been about 60bps last couple of years, and that's
actually lower than it has been in the prior years"
Feb-20
NXPI
Head of IR: "we have a couple competitors who we have a lot of respect for (STM, MCHP, Renesas).
We'll compete with them and get as good as we get, but we're not going to go into that business
and compete on pricing and margins and things like that. ...we'll walk away from unprofitable
Mar-20
TXN
business if need be."
CFO: "...we take full advantage of having that lower cost (300mm). You can – in some places, it
makes sense to translate that into lower prices. In other places, it just makes sense to pocket that
additional free cash flow."
Mar-21
MCHP
CFO: "we really highlighted in our margin profile going forward is the stability we expect in terms
of a disciplined product pricing strategy... pricing discipline is something that we've been very
focused on over the last few years and we expect that to continue."
Mar-21
.
MCHP
CEO: "We've got a very disciplined approach to keeping prices flat and getting the benefits that
we're getting in the cost structure to flow through to gross margin."
Source: Jefferies, FactSet. 2019-2021
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
14
EQUITY RESEARCH
USA | Semiconductors
Section 2.2. 32-bit MCU Concentration Analysis
Chart 29 - 32-bit MCU Market Share
100%
90%
Panasonic
80%
Toshiba
Samsung
Denso
Texas Instruments
Atmel
Spansion
70%
Microchip
Cypress
Market Share
Fujitsu
60%
Infineon
40%
NEC
30%
NXP
Notable acquisitions that have changed the
competitive landscape:
20%
Freescale
10%
STMicroelectronics
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
.
Source: Jefferies, Gartner. JEFF estimates for MCHP 32-bit based on MCHP's comments
Chart 30 - 32-bit MCU Herfindahl Index - Crossed into "Moderate" Territory in 2020
Herfindahl Index
30%
Moderate: 15% to 25%
20%
NXP + Freescale
MCHP + Atmel
Cypress + Spansion (incl. ex-Fujitsu)
Infineon + Cypress (closed Apr 2020)
Notably, when excluding Renesas from the
data set we observe a 4.4% increase in HHI
from in the last 5 years to 15.8% in 2020,
crossing into the "Moderate Concentration"
HHI category
32-bit MCU
15%
10%
NEC + Renesas
Given its high exposure to Japan, we believe
that the HHI analysis ex-Renesas is more
indicative of MCU competitive dynamics
given the high home-market exposure (grey
line)
Concentrated: >25% (Less Competitive)
25%
•
•
•
•
•
The HHI index for 32-bit MCU segment
declined to 13.7% from its peak of 21.2% in
2011 (blue line)
40%
35%
In the 32-bit MCU market, STM, NXPI, and
Renesas are market leaders accounting for
20%, 19% and 16% of the market
Others with 0.2%-1.5% market share in
declining order are Nuvoton, Unigroup
Guoxin, Denso SLAB, GigaDevice Semi,
MXIM, Panasonic, ADI, and Datang
Mitsubishi + Hitachi = Renesas
50%
32-bit is the largest MCU subsegment,
representing 52% of overall revenues.
Notably, Renesas market share within this
segment has shrunk by 2100bps from 41% at
it's peak in 2011 to 16% in 2020
32-bit MCU ex-Renesas
5%
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2004
2003
2002
2005
Unconcentrated: <15% (More Competitive)
0%
.
Source: Jefferies, Gartner. The Herfindahl Index is calculated by summing squares of the market
shares of top 50 participants
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
15
EQUITY RESEARCH
USA | Semiconductors
Section 2.3. 16-bit MCU Concentration Analysis
Chart 31 - 16-bit MCU Market Share
16-bit is the smallest among MCU segments.
Notably, Renesas (#1 market share) has
seen a 1120bps share decline in 2008-2018,
but gained 335bps in 2019-2020. Meanwhile
TXN, NXP and MCHP have seen meaningful
share expansion over the last decade
100%
90%
Intel
Panasonic
80%
Toshiba
Microchip
Samsung
NXP
Freescale
Market Share
70%
Renesas, IFX and TXN hold 29%, 23% and 19%
respective market shares.
Texas Instruments
60%
Others with less than 0.8% market share
in declining order are EM Microelectronics
Seiko Epson, MXIM, LFUS, Rohm, Datang,
Sony, RTI Group and others
Infineon
50%
Fujitsu
40%
30%
Spansion
20%
Cypress
Notable acquisitions that have changed the
competitive landscape:
Mitsubishi + Hitachi = Renesas
10%
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2002
.
2003
NEC
0%
Source: Jefferies, Gartner; MCHP based on JEFF estimates from Gartner and MCHP's commentary
Chart 32 - 16-bit MCU Herfindahl Index
Concentrated: >25% (Less Competitive)
Herfindahl Index
30%
25%
NXP + Freescale
MCHP + Atmel
Cypress + Spansion (incl. ex-Fujitsu)
Infineon + Cypress (closed Apr 2020)
When observing the data set excluding
Renesas we note an 800bps increase in HHI
over the past 10 years to 23.8%
Moderate: 15% to 25%
IFX+CY acquisition in 2020 moved IFX to #2
position, ahead of TXN
16-bit MCU
20%
NEC + Renesas
16-bit MCU segment has been moderately
concentrated for the best part of the last
decade. We have seen an uplift in HHI
in 2014-2020 (+560bps), reaching 20.4% in
2020.
40%
35%
•
•
•
•
•
15%
16-bit MCU ex-Renesas
10%
Unconcentrated: <15% (More Competitive)
5%
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
.
Source: Jefferies, Gartner. The Herfindahl Index is calculated by summing squares of the market
shares of top 50 participants
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
16
EQUITY RESEARCH
USA | Semiconductors
Section 2.4. 8-bit MCU Concentration Analysis
Chart 33 - 8-bit MCU Market Share
100%
90%
Panasonic
Toshiba
Fujitsu
80%
70%
Market Share
Other
Samsung
SLAB
Cypress Spansion
STMicroelectronics
60%
MCHP, NXPI and Renesas are market leaders
with 32%, 14% and 8% market shares
Unigroup Guoxin
CEC Huada
Mitsubishi + Hitachi = Renesas
50%
NEC
40%
NXP
Philips Semi
30%
•
•
•
Microchip
10%
Atmel
NEC + Renesas
NXP + Freescale
MCHP + Atmel
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
.
Others with 1.0-2.2% market share
in
declining
order
are
Holken,
Fudan Microelectronics, Datang, Sino
Wealth Electric, ABOV Semiconductor,
LFUS, Nationz, Hangzhou, ON, Elan
Microelectronics and others
Notable acquisitions that have changed the
competitive landscape:
Freescale
20%
8-bit is second largest segment in MCU space
and has seen gradual HHI increase over the
past 10 years
Source: Jefferies, Gartner; MCHP is based on JEFF estimates combining Gartner input and MCHP
commentary
Chart 34 - 8-bit MCU Herfindahl Index
8-bit MCU segment has seen significant
consolidation over the past 10 years with
465bps increase in its HHI
40%
35%
Concentrated: >25% (Less Competitive)
Herfindahl Index
30%
Notably, when looking at the segment
excluding Renesas, HHI crossed into the
moderately concentrated segment in 2017
25%
Moderate: 15% to 25%
20%
8-bit MCU ex-Renesas
15%
10%
8-bit MCU
5%
Unconcentrated: <15% (More Competitive)
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0%
.
Source: Jefferies, Gartner. The Herfindahl index is calculated by summing the squares of the market
shares of top 50 industry participants
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
17
EQUITY RESEARCH
USA | Semiconductors
Section 2.5. HDD and DRAM Industry Consolidation Case Studies
Chart 35 - HDD Market Share
Other Vendors
90%
2001: IBM merges with Hitachi to form
Hitachi GST
2020: Western Digital market share = 37%
60%
2012: Hitachi GST merges with
Western Digital
50%
Elpida
Micron
NEC
40%
Texas Instruments
Toshiba
Samsung
10%
0%
Source: Jefferies, Gartner. HDD market share calculated based on units
shipped.
2019
2017
2015
2013
2011
2009
2007
2005
2003
2001
.
1999
0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
.
Infineon
1997
10%
50%
20%
2011: Seagate acquires
Samsung HDD
Hynix
LG
Hitachi
30%
2020: Seagate market share = 43%
2001: Maxtor acquires
Quantum
Mitsubishi
60%
1995
20%
2006: Seagate
acquires Maxtor
70%
1993
30%
1996: Seagate acquires Conner
IBM
Fujitsu
1991
40%
Nanya Technology
80%
1989
70%
Other
90%
2009: Fujitsu merges with Toshiba
1987
HDD Market Share
80%
100%
2019: Toshiba market share = 23%
Market Share
100%
Chart 36 - DRAM Market Share
Source: Jefferies, Gartner. * DRAM market share calculated based upon
revenue.
Consolidation case studies of DRAM and HHD industries suggest that the natural order of tech industries is to have 2-to-3 players
dominate the market. For example, In DRAM the top 3 players combined represent 95% of the market while in HDD top 3 players
represent 100% of the market. The MCU industry has consolidated over the past 5 years, we expect consolidation will continue
35%
25%
5%
20%
0%
15%
Herfindahl
Index
-5%
-10%
5%
-15%
0%
-20%
Source: Jefferies, Gartner, FactSet, company data. HDD EBIT % is the
average EBIT margin of STX and WDC.
Herfindahl Index
30%
Herfindahl Index
10%
60%
40%
30%
25%
20%
20%
10%
0%
15%
-10%
10%
MU EBIT Margin
5%
0%
.
50%
DRAM EBIT Margin, %
15%
30%
10%
.
40%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Herfindahl Index
35%
WDC & STX HDD EBIT
Margin
Chart 38 - Herfindahl Index vs. EBIT Margin
20%
WDC & STX EBIT Margin (%)
40%
-20%
-30%
-40%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Chart 37 - Herfindahl Index vs. HDD EBIT Margin
Source: Jefferies, Gartner, FactSet
EBIT margins for the HDD and DRAM industries (dark blue lines) increased with
increased industry concentration, measured by the Herfindahl Index (HHI- light blue lines)
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
18
EQUITY RESEARCH
USA | Semiconductors
Section 3. M&A Analysis
Chart 39 - Framework for Identifying Potential M&A Targets and Acquirers
55%
50%
SLAB
Northwest = Sweet
OIIM
Spot of Potential
Targets
45%
TTM OPEX/S, %
40%
Ricoh
30%
25%
20%
15%
INTC
Renesas
MRCY QCOM
AMS
MediaTek
STM
IFX
AOSL
Holtek
ON
QRVO
DIOD
SWKS
VS Ind. Rohm
LFUS
HIMX
ABOV
Sanken
Torex
Fuji
Denso
MegaChips
10%
Lite-On
KEC
NMB
ELAN
MU
2x
AMD
NXPI
4x
6x
TTM EV/S, x
.
Nations(16x,40
40%)
MPWR
(16.8x)
NVDA
(31.1x)
AVGO
MCHP
Southeast = Sweet
Spot of Potential
Acquirers
5%
0x
XLNX
POWI
CRUSSYNA
Seiko Epson
SMTC
MTSI
DLG
35%
AMBA
(80%,
13.8X)
According to our semi M&A framework
(See note Semis M&A Handbook: More to
Come), semiconductor M&A often succeeded
when companies with low cost structure
and higher valuation (Southeast on chart)
acquired companies with high cost structure
and low valuations (Northwest on chart). By
acquiring Northwest, acquirers can win twice:
1) lower costs and increase earnings, and 2)
get a better multiple on the higher earnings
stream
Giga Device
(10.6x)
Unigroup
Guoxin (23.9x)
8x
10x
Source: Jefferies, FactSet
Chart 40 - Framework for Identifying Potential M&A Targets and Acquirers - Total MCU
Market
55%
Northwest = Sweet
Spot of Potential
Targets
TTM OPEX/S, %
45%
35%
SLAB
Nations
SFM
(16x, 40%)
Nuvoton
CEC
Seiko Epson
Renesas
STM
ABOV
RohmHoltek
25%
Denso
15%
Sonix
IFX
0x
2x
NXPI MCHP
ELAN LFUS
Southeast = Sweet
Spot of Potential
Acquirers
Datang
5%
.
Within the MCU market our framework
suggests that SLAB, Nuvoton, CEC and Seiko
Epson as potentially attractive targets
4x
6x
TTM EV/S, x
8x
10x
Source: Jefferies, Factset
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
19
EQUITY RESEARCH
USA | Semiconductors
Section 4. MCU Players' Overview and EPS Sensitivity Analysis
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
20
EQUITY RESEARCH
USA | Semiconductors
4.1. Microchip Overview and Sensitivity Analysis
Chart 41 - MCHP Revenue Split (2020)
We estimate MCHP MCUs at 55-60% of its
sales and analog revenues at 25-30%
#3 share FPGA/PLD
(7% mkt share)
#13 share in
Total Analog**
(2% mkt
share)
Memory,
Licensing,
FPGA, Other
18%
Other Analog
(ASSPs, ASICs,
Connectivity,
etc)
28%
8-bit
24%
MCHP is the leader in 8-bit MCUs, and has
been gaining share in 16- and 32-bit
16-bit
6%
#5 share in 16bit MCUs
(10% mkt share)
32-bit
16%
Amplifiers and Other
Analog…
Data Converter / Switch /
Multiplexer
2%
.
#1 share 8-bit MCUs
(31% mkt share)
#5* share in 32-bit MCUs
(8%* mkt share)
Voltage Regulator / Reference…
Source: Jefferies, company data, Gartner. Revenue split provided based on MCHP data and Gartner
estimates. MCHP estimates for 32-bit MCUs are sizeably above Gartner estimates. We estimate that
MCHP 32-bit share may be as high as 10%, ranking it as #4, above TXN
Chart 42 - MCHP Composite HHI, EBIT and Stock
$9
$8
1.1
20%
0.9
10%
0.7
MCHP Composite
Herfindahl Index
Net Capital Return/Share
$7
FCF/Share
Forecast
FCF used for M&A
debt paydown
$6
$5
$4
$3
$2
$1
$0
-$1
0.5
Source: Jefferies, Gartner, FactSet. Performance Relative to SPX is
calculated from 31-Dec-02. Composite HHI calculated from Analog and
subsegement MCU
Over the past 10 years MCHP's Composite HHI has
increased by 518bps, its EBIT margin increased by
1,871bps and its stock outperformed the SPX by 34%
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
MCHP Relative
to SPX
1.3
FCF/Share and NCR/Share $
30%
MCHP EBIT Margin
MCHP Relative to SPX
40%
0%
.
Chart 43 - MCHP Dividend Could Increase 3x to $4.50 in '22
1.5
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Herfindahl Index and EBIT Margin, %
50%
Source: Jefferies, company data
MCHP's FCF/share doubled over the past 4yrs and increased
monotonically, through cycles over the past 10 years. Should
MCHP return to its historical dividend payout ratio of 50% of FCF,
we estimate its dividend would increase 3-fold to $4.50 in 2022
21
EQUITY RESEARCH
USA | Semiconductors
Chart 44 - MCHP Revenue and Margins, Historical and Forecast (TTM)
8
100%
Revenues
($)
6
80%
4
60%
Gross Margin
(%)
2
40%
Historical MCHP+ATML+
+MSCC 5-Year Growth
Revs:
4% CAGR
97 bps/yr
20%
0%
Over the past five years, trough-to-trough,
MCHP and ATML, MSCC pro-forma revenues
have increased at a 4% CAGR - although we
believe that does not accurately represent
the organic growth given divestitures MCHP
made post those acquisitions. Gross and
operating margins expanded by 153 bps/yr
and 97 bps/yr, respectively
In the chart to the left, we show actual
TTM revenue, gross and operating margins
through C1Q20, and forecasted bear, base
and bull case projections for each for the next
5 years
MCHP's long term model is 65% nonGAAP GM and 42% OM, which we view as
conservative
3Q25
3Q24
153 bps/yr
3Q21
3Q20
3Q19
3Q18
3Q17
3Q16
3Q15
3Q14
3Q13
3Q12
3Q11
3Q10
3Q09
3Q08
.
3Q07
-2
GM:
OM:
3Q23
Op Margin
(%)
0
MCHP Quarterly TTM Margins (GM & OM), %
120%
3Q22
MCHP Quarterly TTM Revenues, US$ bn
10
Source: Jefferies, company data, FactSet
Chart 45 - MCHP EPS 3-yr and 5-yr Sensitivity Analysis
3 year
MCHP
Op Margin Expansion:
0bps $
100bps $
Revenue Growth
3%
8.69 $
6%
9%
9.50 $ 10.36
9.35 $ 10.22 $ 11.14
200bps $ 10.01 $ 10.94 $ 11.92
Our 3-yr and 5-yr base case for EPS
assumes 6% revenue CAGR and a 100 bps/yr
improvement in operating margins. Our 3-yr
and 5-yr bull case assumes 9% revenue CAGR
and a 200 bps/yr improvement in operating
margins
Our 5-yr base and bull case targets translate
to EPS that is 61% and 106% higher than
CY21 consensus EPS estimates of $7.58
5 year
MCHP
Op Margin Expansion:
0bps $
Revenue Growth
3%
6%
9%
9.34 $ 10.84 $ 12.51
100bps $ 10.52 $ 12.20 $ 14.07
200bps $ 11.70 $ 13.56 $ 15.64
.
Source: Jefferies, company data, FactSet
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
22
EQUITY RESEARCH
USA | Semiconductors
4.2. NXPI Overview and Sensitivity Analysis
Chart 46 - NXPI Revenue Split (2019)
Nonoptical
Sensors
4%
Other (ACISs,
ASSPs for
MCUs, Analog,
RF)
23%
#2 share 8-bit MCUs
(15% mkt share)
8-bit
8% 16-bit
5%
#4 share in 16-bit
MCUs
(13% mkt share)
32-bit
22%
#2 share in 32-bit
MCUs
(19% mkt share)
NFC
6%
Embedded MPUs, Discrete
App/Multimedia Processors
14%
.
The majority of NXPI revenues come from
MCUs and Analog. NXPI holds #2 market
share in the overall MCU market with 17%
market share
Within MCU subsegments, NXPI has #2
position in the two largest subsegments of
MCU industry: 8-bit and 32-bit
Notably over the past year NXPI increased its
market share in 32-bit subsegment, but lost
market share in 8-bit and 16-bit
Analog
5%
BLE+WiFi…
DSP
Discretes 4%
8%
Source: Jefferies, NXPI, Gartner. Revenue split provided based on Gartner revenue estimates; *BLE
+WiFi includes Bluetooth and Wi-Fi from MRVL acquisition that contributed $6m in 2019
Chart 47 - NXPI Composite HHI, EBIT and Stock
2.5
FCF/Share and NCR/Share $
NXPI Composite
Herfindahl Index
Net Capital Return/Share
NXPI Relative to SPX, x
20%
NXPI EBIT Margin
$20
2.0
1.5
10%
1.0
0%
0.5
Source: Jefferies, Gartner, FactSet; Composite HHI calculated from MCU
and Analog. Performance Relative to SPX is rebased to 31-Dec-2010.
Over the past 10 years, NPXI's Composite HHI
increased by 592bps, its EBIT increased by
1,554bps and its stock outperformed SPX by 154%
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
$15
FCF/Share
Forecast
Portion attributed to
QCOM termination fee
$10
$5
$0
-$5
.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
.
NXPI Relative to
SPX
40%
30%
Chart 48 - NXPI FCF/Share and Net Capital Return/Share
3.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Herfindahl Index and EBIT Margin, %
50%
Source: Jefferies, company data; Jefferies forecast 2021-2022
NXPI FCF/share has steadily increased since 2009, with a
spike in 2008 due to QCOM deal break fee. The company
paused buybacks in 2020 due to COVID, but announced
it would resume buybacks and return 100% of FCF to
shareholders while maintaining its 2x net leverage ratio.
Consequently we forecast $15 of capital return per share in 2021
23
EQUITY RESEARCH
USA | Semiconductors
Chart 49 - NXPI Revenue and Margins, Historical and Forecast (TTM)
130%
Revenues
($)
NXPI Quarterly TTM Revenues, US$ bn
12
110%
10
90%
8
70%
6
50%
Gross Margin
(%)
5-Year Growth
Revs:
0% CAGR
OM:
91 bps/yr
30%
10%
-10%
Over the past five years, NXPI and FSL proforma revenues have remained flat, while
gross and operating margins have expanded
by 70 bps/yr and 91 bps/yr
In the chart to the left, we show actual proforma TTM revenue, gross and operating
margins through C1Q21, and forecasted bear,
base, and bull case projections for each for
the next 5 years.
NXPI target operating model is 5%-7% annual
growth, 53%-57% GM, 31%-34% operating
margin is consistent with our base case
scenario on revs and OM and more
conservative on GM
3Q25
70 bps/yr
3Q24
3Q20
3Q19
3Q18
3Q17
3Q16
3Q15
3Q14
3Q13
3Q12
3Q11
3Q10
3Q09
3Q08
.
3Q07
0
GM:
3Q23
Op Margin
(%)
3Q22
2
Historical NXPI+FSL
3Q21
4
NXPI Quarterly TTM Margins (GM & OM), %
14
Source: Jefferies, company data, FactSet
Chart 50 - NXPI EPS 3-yr and 5-yr Sensitivity Analysis
3 year
NXPI
Op Margin Expansion:
Revenue Growth
3%
6%
9%
0bps $ 10.81 $ 11.89 $ 13.04
100bps $ 11.96 $ 13.15 $ 14.41
200bps $ 13.11 $ 14.41 $ 15.78
Our 3-yr and 5-yr base case for EPS
assumes 6% revenue CAGR and a 100 bps/yr
improvement in operating margins. Our 3-yr
and 5-yr bull case assumes 9% revenue CAGR
and a 200 bps/yr improvement in operating
margins
Our 5-yr base and bull case targets translate
to EPS that is 68% and 123% higher than
CY21 consensus EPS estimates of $9.61
5 year
NXPI
Op Margin Expansion:
Revenue Growth
3%
6%
9%
0bps $ 11.72 $ 13.73 $ 15.97
100bps $ 13.79 $ 16.12 $ 18.72
200bps $ 15.86 $ 18.51 $ 21.47
.
Source: Jefferies, company data, FactSet
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
24
EQUITY RESEARCH
USA | Semiconductors
4.3. STMicroelectronics Overview and Sensitivity Analysis
Chart 51 - STM Revenue Split (2020)
#3 share
Discretes
(6% mkt share)
Volt Reg
7%
Analog Other
2%
32-bit
21%
PowerDiscrete
13%
ASSPs, ASICs,
largerly
automotive
29%
#1 share in 32-bit
MCUs
(21% mkt share)
8-bit
3%
Other MCUs
and Digital ICs
3%
MEMS&Sensors
20%
STM has ~25% of revenues coming
from MCU components. General purpose
Analog components represent ~7% of STM's
revenues while STM's analog ASSPs and
ASICs account for 33% of revs.
STM is the leader in MEMS space with MEMS
and Sensors segment accounting for 17%
of STM's revenues. In addition, STM has #3
market share rank in Discrete Components
segment, which accounts for 15% of it's
revenues
Memory
2%
#4 share in 8-bit
MCUs
(8% mkt share)
.
Source: Jefferies, company data, Gartner
Chart 52 - STM Composite HHI, EBIT and Stock
1.0
STM Composite Herfindahl
Index
20%
0.8
10%
0.6
0%
0.4
-10%
0.2
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Over the past 10 years, STM's Composite HHI
increased by 375bps, its EBIT increased by 849bps
while the stock outperformed SPX by 7%. Since 2012
STM increased its EBIT margin from -8% to 14%
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
FCF/Share
Forecast
$1.0
$0.8
$0.6
$0.4
$0.2
$0.0
-$0.4
-$0.6
0.0
Source: Jefferies, Gartner, FactSet. Performance Relative to SPX is
calculated from 31-Dec-02. Composite HHI calculated from Analog, MCU
and Discrete segments
Net Capital Return/Share
-$0.2
STM EBIT Margin
-20%
.
$1.2
.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
STM Relative to
SPX
$1.4
FCF/Share and NCR/Share $
30%
Chart 53 - STM FCF/Share and Net Capital Return/Share
1.2
STM Relative to SPX
Herfindahl Index and EBIT Margin, %
40%
Source: Jefferies, FactSet, company data; Jefferies forecast 2021-2022
STM FCF/sh was negatively affected by operating performance
of ST-Ericsson JV (operating Feb-09 to Aug-13), dipping in 2011.
STM's main capital return vehicle is its dividend, although in 2017
STM completed $297m repurchase, doubling its NCR/sh ratio
25
EQUITY RESEARCH
USA | Semiconductors
Chart 54 - STM Revenue and Margins, Historical and Forecast (TTM)
100%
12
60%
9
40%
Gross Margin
(%)
6
20%
3
0%
Historical STM
5-Year Growth
Revs: 11% CAGR
273 bps/yr
-20%
-40%
Over the past five years, trough to trough,
STM revenues have increased at an 8%
CAGR, while gross and operating margins
have expanded by 87 bps/yr and 273 bps/yr,
respectively
In the chart to the left, we show actual
TTM revenue, gross and operating margins
through C1Q21, and forecasted bear, base
and bull case projections for each for the next
5 years
STM mid-term target is: revs of $12bn, GM
39-40%, operating margin 15-17%
3Q25
OM:
3Q24
87 bps/yr
3Q23
GM:
3Q21
3Q20
3Q19
3Q18
3Q17
3Q16
3Q15
3Q14
3Q13
3Q12
3Q11
3Q10
-3
3Q09
Op Margin
(%)
3Q22
0
3Q08
.
80%
Revenues
($)
3Q07
STM Quarterly TTM Revenues, US$ bn
15
STM Quarterly TTM Margins (GM & OM), %
18
Source: Jefferies, company data, FactSet
Chart 55 - STM EPS 3-yr and 5-yr Sensitivity Analysis
3 year
STM
Op Margin Expansion:
Revenue Growth
3%
6%
9%
0bps $
1.32 $
1.44 $
1.56
100bps $
1.62 $
1.77 $
1.92
200bps $
1.93 $
2.10 $
2.28
Our 3-yr and 5-yr base case for EPS
assumes 6% revenue CAGR and a 100bps/yr
improvement in operating margins. Our 3-yr
and 5-yr bull case assumes 9% revenue CAGR
and a 200 bps/yr improvement in operating
margins
Our 5-yr base and bull case targets translate
to EPS that is 29% and 90% higher than CY21
consensus EPS estimates of $1.71
5 year
STM
Op Margin Expansion:
Revenue Growth
3%
6%
9%
0bps $
1.41 $
1.62 $
1.87
100bps $
1.95 $
2.25 $
2.58
200bps $
2.49 $
2.87 $
3.30
.
Source: Jefferies, company data, FactSet
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
26
EQUITY RESEARCH
USA | Semiconductors
4.4. Texas Instruments Overview and Sensitivity Analysis
Chart 56 - TXN Revenue Split (2019)
Other (DLP, calculators and ASICs)
8%
#6 share in MCUs
(9% mkt share)
Processors
9%
32-bit MCUs
6%
16-bit MCUs
5%
Voltage
Regulator /
Reference
21%
Other
Connected
MCUs
1%
.
Other Integrated
Analog (e.g. High
Volume) & Signal
Chain
Amplifiers and
11%
Other Analog
#1 share in
18%
Amplifiers & Other
(38% mkt share)
#1 share in Voltage
Reg/Ref
(25% mkt share)
Other Power
Analog
13%
#2 share in Data
Converter
(27% mkt share)
TXN reports Analog to represent 71% of its
total revenues. Power management is the
largest segment accounting for 34% of total
revs (21% - GP Voltage Reg/Ref products and
18% Other Analog Power Mgmt ASSPs and
ASICs). TXN holds the highest market share
(38%) in Amplifiers & Other Analog.
Embedded Processing products accounted
20.5% total revenues in 2019, split between
Connected MCUs (12%) and Processors (9%).
TXN holds 6th market share in MCU market,
having seen market share decline from 9.6%
in 2018 to 8.5% in 2019 after 6 years of
consistent share gains
Data Converter / Switch /
Multiplexer
8%
Source: Jefferies, TXN, Gartner. Revenue split provided based on TXN 2019 segment and product
line data.
Note: TXN reported revenues split for 2018: Analog - 66%, Embedded Processing - 23%, Other - 9%.
Chart 57 - TXN Composite HHI, EBIT and Stock
$9
$8
TXN EBIT Margin
2.0
TXN Relative
to SPX
1.6
9%
1.2
TXN Composite Herfindahl
Index
Net Capital Return/Share
FCF/Share
Forecast
$7
$6
$5
$4
$3
$2
$1
$0
0.8
Source: Jefferies, Gartner, FactSet. Composite is calculated from Analog
and MCU. Performance Relative to SPX is calculated from 31-Dec-02.
Over the past 10 years, TXN's Composite HHI
increased by 502bps, its EBIT increased by
1,281bps and its stock outperformed SPX by 105%
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
27%
18%
FCF/Share and NCR/Share $
2.4
TXN Relative to SPX
36%
0%
.
Chart 58 - TXN FCF/Share and Net Capital Return/Share
2.8
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Herfindahl Index and EBIT Margin, %
45%
Source: Jefferies, company data; Jefferies forecast 2021-2022
TXN's FCF/sharenearly doubled over the past 5 years and
increased steadily over the past 10 years, through the debt
crisis, several inventory corrections and COVID. TXN has been
executing a long-standing policy to return 100% of its FCF to
shareholders, however has paused buybacks so far in 2021
27
EQUITY RESEARCH
USA | Semiconductors
Chart 59 - TXN Revenue and Margins, Historical and Forecast (TTM)
120%
TXN Quarterly TTM Revenues, US$ bn
20
100%
Revenues
($)
16
80%
12
60%
Gross Margin
(%)
40%
Op Margin
(%)
Historical TXN+NSM
5-Year Growth
Revs:
4% CAGR
195 bps/yr
20%
0%
Over the past five years, trough to trough,
TXN revenues have increased at a 4% CAGR,
while gross and operating margins have
expanded by 114 bps/yr and 195 bps/yr,
respectively
In the chart to the left, we show actual
TTM revenue, gross and operating margins
through C1Q21, and forecasted bear, base
and bull case projections for each for the next
5 years
TXN does not provide the details on target
margins
3Q25
OM:
3Q24
114 bps/yr
3Q21
3Q20
3Q19
3Q18
3Q17
3Q16
3Q15
3Q14
3Q13
3Q12
3Q11
3Q10
3Q09
3Q08
.
3Q07
0
GM:
3Q23
4
3Q22
8
TXN Quarterly TTM Margins (GM & OM), %
24
Source: Jefferies, company data, FactSet
Chart 60 - TXN EPS 3-yr and 5-yr Sensitivity Analysis
3 year
TXN
Op Margin Expansion:
Revenue Growth
3%
6%
9%
0bps $
8.15 $
8.88 $
100bps $
8.68 $
9.47 $ 10.30
200bps $
9.22 $ 10.05 $ 10.93
9.66
Our 3-yr and 5-yr base case for EPS
assumes 6% revenue CAGR and a 100bps/yr
improvement in operating margins. Our 3-yr
and 5-yr bull case assumes 9% revenue CAGR
and a 200 bps/yr improvement in operating
margins
Our 5-yr base and bull case targets translate
to EPS that is 50% and 89% higher than CY21
consensus EPS estimates of $7.46
5 year
TXN
Op Margin Expansion:
Revenue Growth
3%
6%
9%
0bps $
8.72 $ 10.07 $ 11.59
100bps $
9.68 $ 11.18 $ 12.86
200bps $ 10.64 $ 12.28 $ 14.13
.
Source: Jefferies, company data, FactSet
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
28
EQUITY RESEARCH
USA | Semiconductors
4.5. Renesas Overview
Chart 61 - Renesas Revenue Split (2020)
8-bit
5%
Total
Optoelectronics
2%
#3 share in 8-bit MCUs
(8.5% mkt share)
#1 share in 16-bit
MCUs
(28.9% mkt share)
16-bit
13%
ASICs and
ASSPs
28%
Total GP Logic
2%
MPUs
1%
Total Memory
1%
.
Renesas Electronics was the new name of
combined company from the merger of NEC
Electronics and Renesas Technologies (April
1, 2010). NEC Electronics was established as
a semiconductor spin-off of NEC (Nov 2002)
and Renesas Technologies was established
as a JV between Hitachi (55%) and Mitsubishi
Electronics (45%) (Apr, 2003)
General purpose MCUs represent 52% of
Renesas' revenues, followed by Discrete and
Analog components
32-bit
27%
Discrete
9%
Analog
12%
#6 share in Analog
(3.2% mkt share)
#3 share in 32-bit
MCUs
(16.9% mkt share)
Source: Gartner, Jefferies
Chart 62 - Renesas Geo Revenue Split
Based on location of Renesas customers,
34% of Renesas revenues are coming from
the home market, Japan with a lot of
the relationships with OEMs going back
for decades and unaccessible to external
competition.
Others
0%
North
America
9%
Japan
34%
Europe
16%
From that perspective we analyze the HHI
market including and excluding Renesas
revenues
Asia (ex-China)
18%
China
23%
.
Source: company data, 2020 annual report
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
29
EQUITY RESEARCH
USA | Semiconductors
Chart 64 - Renesas FCF/Share and Net Capital Return/Share
Renesas
Relative to SPX
0.6
10%
0.4
0%
0.2
-10%
0.0
Renesas EBIT Margin
Source: Jefferies, Gartner, FactSet, Composite HHI calculated from MCU,
Analog and Discrete. Performance relative to SPX is rebased to 31-Dec-03.
$0
-$1
-$2
-$3
-$4
-$5
-$6
-$7
-$8
Net Capital Return/Share
-$9
-0.2
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
.
$1
0.8
Renesas Composite
Herfindahl Index
20%
-20%
$2
FCF/Share and NCR/Share $
30%
1.0
Renesas Relative to SPX
Herfindahl Index and EBIT Margin, %
40%
.
Source: Jefferies, FactSet, company data
Over the past 10 years, Renesas' Composite HHI increased
by 32bps, its EBIT increased from 2.2% to 4.1% and its stock
underperformed SPX by 509bps. Notably, Renesas EBIT
margins peaked in 2015 and is now a third of peak level
Renesas' FCF/share has been volatile but largely
improved over the past 10 years. Renesas has not
been consistently returning capital to shareholders
Chart 65 - Renesas Historical Revenue and Margins (TTM)
10
.
8
Revenues
($)
NEC Corp
Acquired
Renesas
Technology
GM: -72 bps/yr
OM: -44 bps/yr
130%
110%
90%
70%
50%
6
4
2
30%
Gross Margin
(%)
10%
Op Margin
(%)
0
-10%
-30%
Over the past five years, trough to trough,
Renesas revenues have grown at a 1%
CAGR, while gross and operating margins
have declined by -72 bps/yr and -44 bps/yr,
respectively
After the 2011 nuclear disaster in Japan,
we believe local customers, which account
for 30-40% of Renesas revenues, decided
to diversify their MCU exposure, which
translated to declining revenues and share
loss for Renesas over the past 10 years
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12
4Q12
2Q13
4Q13
2Q14
4Q14
2Q15
4Q15
2Q16
4Q16
2Q17
4Q17
2Q18
4Q18
2Q19
4Q19
2Q20
4Q20
Renesas Quarterly TTM Revenues, US$ bn
12
Historical Renesas+ISIL
5-Year Growth
Revs: 1% CAGR
Renesas Qrly TTM Margins (GM & OM), %
14
FCF/Share
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Chart 63 - Renesas Composite HHI, EBIT and Stock
Source: Jefferies, FactSet, company data. Renesas acquired ISIL on 24 Feb 2017
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
30
EQUITY RESEARCH
USA | Semiconductors
4.6. Infineon Overview
Chart 66 - IFX Revenue Split (2020)
ASSPs and
ASICs, largerly
Auto and
Industrial
27%
Memory
6%
Sensors
8%
#1 share
Discretes
(14% mkt share)
.
#4 share in 32-bit
MCUs
(13.2% mkt share)
32-bit
14%
16-bit
7%
#2 share in 16-bit
MCUs
(23.2% mkt share)
8-bit
1%
Infineon's largest portions of revs are
discrete components. General purpose
MCUs together account for ~20% of the revs.
Pro-forma acquisition with CY brings IFX's
position in 8-bit to ~4% (#6 position in the
segment), in 16-bit to ~23% (#2 position
in the segment) and in 32-bit to ~15% (#4
position by market share)
Volt Reg
5%
#6 share in 8-bit
MCUs
(3.3% mkt share)
Discrete
32%
Source: Jefferies, company data, Gartner
1.8
30%
1.5
IFX EBIT Margin
$1.2
1.2
10%
0.9
0%
0.6
-10%
0.3
Net Capital Return/Share
FCF/Share
$0.9
FCF/Share and NCR/Share $
$0.6
$0.3
$0.0
-$0.3
-$0.6
-$0.9
Over the past 10 years, IFX's Composite HHI increased
by 72bps, its EBIT increased by 830bps while the stock
outperformed SPX by 40%, since the IFX stock price dip in 2008
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
.
2005
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Jefferies, Gartner, FactSet; Composite HHI calculated from MCU,
Analog and Discrete. Performance relative to SPX is rebased to 31-Dec-02.
2004
-$1.2
0.0
2003
IFX Relative to
SPX
2002
20%
IFX Composite Herfindahl
Index
-20%
.
Chart 68 - IFX FCF/Share and Net Capital Return/Share
40%
IFX Relative to SPX
Herfindahl Index and EBIT Margin, %
Chart 67 - IFX Composite HHI, EBIT and Stock
Source: Jefferies, FactSet, company data
IFX FCF/share has been volatile but almost doubled in the
past 10 years. IFX uses dividends as its main capital return
vehicle and has increased them over the past 5 years. IFX
raised $1.7bn in an accelerated capital increase in 2019
to help finance CY deal, which resulted in negative NCR
31
EQUITY RESEARCH
USA | Semiconductors
Chart 69 - IFX Historical Revenue and Margins (TTM)
100%
Revenues
($)
IFX Quarterly TTM Revenues, US$ bn
12
10
60%
8
40%
6
Gross Margin
(%)
20%
Historical IFX+IRF+CY
5-Year Growth
Revs: 7% CAGR
4
Op Margin
(%)
GM:
-10 bps/yr
OM:
3 bps/yr
0%
Over the past five years, IFX revenues have
increased at a 7% CAGR, while gross and
operating margins have declined by 10bps/yr
and expanded by 3 bps/yr, respectively
In the chart to the left, we show actual
TTM revenue, gross and operating margins
through 1Q21
-20%
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12
4Q12
2Q13
4Q13
2Q14
4Q14
2Q15
4Q15
2Q16
4Q16
2Q17
4Q17
2Q18
4Q18
2Q19
4Q19
2Q20
4Q20
2
.
80%
IFX Quarterly TTM Margins (GM & OM), %
14
Source: Jefferies, company data, FactSet. IFX acquired IRF on 13-Jan-2015, IFX acquired CY on
Apr-16-2020,
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
32
EQUITY RESEARCH
USA | Semiconductors
.
Appendices
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
33
EQUITY RESEARCH
USA | Semiconductors
Appendix 1. Tectonic Shifts in Computing - PC and Cellphone Case Studies
Secular Analog Demand– Tectonic Shift to Parallel Processing and IoT Computing Paradigm
In our July, 2017 note: “4th Tectonic Shift in Computing,” we observed that the computing paradigm shifted every 15 years (10x units,
1/10th cost, 1/10th footprint), and argued that it is currently shifting to a parallel processing / IoT model. We believe the current shift is
being driven by both the low cost of storing the data that the IoT devices are generating, as well as improvements in parallel processing
technologies like neural networking. As the data from the IoT devices is being processed in an AI framework, higher utility is being driven
into those devices, increasing demand for them. The higher utility / increased demand feedback loop is becoming a virtuous circle.
We argued that the analog companies, TXN, ADI, MCHP, MXIM and ON are plays on this Tectonic Shift theme as companies that supply
critical components that enable the IoT devices.
Chart 70 - Tectonic Shifts in the Computing Paradigm over the Past 60 years
100,000.00
Mainframe
Era
Mini-Computer
Era
10,000.00
Analog revenue mix is getting richer as
growth shifts to fragmented IoT markets
from concentrated cellphone + PC
markets - we expect this to continue for
the next 10 years
Cell Phone /
Server Era
Parallel
Processing /
IoT Era
IoT
Devices
Cell phones
100.00
PCs
Mainframes
0.01
0.00
0.00
0.00
Tectonic
Shift
0.10
- TTL/bipolar ICs
- 10x Cost/Size Reduction
Tectonic Shift
1.00
Tectonic Shift
Mini-Computers
Tectonic Shift
10.00
- Faster Air Interface Stds, SMS service
- Virtualized Servers, App Stores
- CMOS MPU improvements outpace TTL/Bipolar Logic
- DRAM replaces Magnetic Core Memory
- Standardization of OS, components, subsystems
- Free data storage/Big Data
- Improvements in AI/Neural Network tech
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018E
2021E
2024E
Units Shipped (millions)
1,000.00
.
Personal
Computer Era
Source: See page 10 for the detailed list
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
34
EQUITY RESEARCH
USA | Semiconductors
Tectonic Shift in Computing - Critical Component Players
in the PC
Chart 71 - Critical Components of PC BOM
Microprocessor
(23% of BOM),
$102
Other (Memory,
Storage, 60%),
$262
INTC and MSFT have been critical suppliers
of components into the PC “Bill of Materials”
or BOM, during the PC Era. INTC’s IPO was in
1971, MSFT’s was in 1986
INTC supplies MPUs into PC, which can
account for 20-25% of the total BOM of the PC
MSFT supplies software into the PC that can
account for 15-20% of the PC BOM
Software (17%
of BOM), $75
PC BOM = $440
.
Source: Jefferies, ZDNet
Chart 72 - Stock Performance of PC BOM Plays During PC Era (1981-1997)
180
MSFT: 166x
160
140
120
100
DELL: 103x
80
INTC: 75x
60
40
20
SPX: 8x
31-Dec-96
31-Dec-95
31-Dec-94
31-Dec-93
31-Dec-92
31-Dec-91
31-Dec-90
31-Dec-89
31-Dec-88
31-Dec-87
31-Dec-86
31-Dec-85
31-Dec-84
31-Dec-83
31-Dec-82
.
31-Dec-81
0
31-Dec-97
Stock Performance Indexed to Dec-1981
200
During the PC Era, as defined by unit
shipments from the left chart, we estimate
that MSFT stock appreciated by 166x,
and INTC appreciated by 75x, both of
which compare favorably to the SPX which
appreciated by 8x
Source: Jefferies, FactSet
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
35
EQUITY RESEARCH
USA | Semiconductors
Tectonic Shift in Computing - Critical Component Players
in the Cell Phone
Chart 73 - Critical Components of Cellphone BOM
Processors
(Baseband and
App, 16% of
BOM), $27
QCOM and ARMH have been critical suppliers
of components into the cell phone. QCOM
and ARMH went public in 1991 and 1998,
respectively
QCOM supplies application and baseband
processors into the cellphone, and both
ARMH and QCOM have supplied critical IP
that go into those cell phone processors
We estimate that their combined content can
account for 15-20% of the BOM of a cell
phone
Memory (19%
of BOM), $33
Other (memory,
display, RF,
65%), $113
iPhone 3G BOM = $172
.
Source: Jefferies, IHS
Chart 74 - Stock Performance of PC BOM Plays During PC Era (1981-1997)
We estimate the Parallel
Processing / IoT Era is two
years underway. Relative to
the Cellphone Era, NVDA
would be here at 6.6x indexed
return over two years
30
25
ARMH: 30x
QCOM: 22x
20
AAPL: 14x
(since
Jan-07
iPhone
intro)
15
10
5
SPX: 2.8x
NOK: 1.1x
Dec-15
Dec-13
Dec-11
Dec-09
Dec-07
Dec-05
Dec-03
Dec-01
Dec-99
.
Dec-97
0
Dec-17
Stock Performance Indexed to Dec-97
35
During the Cell Phone / Datacenter Era, we
estimate that ARMH stock appreciated by
30x, and QCOM appreciated by 22, both of
which compare favorably to the SPX which
appreciated by 2.8x
Source: Jefferies, FactSet
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
36
EQUITY RESEARCH
USA | Semiconductors
Tectonic Shift in Computing - Critical Component Players in IoT
Chart 75 - Critical Components of FitBit BOM
Chart 76 - Critical Components of Nest Thermostat BOM
MCU (17% of
BOM), $12
MCU (18% of
BOM), $3.20
Other
(memory,
battery,
wristband,
54%), $9.80
Other (display,
memory,
enclosure,
63%), $44
Analog +
Connectivity
(28% of BOM),
$5.00
FitBit BOM = $18
.
Analog +
Connectivity
(21%), $14
Nest Thermostat BOM = $70
.
Source: Jefferies, Electronics360
Source: Jefferies, Electronics360
Chart 77 - Critical Components of Apple Watch BOM
Chart 78 - Critical Components of Average IoT BOM
Application
Processor
(14% of BOM),
$10
Analog +
Connectivity
(24%), $17
Other (display,
memory,
enclosure,
62%), $44
.
MCU (17% of
BOM), $12
Apple Watch BOM = $71
Source: Jefferies, MacRumors.com
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
Analog +
Connectivity
(21%), $14
Other (display,
memory,
enclosure,
63%), $44
.
Average IoT BOM = $53
Source: Jefferies, Electronics360, MacRumors.com
37
EQUITY RESEARCH
USA | Semiconductors
Appendix 2. Valuations Table
Chart 79 - Global Semis Valuation Table 1
Company
Rating
Jefferies
Market Cap
Analyst
(bn)
P/E
5/20/21
Price Target
Price
2021
EV/FCF
2022
2021
EV/S
2022
2021
2022
P/TanBk
Gross
Operating
Margin [1]
Margin [1]
PC / Data Processors:
AMD
Buy
Lipacis
$
94
$
110
$
77
36x
29x
33x
30x
6x
5x
15x
45%
16%
INTC
Hold
Lipacis
$
226
$
59
$
56
12x
12x
20x
17x
3x
3x
5x
54%
29%
NVDA
Buy
Lipacis
$
362
$
740
$
582
54x
47x
39x
32x
16x
14x
35x
62%
28%
LSCC
Buy
Lipacis
$
7
$
56
$
50
58x
47x
n.m.
n.m.
14x
13x
57x
59%
16%
XLNX
Buy
Lipacis
$
30
$
153
$
123
38x
32x
27x
24x
8x
8x
15x
68%
24%
31%
PLDs:
Analog / MCU:
ADI
Buy
Lipacis
$
59
$
188
$
160
25x
22x
25x
22x
9x
9x
n.a
60%
ALGM
Buy
Lipacis
$
5
$
37
$
24
39x
32x
41x
31x
6x
6x
9x
47%
8%
LFUS
Buy
Kelley
$
6
$
325
$
256
28x
26x
22x
19x
3x
3x
13x
32%
15%
MCHP
Buy
Lipacis
$
41
$
194
$
151
20x
18x
24x
21x
8x
7x
n.a
45%
18%
MTSI
Hold
Lipacis
$
4
$
63
$
54
26x
23x
33x
28x
6x
6x
n.a
48%
8%
MXIM
Buy
Lipacis
$
27
$
114
$
99
29x
26x
25x
n.m.
9x
9x
17x
67%
35%
NXPI
Buy
Lipacis
$
55
$
235
$
200
19x
19x
28x
24x
6x
5x
n.a
38%
10%
ON
Buy
Lipacis
$
16
$
45
$
38
20x
17x
22x
19x
3x
3x
10x
32%
10%
STM
Hold
Lipacis
$
33
$
42
$
36
21x
18x
41x
30x
3x
2x
4x
37%
12%
TXN
Buy
Lipacis
$
171
$
220
$
186
25x
24x
25x
24x
10x
9x
30x
64%
44%
AVGO
Buy
Lipacis
$
186
$
520
$
456
17x
15x
17x
15x
8x
8x
n.a
48%
22%
MRVL
Buy
Lipacis
$
31
$
55
$
46
34x
26x
29x
26x
9x
8x
51x
50%
-1%
RMBS [2]
Hold
Lipacis
$
2
$
20
$
19
18x
13x
14x
12x
4x
4x
3x
63%
-14%
SGH
Buy
Lipacis
$
1
$
65
$
45
10x
8x
n.m.
n.m.
1x
1x
8x
18%
4%
Hua Hong - 1347
Hold
Chi Tsai
HKD
TSEM
Buy
Lipacis
$
Shin-Etsu - 4063
Buy
Azuma
JPY
JPY
27,000
Siltronic
Hold
Hesse
EUR
4 EUR
150
EUR
Soitec
Hold
Rumph
EUR
5 EUR
166
Buy
Azuma
JPY
Buy
Buy
Hold
Buy
Buy
Sell
Hold
Buy
Chi Tsai
Nakanomyo
Nakanomyo
Nakanomyo
Nakanomyo
Chi Tsai
Nakanomyo
Nakanomyo
$
JPY
JPY
JPY
JPY
CNY
JPY
JPY
Comms:
Memory:
Foundry:
50
3
HKD
43 HKD
38
42x
33x
75x
20x
4x
3x
3x
25%
1%
$
32
27
20x
15x
24x
17x
2x
2x
2x
19%
8%
18,215
22x
20x
26x
22x
4x
4x
3x
36%
26%
142
21x
16x
31x
17x
3x
3x
4x
28%
16%
EUR
158
46x
31x
66x
42x
7x
6x
10x
29%
15%
JPY
2,419
23x
16x
32x
22x
2x
2x
2x
21%
12%
$
68
JPY
9,460
JPY
2,551
JPY 31,500
JPY 18,120
CNY
174
JPY
1,103
JPY 45,870
45x
22x
20x
24x
84x
112x
149x
24x
54x
29x
24x
19x
23x
49x
75x
22x
20x
29x
n.m.
489x
20x
29x
265x
n.m.
474x
35x
n.m.
411x
17x
22x
95x
n.m.
9x
26x
5x
5x
1x
5x
21x
10x
0x
4x
7x
4x
5x
1x
5x
15x
7x
0x
4x
6x
8x
8x
2x
4x
36x
35x
1x
7x
44%
54%
44%
58%
50%
31%
33%
40%
13%
20%
5%
29%
36%
4%
-7%
23%
$
Wafers:
Sumco - 3436
Semi Cap Equipment:
ACMR
Advantest - 6857
Canon - 7751
Disco - 6146
Lasertech - 6920
NAURA - 002371
Nikon - 7731
TEL - 8035
Average:
7,590
702
1
1,888
3,402
1,136
1,708
86
417
7,211
JPY
4,000
$
JPY
JPY
JPY
JPY
CNY
JPY
JPY
113
12,500
2,800
46,000
22,300
136
1,000
63,000
JPY
[1] Please note that Gross Margin and Operating Margin are in GAAP terms.
. [2] Given footnote 1 and ASC 606, please note that RMBS's gross margin and operating margin presented in the table are not reflective of its cash flow from fixed-fee licening agreements.
Source: Jefferies, Factset
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
38
EQUITY RESEARCH
USA | Semiconductors
Chart 80 - Global Semis Valuation Table 2
Consensus Sales (m)
Company
2021
Cash (m)
2022
Debt (m)
Net Debt
Net Debt
/EBITDA
/Shr
JEF EPS
2021
Cons. EPS
2022
2021
2022
ROIC
PC / Data Processors:
(2.11)
$
2.23
$
2.81
$
2.16
$
2.66
26%
$
3.34
$
4.60
$
4.35
$
4.63
$
4.53
20%
7,718 $
(0.80) $
(6.17)
$
12.03
$
12.66
$
10.85
$
12.35
32%
AMD
$
14,669 $
16,845 $
3,116
$
551 $
INTC
$
72,685 $
72,432 $
22,397
$
35,884 $
NVDA
$
22,386 $
24,791 $
11,561
$
(1.14) $
0.35
PLDs:
LSCC
$
475 $
535 $
200 $
(0.13) $
0.11
$
0.85
$
1.10
$
0.86
$
1.07
10%
XLNX
$
3,483 $
3,779 $
3,079
$
1,544 $
(1.69) $
(6.25)
$
3.33
$
3.70
$
3.22
$
3.79
21%
1,305
185 $
Analog / MCU:
ADI
$
6,838 $
7,270 $
$
5,148 $
$
10.42
$
6.31
$
7.15
$
6.46
$
7.16
11%
ALGM
$
708 $
745 $
204 $
25 $
(1.90) $
(0.94)
$
0.55
$
0.71
$
0.63
$
0.75
14%
LFUS
$
1,830 $
1,896 $
576 $
670 $
(0.00) $
3.83
$
8.50
$
9.72
$
9.17
$
9.73
7%
MCHP
$
6,208 $
6,619 $
282
32.63
$
7.76
$
8.41
$
7.73
$
8.35
11%
$
268 $
9,069 $
522 $
1.72
4.00
$
4.27
$
3.70
$
2.17
$
2.41
$
2.10
$
2.37
4%
(0.77) $
(3.67)
$
3.53
$
3.78
$
3.38
$
3.78
27%
8%
MTSI
$
615 $
673 $
MXIM
$
2,729 $
2,947 $
2,034
$
1,049 $
NXPI
$
10,573 $
11,224 $
1,842
$
7,611 $
2.25
$
20.92
$
9.42
$
10.46
$
10.56
$
10.62
ON
$
6,319 $
6,581 $
1,044
$
3,485 $
2.31
$
5.72
$
1.85
$
2.41
$
1.90
$
2.29
5%
STM
$
12,083 $
12,815 $
4,156
$
2,972 $
(0.57) $
(1.30)
$
1.65
$
1.87
$
1.71
$
2.05
11%
TXN
$
17,548 $
18,087 $
6,686
$
6,250 $
0.03 $
(0.47)
$
7.55
$
8.00
$
7.46
$
7.72
38%
AVGO
$
27,147 $
28,527 $
9,552
$
41,932 $
2.97
$
79.30
$
26.64
$
29.31
$
27.41
$
29.62
12%
MRVL
$
3,490 $
4,189 $
748
$
1,487 $
1.00
$
1.09
$
1.36
$
1.71
$
1.35
$
1.78
4%
Comms:
Memory:
RMBS
$
442 $
486 $
529 $
197 $
(121.79) $
(2.95)
$
1.27
$
1.42
$
1.07
$
1.40
-3%
SGH
$
1,605 $
1,806 $
140 $
237 $
0.52
4.08
$
4.36
$
5.39
$
4.49
$
5.44
14%
(1.95) HKD
(1.40)
$
1.01
$
1.32
$
0.90
$
1.14
4%
(1.02) $
(3.44)
$
1.37
$
1.88
$
1.34
$
1.77
6%
JPY
EUR
EUR
JPY
891
7.13
3.65
93
JPY
EUR
EUR
JPY
JPY
EUR
EUR
JPY
821
6.84
3.47
105
JPY
EUR
EUR
JPY
910
9.02
5.05
148
11%
23%
13%
6%
$
1.16 $
1.64 $
1.50 $
2.36
JPY
451 JPY
401 JPY
438 JPY
391
JPY
148 JPY
174 JPY
129 JPY
131
JPY 1,500 JPY 1,510 JPY 1,317 JPY 1,359
JPY
243 JPY
409 JPY
215 JPY
370
CNY 1.35 CNY 2.03 CNY 1.56 CNY 2.32
JPY
1 JPY
49 JPY
7 JPY
51
JPY 2,276 JPY 2,463 JPY 1,938 JPY 2,270
18%
25%
3%
15%
36%
9%
-4%
24%
Foundry:
Hua Hong - 1347
TSEM
Wafers:
Shin-Etsu - 4063
Siltronic
Soitec
Sumco - 3436
Semi Cap Equipment:
ACMR
Advantest - 6857
Canon - 7751
Disco - 6146
Lasertech - 6920
NAURA - 002371
Nikon - 7731
TEL - 8035
HKD
$
JPY
EUR
EUR
JPY
10,781
HKD
1,442 $
13,697 HKD
1,537 $
7,478
HKD
710 $
5,658 HKD
343 $
1,672,525 JPY
1,328 EUR
735 EUR
317,336 JPY
1,693,100
1,440
933
354,452
JPY 1,152,921
EUR
519
EUR
291
JPY
88,934
JPY
EUR
EUR
JPY
$
223 $
JPY
366,558 JPY
JPY 3,464,393 JPY
JPY
215,986 JPY
JPY
80,954 JPY
CNY
8,287 CNY
JPY
498,288 JPY
JPY 1,676,930 JPY
300
376,768
3,560,627
219,832
113,700
11,605
500,195
1,787,986
$
JPY
JPY
JPY
JPY
CNY
JPY
JPY
$
48 $
(2.41) $
(3.35)
JPY
11,850 JPY
(1.85) JPY
(688)
JPY 522,645 JPY
(0.03) JPY
29
JPY
- JPY
(1.83) JPY (3,045)
JPY
42 JPY
(1.55) JPY
(196)
CNY
1,706 CNY
(1.10) CNY (3.31)
JPY 134,074 JPY (83.97) JPY
(575)
JPY
- JPY
(1.08) JPY (1,982)
106
149,164
483,494
109,809
18,535
3,349
351,798
311,552
27,754 JPY
297 EUR
297 EUR
147,649 JPY
(2.10)
(1.19)
0.36
0.79
$
JPY (2,700)
EUR (7.41)
EUR
0.16
JPY
202
1,002
9.43
5.18
203
.
Source: Jefferies, Factset
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
39
EQUITY RESEARCH
USA | Semiconductors
Company Valuation/Risks
Microchip Technology Inc.
Our base-case price target of $194 is based on $8.41; P/E (NTM): 23.1x; Price Target $194
23.1x our CY2022 EPS estimate of $8.41. Multiple of 23.1x is above the top end of MCHP's 5-yr range before correction of 9x-22x, which
we believe is warranted based on MCHP's acceleration in capital return, which we expect to support P/E expansion. Risks to our thesis:
1) loss of revenue due to supply constraints in 2021 due to supply/demand imbalance, 2) increasing competition in the MCU market,
3) failure to successfully integrate acquisitions.
NXP Semiconductors NV
Our price target of $235 implies a 25.5x P/E on our CY22 EPS (incl. SBC) estimate of $9.23. 25.5x P/E is above the 5-year range of 8x-22x,
which we think is warranted due to faster than expected Auto demand snapback and the potential resumption of share repurchase in
1H2021. Downside risks include worsening of supply chain constraints, weaker automotive sales associated with lower global auto
SAAR, weaker smartphone unit sales, a faster-than-expected decline of digital networking products.
Texas Instruments Incorporated
Our $220 PT assumes a 27.5x multiple on our 2022 EPS est of $8.00. A 27.5x P/E is in the upper half of the 5-yr range of
16x-30x, and we think warranted during the early stages of the restocking cycle and given its exposure to secular trends (IoT, Auto,
Industrial, Consolidation). Downside risks include supply chain constraints in 2021 due to COVID-19, inventory correction, macro and/
or geopolitical-driven demand weakness, and multiple compression.
Analyst Certification:
I, Mark Lipacis, certify that all of the views expressed in this research report accurately reflect my personal views about the subject
security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed in this research report.
I, Natalia Winkler, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the
subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly,
related to the specific recommendations or views expressed in this research report.
I, Vedvati Shrotre, certify that all of the views expressed in this research report accurately reflect my personal views about the subject
security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed in this research report.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this
report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to
update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published
on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement.
Investment Recommendation Record
(Article 3(1)e and Article 7 of MAR)
Recommendation Published
Recommendation Distributed
June 3, 2021 , 00:19 ET.
June 3, 2021 , 16:00 ET.
Company Specific Disclosures
Jefferies Group LLC makes a market in the securities or ADRs of Microchip Technology Inc.
Jefferies Group LLC makes a market in the securities or ADRs of NXP Semiconductors NV.
Jefferies Group LLC makes a market in the securities or ADRs of Texas Instruments Incorporated.
Jefferies Group LLC, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from
Microchip Technology Inc. within the next three months.
Explanation of Jefferies Ratings
Buy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
40
EQUITY RESEARCH
USA | Semiconductors
Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a
12-month period.
Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within
a 12-month period.
The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10
is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated
securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus
20% within a 12-month period. For Underperform rated securities with an average security price consistently below $10, the expected
total return (price appreciation plus yield) is minus 20% or less within a 12-month period.
NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable
regulations and/or Jefferies policies.
CS - Coverage Suspended. Jefferies has suspended coverage of this company.
NC - Not covered. Jefferies does not cover this company.
Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable
securities regulations prohibit certain types of communications, including investment recommendations.
Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial projections
or opinions on the investment merits of the company are provided.
Valuation Methodology
Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and
expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not
restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash
flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group
P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months.
Jefferies Franchise Picks
Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period.
Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated
analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will
include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as
new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired return, if it is no longer rated
Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in the bottom quartile of S&P stocks will continue to have a 15%
stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended to represent a recommended portfolio of stocks
and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value.
Risks which may impede the achievement of our Price Target
This report was prepared for general circulation and does not provide investment recommendations specific to individual investors.
As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own
investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as
they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or
guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well
as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency
other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from
the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the
currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report
• Microchip Technology Inc. (MCHP: $155.38, BUY)
• NXP Semiconductors NV (NXPI: $202.00, BUY)
• Texas Instruments Incorporated (TXN: $190.07, BUY)
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
41
EQUITY RESEARCH
USA | Semiconductors
Rating and Price Target History for: Microchip Technology Inc. (MCHP) as of 06-02-2021
08/10/2018
BUY:$115.00
11/08/2018
BUY:$102.00
04/23/2019
BUY:$114.00
05/09/2019
BUY:$112.00
08/07/2019
BUY:$104.00
11/06/2019
BUY:$119.00
180
160
140
120
100
80
60
Q2
Q3
2019
Q1
01/10/2020
BUY:$127.00
03/25/2020
BUY:$101.00
01/18/2021
BUY:$179.00
02/05/2021
BUY:$194.00
07/27/2018
BUY:$125.00
11/01/2018
Q2
04/09/2020
Q3
BUY:$98.00
2020
05/08/2020
Q1
BUY:$101.00
06/03/2020
Q2
Q3
BUY:$120.00
11/06/2020
2021
Q1
40
BUY:$147.00
Rating and Price Target History for: NXP Semiconductors NV (NXPI) as of 06-02-2021
BUY:$128.00
10/30/2019
BUY:$142.00
01/10/2020
BUY:$150.00
04/08/2020
BUY:$107.00
04/29/2020
BUY:$118.00
220
200
180
160
140
120
100
80
Q2
Q3
2019
07/29/2020
BUY:$137.00
10/07/2020
07/25/2018
BUY:$157.00
10/24/2018
Q1
BUY:$150.00
Q2
Q3
10/09/2020
BUY:$161.00
2020
12/11/2020
Q1
BUY:$184.00
02/02/2021
Q2
BUY:$208.00
Q3
04/27/2021
2021
Q1
60
BUY:$235.00
Rating and Price Target History for: Texas Instruments Incorporated (TXN) as of 06-02-2021
BUY:$139.00
01/24/2019
BUY:$137.00
07/24/2019
BUY:$170.00
10/23/2019
BUY:$150.00
01/23/2020
BUY:$164.00
200
180
160
140
120
100
Q2
03/25/2020
Q3
BUY:$136.00
2019
07/22/2020
Q1
BUY:$163.00
Q2
Q3
10/21/2020
BUY:$185.00
2020
01/27/2021
Q1
BUY:$206.00
04/28/2021
Q2
Q3
2021
Q1
80
BUY:$220.00
Notes: Each box in the Rating and Price Target History chart above represents actions over the past three years in which an analyst
initiated on a company, made a change to a rating or price target of a company or discontinued coverage of a company.
Legend:
I: Initiating Coverage
D: Dropped Coverage
B: Buy
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
42
EQUITY RESEARCH
USA | Semiconductors
H: Hold
UP: Underperform
Distribution of Ratings
Distribution of Ratings
IB Serv./Past12 Mos.
JIL Mkt Serv./Past12 Mos.
Count
Percent
Count
Percent
Count
Percent
BUY
1743
62.45%
180
10.33%
28
1.61%
HOLD
913
32.71%
22
2.41%
5
0.55%
UNDERPERFORM
135
4.84%
1
0.74%
0
0.00%
June 3, 2021
Please see important disclosure information on pages 40 - 46 of this report.
43
EQUITY RESEARCH
USA | Semiconductors
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46