Sector Tech 201104 JPM 194pg

Asia Pacific Equity Research
April 2011
Technology outlook
Uncertainty in supply chains and end-demand persists
New themes in 2011
JJ ParkAC Rick Hsu AC

+82-2-758-5717 +886 2 2725 9874
jj.park@jpmorgan.com rick.ic.hsu@jpmorgan.com
J.P. Morgan Securities (Far East) Ltd, Seoul Branch J.P. Morgan Securities (Taiwan) Limited.
Narci Chang AC
Hyunjoon RohAC
+886 2 2725 9899
+82-2-758-5712
narci.h.chang@jpmorgan.com
hyunjoon.roh@jpmorgan.com
J.P. Morgan Securities (Taiwan) Limited.
J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Justin J. ParkAC Cynthia Chou AC

+82-2-758-5725 +886 2 2725 9898
justin.j.park@jpmorgan.com cynthia.hy.chou@jpmorgan.com
J.P. Morgan Securities (Far East) Ltd, Seoul Branch J.P. Morgan Securities (Taiwan) Limited.
See the end pages of this presentation for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan 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.
Memory market outlook
2
Global memory market: Summary
We forecast the global memory market (DRAM+NAND) revenue will increase to US$53 billion for 2011, followed by an
increase of 10% Y/Y in 2012.
- Gloomy demand outlook for PCs in 2011
- Sunny days ahead for NAND thanks to smartphones and tablets
- Increasing portion of Mobile DRAM to help reduce volatility of DRAM market
Annual DRAM+NAND revenue trend

US$ in billions, %
70 45%
60 36% 37% 37%35%
32% 33%
50 29% 17 31% 22
19
40 21% 11 25% 15 25%
20% 11
30 0 7 12 12 15%
0 13%
20 0 0 5 39 36
0 29 7% 2 34 31 33 5%
10 25 21 1 27 26 24 22
0% 20 0% 14 0% 0% 1% 15 17
11
0 -5%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E
DRAM NAND NAND as % of Memory (RHS)
Source: WSTS, J.P. Morgan estimates
3
Global memory market overview
- 2011 DRAM outlook – ASP stabilization to be achieved by content growth
We believe growing concerns over a potential shortfall in PC DRAM supply due to a shift in commodity PC DRAM capacity to
mDRAM product and supply-side disruptions post Japan’s earthquake are overblown and expect this recent recovery in
DRAM prices to be short-lived.
We continue to put forward our thesis that DRAM ASP stabilization will be achieved fundamentally by the return of memory
content growth at PC OEMs/ODMs.
However, we believe the recent hike in DRAM prices will further deter PC makers from adding back memory content.
- 2011 NAND flash outlook – Remain positive due to secular growth in smartphones/tablets
According to our estimates, NAND should continue to witness a strong shipment growth of almost 70%+ Y/Y for 2011 and
2012, respectively.
We continue to forecast a sequential decline in NAND ASPs, which would help to stimulate its demand for heavy memory-
using devices.
Quarterly DRAM+NAND revenue trend

US$ in billions, %
20 100%
80%
16
60%
12 40%
20%
8 0%
-20%
4
-40%
0 -60%
1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11E 1Q12E
DRAM NAND Q/Q growth (RHS)
Source: WSTS, J.P. Morgan estimates
4
DRAM: Revenue trends
- Meaningful revenue erosion for DRAM in 1Q11E
1Q11 DRAM market revenue is expected to decline by a meaningful 17% Q/Q, largely driven by significant erosion in DRAM
prices (down 25% Q/Q).
- DRAM prices to bottom by mid-2Q11; though we expect limited price recovery
Looking ahead, we expect DRAM prices to bottom out by mid-2Q11, largely driven by the return of memory content growth at
PC OEMs/ODMs.
However, contrary to the bulls' camp view; we only expect limited recovery in DRAM prices, largely due to the gloomy PC
demand outlook being echoed throughout the PC supply chain.
In short, we expect the global DRAM market to turn into green in 2Q11, rising by 6% Q/Q, largely due to strong bit-shipment
growth due to seasonal up-ticks in demand, increasing portion of mobile DRAM product and potential stabilization of PC
DRAM prices.
Quarterly DRAM revenue trend Annual DRAM revenue trend

US$ in billions, % Q/Q, %
12 45% 50 100%
10 30% 70%
40 61% 75%
8 40% 36% 40%
15% 30 32% -7% 9%
6 9% 10%
0% 20 -5% -7% -15%
4 -23% -20%
-15% 10 -50%
2 -61%
0 -30% 0 -80%
1Q09 3Q09 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E 2000 2002 2004 2006 2008 2010E 2012E
DRAM Revenues Q/Q growth (RHS) DRAM revenues Y/Y growth (RHS)
Source: Companies, J.P. Morgan estimates Source: Companies, J.P. Morgan estimates
5
DRAM: ASP trends
- We expect limited price recovery in overall DRAM prices in 2H11
The recent weakness in DRAM spot trends reinforces our concerns about weak PC DRAM demand, due to a combination of
stagnating demand from the developed world, Chinese demand loosing steam, and concerns over limited memory content
growth due to expanding market for tablets.
Contrary to the bulls’ camp’s expectation of a V-shaped recovery in PC DRAM prices, we continue to forecast limited price
recovery in overall DRAM prices in 2H11.
- Major DRAM makers’ cost status

According to our checks with major DRAM makers, fully-loaded costs are hovering around mid-US$1.6-1.8 for major memory
makers, while cash costs are below US$1.6. Hence, major DRAM makers will continue to generate a decent cash profit
unless DRAM prices come below US$1.6, according to our estimates.
DRAM ASP trend by quarter Cost status for major DRAM makers (2Gb DDR3)
1Gb equivalent, % US$
3.5
8%
10% Fully-loaded cost Cash Cost Node
3.0 4%
0%
(US$) (US$)
2.5 -2% -2%
2.0 -5% Samsung 1.6 1.2 46nm
-9% -9% -8% -9%
1.5 -11% -10%
Hynix 1.7 1.3 44nm
1.0
-21% -20% Inotera 2.5 1.6 50nm
0.5 -25% NTC 2.5 1.6 50nm
0.0 -30% Powerchip** 2.5 1.6 63nm
1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
Rexchip 1.8 0.9 40nm
DRAM ASP (US$) ASP change, Q/Q (RHS) Elpida (Hiroshima fab) 1.7 1.3 45nm
Source: DRAMeXchange, J.P. Morgan estimates. Source: Company data, J.P. Morgan. **65nm extra-shrink version.
6
PC demand outlook
- PC (ex-tablets) unit growth expected to be 7% Y/Y in 2011
Our US PC team recently lowered its PC forecasts for 2011, largely driven by the weakening demand in China, softening
consumer demand, ongoing tablet invasion, decelerating enterprise PC growth and elongating PCs’ useful life.
Our industry checks also indicate growing concerns over stagnating PC demand from the developed world, while ongoing
tablet invasion seems to defer PC purchase cycle given increased PC usage life due to the reduced time spent on traditional
notebooks and limited per annum consumer budget for technology spending.
We see this as incrementally detrimental for DRAM volume growth and memory content increase, given the gloomy PC
demand outlook, and competitive pricing policies among PC vendors eyeing market share gain under the weak end-demand
scenario.
Global PC shipments (incl. tablet PCs) Global PC shipments (excl. tablet PCs))
Units in millions, Y/Y Units in millions, Y/Y
600 25% 500 20%

500 20% 20% 400
14% 15%
400 16%
300 14% 15% 300
10% 10%
10% 10% 200 7%
200 7%
5% 5% 100 5% 5%
100
0 0% 0 0%
2008 2009 2010E 2011E 2012E 2008 2009 2010E 2011E 2012E
Servers Desktops NBPC Servers Desktops NBPC

Netbooks Tablet PCs Y/Y growth Netbooks Y/Y growth
Source: Company data, J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates.
7
DRAM: Demand by application
- mDRAM: A long-term growth trend
According to our industry estimates, mobile DRAM would continue to expand its penetration in coming years, accounting for
around 13% and 16% of global DRAM demand in 2011 and 2012, respectively.
We believe mDRAM will have a long-term growth trend in the DRAM industry on the back of robust volume expectations for
modern tech gadgets such as smartphones and tablets.
- Reduced volatility in DRAM industry due to declining share of PC DRAM

PCs’ global DRAM demand share could continue to decline from 77% in 2010 to 74% by 2012E, according to our estimates.
We believe this would help in reducing the volatility in the DRAM industry given steady volume growth expectations for
smartphones/tablets/IETVs, and gloomy demand outlook for PCs.
Global DRAM shipment versus capacity trend

%
100%
80% 9% 10% 11% 12% 13% 13% 13% 14% 15% 15% 16% 18%
60%
40% 78% 78% 76% 76% 75% 75% 76% 76% 75% 74% 74% 73%
20%
0%
1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E
PC Mobile DRAM Consumer Electronics

Automotive Electronics Industrial Electronics Military/Civil Aerospace Electronics
Source: Companies, J.P. Morgan estimates
8
DRAM: Supply outlook
- DRAM supply outlook
We estimate that the global DRAM bit-shipment to grow by 45%+ Y/Y in 2011 and 2012, while its capacity is expected to grow
at a marginal 8% and 6% Y/Y in 2011 and 2012, respectively.
Hence, we continue to believe that most of the capex in the DRAM space in the next two years will be dedicated to
technology migration rather than capacity expansion.
- DRAM market share

As per our bottom-up analysis, SEC would continue to maintain its leadership position in the DRAM market, commanding a
market share of ca. 40% and 42% in 2011 and 2012 respectively. Among other major players, Hynix, Elpida (Japan), Micron
and Rexchip would continue to enjoy around ca. 20+%, 7%, 7% and 7% of DRAM market share in 2011E/2012E, respectively
(on a production-only basis).
Global DRAM shipment versus capacity trend Global DRAM makers’ M/S trend
% (on production-only basis), %
100 91 100%
80 63 9%
80% 11% 7% 7%
60 7% 7% 7%
42 47 47 8% 9% 7% 7%
34 60% 8%
40 22% 21% 20%
17 22 23%
40%
20 8 6
2
0 20% 38% 40% 42%
32%
-20 -10 0%
2007 2008 2009 2010 2011E 2012E 2009 2010 2011E 2012E
DRAM shipment change, % DRAM capacity change, % SEC Hynix Elpida Rexchip Micron Inotera NTC Others
9
DRAM: Supply and demand dynamics
- Global DRAM supply and demand dynamics
According to our industry estimates, DRAM supply growth will continue to outpace demand growth until 2Q11, given the
seasonal pull-back in demand and double-digit supply growth.
Thus, we find it hard to believe the concerns over potential supply shortage in 1H11, given the DRAM supply growth is well
above that of demand growth in 1H11.
We estimate that the DRAM industry will likely see a meaningful increase in supply.
Going by conventional wisdom, DRAM prices should have continued trending down given the supply/end-demand mismatch
in the channel.
However, recent surge in DRAM prices implies inventory re-stocking in the channel, amongst fears of a possible shortage of
silicon wafers (due to Japan earthquake) limiting supply growth from 2Q11 onwards.
DRAM supply/demand trend

256Mb equivalent million units
50,000 10%
8%
40,000 6% 5% 5%
5% 5% 5%
3% 4%
30,000 2% 1%
1% 0% 1%
0%
-1%
20,000 -2%
-4% -4% -4% -4%
-5% -5%
10,000
0 -10%
1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
Demand (LHS) Supply (LHS) % Over./(Under) supply (inc. inv.) (RHS)
10
DRAM: Memory content trends
- Below-average industry content growth due to growing penetration of tablets
Despite the meaningful pullback in DRAM prices throughout 4Q10, PC makers showed resistance in adding back memory
and instead focused on offering lucrative price concessions to stimulate end-demand and gain market share in weakening
end-markets.
Though we expect healthy memory content growth momentum to return only in 2H11, desktops and NBPCs should continue
to experience above 30% Y/Y content growth in 2011/2012, respectively; however, annual memory content growth is
expected to remain below historical average levels (30%+) going forward due to the expanding market for tablet PCs.
- Memory content comparison
Tablets and smartphones would continue to enjoy handsome content growth, though their memory content would be much
lower compared to conventional PC devices.
According to our estimates, the average memory content for desktops and NBPC is estimated to be around 4.1-4.3GB and
5.4-5.7GB in 2011 and 2012, respectively, while that of smartphones and tablets would be around 0.5GB/0.7GB and
0.6GB/1GB in 2011 and 2012, respectively.
Memory content growth versus DRAM ASP change Average memory content comparison
Y/Y % Megabyte (MB)
80% 6,000 15
60%
4,500
40% 70% 23% 10 10
58% 0%
20% 45% 34% 47%
32% 30% 25% 25% 28% 3,000 7
16% 6
0% -3% -11% 5
-22% -23% -26% 1,500
-20% -37% -42%
-51% -53%
-40%
0 0
-60%
2009 2010 2011E 2012E
2002 2004 2006 2008 2010 2012E
Desktops NBPC Smartphones Tablets NBPC/Tablet DRAM content multiple
Memory content growth ASP change
Source: Company data, J.P. Morgan estimates Source: Company data, J.P. Morgan estimates
11
DRAM: PC BOM analysis
- How many dollars for DRAM?
Due to the recent pullback in DRAM prices, our PC cost analysis suggests that DRAM cost as a percentage of PC cost has
trended below the previous 10-year historical average levels. Despite a meaningful price erosion for DRAM , PC makers are
still refraining themselves from adding memory content, amid the weakening end-demand environment.
- Recent price spike to further deter memory content addition

Moreover, a sudden spike in DRAM prices and concerns over PC makers’ margins under threat due to potential component
shortages from Japan could further deter PC makers from adding back memory content.
- Reiterate our expectation of healthy memory content growth in 2H11, driven by price elasticity
We continue to believe the recent recovery in DRAM prices to be short-lived and reiterate our expectation of healthy memory
content growth in 2H11, driven by price elasticity.
DRAM cost as a percentage of PC cost DRAM + panel as a percentage of PC cost

% %
16% 25%
14%
12% 20% 20%
10% 18% 17%
8% 15% 16% 17% 14%
16% 13%
6% 15%
11% 11% 12%
4% 10%
9%
2%
0% 5%
1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q101Q11E 0%
1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11E
Desktop NBPC (excluding Netbook)
Average in past 10 years NBPC (excl. Netbook)
Source: Company data, J.P. Morgan estimates Source: Company data, J.P. Morgan estimates
12
NAND: Revenue trends
- Marginal decline in 1Q11E revenues; supported by strong shipment growth
1Q11 global NAND revenue is expected to decline marginally by 2% Q/Q, largely driven by robust shipment growth due to
smartphones and tablets, which would help offsetting the meaningful ASP erosion (down 15% Q/Q), in our view.
- NAND to continue to enjoy secular growth in coming years due to smartphones/tablets
Although we continue to expect a sequential price decline for NAND throughout 2011 and 2012, we expect price elasticity to
come into action which would help expand NAND’s penetration/adoption into the ever-increasing smartphones, tablets and
SSD market.
We expect NAND market revenues to continue experiencing handsome growth trajectory, inclining by 11% Y/Y and 12% Y/Y
in 2011E and 2012E respectively.
Hence, NAND as a % of total memory market should increase to 37% in the next two years from 31% in 2010.
Quarterly NAND revenue trend Annual NAND revenue trend

US$ in billions, % US$ in billions, %
7 40% 25 80%
6 30% 63% 60%
20
5 45%
20% 39% 40%
4 15 11% 12%
10% 26% 20%
3 10 8%
0% 4% 0%
2
5 -17% -20%
1 -10%
0 -20% 0 -40%
1Q09 3Q09 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E 2003 2005 2007 2009 2011E
NAND Revenues Q/Q growth (RHS) NAND Revenues Y/Y growth (RHS)
13
NAND: Demand by application
- Robust growth assumptions for smartphones and tablets
Based on our estimates, smartphones and SSD will be the main drivers for NAND demand in coming years, commanding a
combined share of 53% and 66% of the global NAND demand in 2011 and 2012, respectively.
- MP3 and DSC demand is fading away
On the flip side, MP3P’s/PMP’s proportion of NAND demand should continue to decline from 20% in 2008 to less than 7% in
2011. This is mainly due to the meaningful expansion in multimedia-enabled handsets, including smartphones, which usually
support MP3/PMP functions.
In addition, DSC will continue to lose its proportion of NAND demand given its maturing growth curve, in our view.
NAND demand by application

Units in millions (1Gb equivalent)
1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 2009 2010 2011E 2012E
Digital Camera (DSC) 2,476 2,410 3,141 3,363 2,713 3,102 4,107 4,557 9,554 11,390 14,479 18,192
Seq chg % -24% -3% 30% 7% -19% 14% 32% 11% 59% 19% 27% 26%
% of total 16% 16% 17% 15% 11% 11% 12% 11% 21% 16% 11% 8%
Mobile Phones 4,655 4,867 6,666 7,783 9,319 11,075 12,613 14,698 14,198 23,971 47,706 89,851
Seq chg % 3% 5% 37% 17% 20% 19% 14% 17% 72% 69% 99% 88%
% of total 31% 32% 36% 35% 39% 38% 37% 35% 31% 34% 37% 38%
USB Flash Drive 1,641 1,644 1,838 1,839 1,946 2,035 2,292 2,449 5,201 6,962 8,721 12,690
Seq chg % 12% 0% 12% 0% 6% 5% 13% 7% 63% 34% 25% 46%
% of total 11% 11% 10% 8% 8% 7% 7% 6% 11% 10% 7% 5%
MP3P/PMP 1,784 1,670 1,799 2,685 1,898 1,920 2,073 3,137 6,950 7,939 9,028 10,680
Seq chg % -29% -6% 8% 49% -29% 1% 8% 51% 19% 14% 14% 18%
% of total 12% 11% 10% 12% 8% 7% 6% 8% 15% 11% 7% 5%
SSD including tablets 1,232 1,639 2,128 3,121 4,480 6,757 9,188 12,156 2,076 8,120 32,580 79,059
Seq chg % 53% 33% 30% 47% 44% 51% 36% 32% 182% 291% 301% 143%
% of total 8% 11% 11% 14% 19% 23% 27% 29% 5% 11% 25% 34%
Ohers 3,234 2,761 3,163 3,469 3,681 3,980 4,265 4,611 7,526 12,626 16,537 23,851
Seq chg % 28% -15% 15% 10% 6% 8% 7% 8% 53% 68% 31% 44%
% of total 22% 18% 17% 16% 15% 14% 12% 11% 17% 18% 13% 10%
Total 15,021 14,991 18,735 22,261 24,036 28,868 34,537 41,609 45,506 71,008 129,051 234,324
Seq chg % 0 0 25 19 8 20 20 20 57 56 82 82
Source: J.P. Morgan estimates.
14
NAND: Supply outlook
- NAND supply outlook
We estimate that the global NAND supply will grow 76% Y/Y in 2011, followed by another strong growth of 80% Y/Y in 2012,
while its capacity is expected to grow at 19% and 23% Y/Y in 2011 and 2012, respectively.
- NAND market share

Our bottom-up analysis indicates that SEC will emerge as the leader in the NAND market in 2011.
Given the aggressive plans by SEC and Hynix for NAND, we expect both companies to witness market share gain from
Toshiba.
According to our estimates, Micron (including IM Flash) will maintain its market share of around 17% in 2011 and 2012.
Global NAND flash bit supply and capacity growth Global NAND makers’ market share trend
Y/Y % growth %
100% 100
80% 12 19 17 17 17
76%
80% 66% 80
60% 60 37 39 40 36 36
40% 40
20% 19% 23%
20% 20 40 36 35 38 38
0% 0
2010 2011E 2012E 2008 2009 2010 2011E 2012E
NAND bit-supply growth (Y/Y) NAND wafer-in capacity growth (Y/Y)
SEC Toshiba + SanDisk Hynix (incl STM) Micron (incl. IM Flash)
15
Tablets: Apple, Android and oversupply?
- 2H11 tablet oversupply bubble?
We continue to expect tablets to witness a very strong growth in the next two years, given the ongoing attempts by major
handset and PC brands to replicate the success enjoyed by Apple’s iPad and further commoditization of Android OS due to
Google’s rotating alpha partner policy.
However, our latest industry checks point to a significant discrepancy between our 2011 tablet demand assumptions and tech
supply chains’ build-up plans, indicating what could be a “2H11 tablet oversupply bubble” in the making.
Given the disappointing initial sell-through numbers for non-Apple tablets, the rise in performance benchmarks post iPad 2
launch, and higher-than-expected launch price points, we expect a potential downside to the extremely optimistic consensus
estimates of 65~80 million tablet shipments for 2011, which could dilute the Street’s NAND and mDRAM demand
expectations, in our view.
J.P. Morgan research—Initial roll-up of estimated global tablet build plans

Units in 000s
2011E
Acer 9,500
Apple Inc. 38,000
Asustek 2,000
Dell Inc. 2,500
Hewlett-Packard 4,250
HTC 1,000
Lenovo 1,500
Motorola 2,750
RIM 3,500
Samsung 7,500
Toshiba 2,500
Others 6,000
Total 81,000
Source: Company reports and J.P. Morgan estimates.
16
NAND and Apple
- Apple continue to influence NAND demand dynamics
Apple has previously dominated much of the NAND demand dynamics, largely owing to its significantly successful launch of
flagship products such as iPod, iPhone and most recently iPad.
- What it means for NAND?

We continue to believe that Apple will continue to play an important role in the robust growth of the NAND market, accounting
for over 23% and 18% of global NAND demand in 2011 and 2012, respectively.
However, we turn cautious about the seasonality the NAND market might suffer, given that the sales pattern of Apple’s
products is heavily biased towards 2H.
Moreover, any sign of demand weakness for Apple’s products could have an incremental negative impact on the NAND
industry as a whole.
NAND demand from Apple’s products as a % of total NAND demand from Apple
% Million units (1Gb equivalent), %
30,000 2
25% 178%
25,000 1.5
20% 6%
4% 20,000 116%
15% 6% 96% 1
3% 15,000
10% 3% 7% 12% 0.5
13% 10,000 39% 32%
11% 27%
11% 6% 10% 0
5% 9% 8% 5,000
5% -23%
3% 2% 0 -0.5
0%
2007 2008 2009 2010E 2011E 2012E 1H08 2H08 1H09 2H09 1H10 2H10 1H11E 2H11E 1H12E 2H12E
iPad iPhone iPod NAND demand from Apple H/H change (RHS)
17
NAND: Supply and Demand dynamics
- Global NAND supply and demand dynamics
Similar to DRAM, NAND supply growth would also continue to outpace the demand growth throughout 1H11, according to our
estimates.
With the scheduled launch of new products in tablet PCs and smartphone segments in 2H11, along with the seasonal pick-up
in demand, we expect NAND supply to become tight in 2H11.
- NAND market to become tight if 2011 tablet shipments reach ~ 66-70 million units
However, we continue to forecast NAND demand assumptions as a moving target, given increasing discrepancy over
possible tablet shipments in 2011.
As mentioned earlier, if 2011 tablet PC shipments reach ~ 66-70 million units, compared to our current assumption of 51
million units, assuming an average density of 36GB, supply in the NAND market could become tight and vice-versa.
Global NAND supply and demand trends

Supply/demand (%), ASP change (Q/Q)
20% 40%
15% 29% 30%
20%
10% 13% 10%
7% 7%
5% 1% 0%
-4% -3% -2% -4%
-8% -8% -10% -10%
0% -13% -14% -15% -14% -12%
-19% -20% -20%
-5% -27%
-31% -29% -30%
-34% -35%
-10% -40%
1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
Supply/demand (excluding inv,) ASP change, Q/Q (RHS)
18
Mobile DRAM: Market overview
- What is Mobile DRAM?
Mobile DRAM, often referred to as low-power DRAM (LPDRAM), has emerged as a preferred DRAM alternative for handheld
devices, versus conventional PC DRAM, largely due to its low energy footprint compared to traditional PC DRAM.
At its core, mDRAM enjoys a relatively low-voltage rating (1.2V-1.8V for mDRAM versus 1.5V-2.5V for PC DRAM1), coupled
with advanced power-saving techniques, which enable embedded systems to enjoy longer battery life without compromising
on the processing power.
- How does mDRAM consume less power?
Most of the arguments in favor of application of mDRAM revolve around its attractive power usage profile, which is believed
to stem from three advanced powersaving techniques:
Temperature compensated self refresh (TCSR): adjustment of internal self refresh rates using a temperature sensor in
accordance with the previously specified ambient temperatures.
Partial array self refresh (PASR): This technique aids in bypassing the refresh cycle of empty portions of DRAM chip.
Deep power down (DPD): helps the mDRAM to enter sleep mode when the chip is not in active use.
mDRAM shipments as % of total DRAM shipments, by company (2009-12E)

%
Source: Company data, J.P. Morgan estimates.

19
Mobile DRAM: Market outlook
- Revenue outlook
We expect the global mDRAM market to experience robust revenue growth in the coming years, largely owing to the strong
demand from smartphones and tablets, along with the increasing number of suppliers.
According to our estimates, mDRAM is expected to contribute 24% of the total DRAM market revenue in 2011, up from 15%
in 2010, largely owing to strong volume growth, expectations of strong ASPs in 1H11, and shrinking commodity DRAM
market size
However, mDRAM ASPs are expected to witness meaningful erosion in 2H11, largely due to the aggressive capacity
conversion to mDRAM across the board (appreciable mDRAM capacity expected to come online in 2H11.
In terms of quarterly trend, we expect the mDRAM revenue growth momentum to turn weak and disappoint in 3Q11 and
4Q11, before returning to traditional seasonality in 2012.
mDRAM revenue trend by quarter mDRAM demand as a % of total DRAM shipments

US$ in millions, % (Y/Y) US$ in millions, %
20
Mobile DRAM: Demand outlook
- Smartphones and tablets should be the main drivers for mDRAM demand
We expect smartphones and tablets to be the main drivers for mDRAM demand in the coming years, commanding an
estimated combined share of 67% and 77% of the global mDRAM demand in 2011 and 2012, respectively.
The new smart devices should continue to witness sound memory content growth in the coming years.
mDRAM demand by application

%
Mobile DRAM content in currently available smartphones and tablets
Source: gsmarena.com.
21
Mobile DRAM: Smartphones and tablets
- mDRAM demand from smartphones and tablets
According to our forecasts, average mDRAM content in smartphones is expected to grow 42% Y/Y in 2011 (544MB),
followed by another 37% Y/Y growth in 2012 (742 MB).
Tablets are also expected to show a handsome increase in DRAM content in 2011 (+98% Y/Y, 632MB) largely due to the
impressive line-up of tablet launches scheduled in early 2Q11.
These tablets aim to leverage the ever-increasing base of data-intensive applications and deliver a faster processing
experience to consumers
mDRAM demand from smartphones mDRAM demand from tablets

Units in millions (1 Gb equivalents), % Units in millions (1Gb equivalents), %
22
Mobile DRAM: mDRAM ASP trend
- Downward pressure on mDRAM ASP
We expect mDRAM prices to face downward pressure going forward, declining 33% Y/Y in 2011 and 36% Y/Y in 2012,
mainly driven by the aggressive capacity expansion across the board, coupled with active steps by set makers to standardize
the product to decrease dependence on selective players and initiate price competitiveness among memory makers.
On a quarter-over-quarter basis, we expect mDRAM ASPs to continue to decline throughout 2011, with the magnitude of the
decline to be much pronounced in 2H11.
- ASP premium over PC DRAM
The recent appreciable incline in mDRAM price premium over traditional PC DRAM has attracted memory makers toward
mDRAM product, given the potential strong demand in the coming quarters and higher margins over commodity DRAM.
We forecast that mDRAM will enjoy attractive price premiums in 1H11; however, we believe it will narrow throughout 2011,
given the accelerated mDRAM price erosion throughout 2011. Of note, the ASP premium for mDRAM is expected to be
around 111% in 1Q11 and narrow to 26% in 4Q11.
mDRAM ASP trend, Q/Q % mDRAM ASP premium over blended DRAM ASP
US$ per 1Gb equiv., Q/Q US$ per 1Gb equivalent, %
23
Mobile DRAM: Budget analysis
- BOM analysis
Based on our BOM analysis, DRAM dollar cost for smartphones and tablet PCs for 2011 is expected to be around US$10.1
(6% of smartphones’ BOM) and US$11.7 (5% of tablets’ BOM), respectively.
- High touch panel : Major deterrent in achieving attractive price points
We estimate touch panel cost will represent over 30% of tablet BOM and 10% of smartphones’ BOM, respectively, of which
ITO film/glass sensors have the largest cost burden, according to our estimates.
Our recent checks indicate touch panel makers’ efforts towards reduction in BOM costs through either developing new
technologies such as touch-on-lens (TPK and Wintek) or direct pattern window (Melfas) (which may eliminate the use of ITO
film, or they may go for in-house production of ITO sensor).
We see these efforts as fairly positive, as appealing price points for these devices would drive their volume growth, thus
benefiting DRAM and NAND.
mDRAM dollar cost for smartphones and tablet PCs mDRAM cost as a percentage of total BOM
US$ %
15 10%
12 8%
9 6%
6 4%
3 2%
0 0%
1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q 11E 2Q 11E 3Q 11E 4Q 11E 1Q 12E 2Q 12E 3Q 12E 4Q 12E
Smartphones Tablet PCs Sm artphones T ablets
24
Mobile DRAM: Supply outlook
- Mobile DRAM supply outlook
We estimate that the global mDRAM supply will grow 92% Y/Y in 2011, followed by 75% Y/Y in 2012 and would comprise
over 17% of total DRAM supply in 2012 from the mere 8% levels back in 2009.
- Standardization via PoP - beneficial for late entrants
PoP (package on package) has been attracting much traction of late due to the ever-increasing demand for high-density
mDRAM, which is best mounted on the top of the application processor, given space constraints in smartphones and tablets.
We see this increasing trend as the first visible sign of standardization for the mDRAM industry. We expect the reduced
customization of product to benefit late entrants and set makers alike, given the lower barriers of entry for memory makers,
and more bargaining power at the hands of set makers.
However, increasing standardization would negatively affect mDRAM margins in the future, in our view.
mDRAM supply trend by quarter mDRAM supply as a % of total DRAM supply

Units in millions (1 Gb equivalents), Q/Q US$ in millions (1 Gb equivalents), %
25
Key trends in display
26
TFT-LCD: Supply/demand outlook
- Supply-demand dynamics under utilization rate adjustments
We recently changed our major assumptions for 2010/2011 and introduced our 2012 assumptions after analyzing the supply
and demand dynamics.
Based on our revised supply and demand dynamics, we estimate the magnitude of oversupply to ease from 3Q10 onwards
given UT cuts by major panel makers.
Given flexible production schedules, however, the magnitude of supply should not be as severe as in past downturn cycles.
With lower retail prices, TV brands and OEMs should be able to clear inventories.
- Slight upward revision in demand assumptions

Largely driven by upward revision to our LCD TV shipments forecasts and size-mix change (moving to bigger-size screens),
we revised upward our demand assumptions by 3% and 1% for 2010 and 2011, respectively.
On the other hand, we cut our monitor and NBPC shipment forecasts.
Global TFT-LCD supply/demand dynamics

% (Supply/demand – 1)
30%
25%
20%
15%
10%
8%
5% 6%
3% 4% 3% 3%
0% 1% 0%
-2% -3% -1% 0% -1% -1% -1% -1% -1%-1%
-5% -5% -4% -4% -4% -3% -3%
-10%
1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
Supply /demand analy sis - Inv . Adj. Supply /demand (w / rev ised util. rate)
27
TFT-LCD: demand trend by application (1)
- LCD TV will keep increasing its proportion in the LCD industry
We continue to expect that TVs will keep driving up demand, resulting in a higher proportion in the industry in terms of both
area and revenue.
We project that LCD TV shipments will increase to 246 million units in 2011 from 163 million units in 2009.
In 2011, LCD TV proportion will reach 67% and 68% in area and revenue, respectively, as per our estimates.
TFT-LCD demand by application

2010E 2011E 2012E
2009 2010 2011E 2012E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2
Total Demand (M ) 25,349 26,660 27,601 26,413 28,109 30,655 35,413 35,259 35,962 37,475 40,679 41,366 83,523 106,023 129,436 155,482
NBPC unit 49.4 47.5 51.9 54.6 52.2 52.4 61.8 65.4 61.4 61.6 70.5 72.8 169 203 232 266
Square meter 3,280 3,160 3,437 3,605 3,443 3,454 4,077 4,307 4,060 4,076 4,658 4,808 11,232 13,483 15,281 17,602
Tablet PC 38 105 153 203 254 286 413 603 524 564 648 730 499 1,556 2,466
DT Monitor 35.7 35.8 37.1 38.9 36.8 37.0 39.7 40.6 37.7 36.9 38.7 38.3 138.3 147.4 154.1 151.7
Diffusion rates, % 94% 94% 95% 95% 95% 95% 96% 96% 97% 97% 98% 98% 93% 94% 95% 97%
Monitor Standalone 12.7 11.1 9.5 10.1 11.4 13.6 13.1 12.1 15.8 18.4 16.4 14.4 39.7 43.4 50.2 65.0
Total LCD monitor 46.3 44.7 44.5 47.0 46.4 48.7 51.0 51.1 52.3 54.2 54.1 52.0 168 183 197 203
Square meter 5,128 5,002 5,021 5,323 5,263 5,530 5,847 5,900 5,994 6,193 6,230 6,039 18,544 20,474 22,541 24,456
LCD TV 50.9 54.1 56.5 49.9 53.5 58.6 68.3 65.9 66.1 67.3 72.3 73.0 163 211 246 279
Square meter 16,079 17,660 18,146 16,377 18,295 20,462 24,133 23,414 24,403 25,569 28,040 28,608 50,813 68,262 86,303 106,620
Others (Square meter) 824 733 843 904 854 923 943 1,034 982 1,072 1,103 1,180 2,934 3,305 3,755 4,337
Based on area 2010E 2011E 2012E
2009 2010 2011E 2012E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
NBPC 13 12 12 14 12 11 12 12 11 11 11 12 13 13 12 11
Tablet PC 0 0 1 1 1 1 1 2 1 2 2 2 0 1 2
LCD Monitor 20 19 18 20 19 18 17 17 17 17 15 15 22 19 17 16
LCD TV 63 66 66 62 65 67 68 66 68 68 69 69 61 64 67 69
Based on revenue
NBPC 15 14 13 15 13 12 13 13 12 12 12 12 16 14 13 12
Tablet PC 0 0 1 1 1 1 2 3 2 2 2 3 0 1 2 2
LCD Monitor 20 19 17 19 17 17 16 16 15 15 14 13 21 19 16 14
LCD TV 64 67 69 64 68 69 70 68 70 71 71 71 63 66 68 71
Source: J.P. Morgan estimates, DisplaySearch.
28
TFT-LCD: demand trend by application (2)
- Strong LCD TV demand

We believe demand for LCD TVs will continue to rise but demand for NBPC will show a downward trend.
We expect the LCD TV proportion to reach 71% by FY12 from 53% in FY08.
- LCD TV blended ASP trend

Thanks to product mix changes, along with new features and functions, we estimate blended TV panel prices will be less
volatile than in the past (when all product was plain-vanilla LCD TVs) and we expect relatively flat ASPs going forward.
Also, falling TV panel prices should stimulate end-demand since TV set makers will be able to lower retail prices.
TFT-LCD demand by application LCD TV blended ASP

% %
100% 12% 15 20
20%
80% 33% 10 10
46% 49% 53% 63% 66% 68% 5 0
60% 71%
0 -10
40% -5 -20
20% -10 -30
0% -15 -40
-20 -50
E
E
03
04
05
06
07
08
09
10
11
12
1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11E 4Q11E 3Q12E
20
20
20
20
20
20
20
20
20
20
NBPC LCD monitor LCD TV Q/Q change (LHS) Y/Y change (RHS)
Source: Company data, DisplaySearch, J.P. Morgan Source: Company data, J.P. Morgan estimates.
29
TFT-LCD: supply side assumptions
- We expect global supply growth to ease in FY10 and FY11
We believe that the aggressive capex spending by major panel makers in 1H10 will translate into new capacity coming online in
future quarters. Taking this into consideration, we revised up supply assumptions for 2010 and 2011 by 8% and 6%, respectively.
Given UT adjustments by major panel makers, we are seeing some discrepancy between actual supply growth and input capacity
growth.
Global LCD supply growth (by area and units)
%, Y/Y
100 35
30 30
80
26 25
60 20
18
40 15 15
13 12
11 11 10
20 7 7 5 5
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Unit increase % (LHS) Area increase % (LHS) Area - Unit (RHS)
TFT-LCD supply side assumptions

Square meter ('000s), %
2010E 2011E 2012E
2009 2010E 2011E 2012E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Total supply 24,845 26,868 29,114 30,299 31,088 32,287 34,439 35,990 36,794 38,135 39,531 40,495 89,409 111,126 133,804 154,954
Q/Q growth, % 0 8 8 4 3 4 7 5 2 4 4 2
Y/Y growth, % 25 25 25 22 25 20 18 19 18 18 15 13 24 24 20 16
Korea 50 49 50 50 50 51 51 51 - 33 29 31 48 50 51 50
Taiwan 37 37 36 35 35 34 33 33 - 3 16 30 39 36 34 33
China 3 3 3 3 3 4 4 5 - 3 6 6 4 3 4 7
Japan 10 10 11 12 12 12 11 11 - 62 49 34 9 11 11 11
30
TFT-LCD: strong blended TV panel prices
- Panel prices have shown a meaningful correction from recent peak
Price weakness has been seen in TFT-LCD panel price trends on concerns of above-average inventory build-up in the
channel and at set makers due to weaker-than-expected World Cup retail sales and back-to-school demand.
We view the recent panel price decline as a positive development for set makers/OEMs, and expect consumer demand to
return on price elasticity, as reducing component prices would help set makers/OEMs lower their BOM and cut prices to
stimulate end-demand.
- Blended TV prices remain resilient

In light of the price premium of LED panels over LCD panels, selling a higher proportion of LED TV would improve the major
panel makers' blended ASP.
The LED TV penetration rate accelerated in 2H10 and this trend is likely to continue into 2011.
Hence, the magnitude of decline in blended ASP for major panel makers would be much lower than that for LCD TV in an
apples-to apples comparison.
Panel price changes LED vs. LCD TV panel price trends

% US$, %
-25% 600 55%

-26% 500 50%
49% 48%
-27% 400 46%
45% 45%
-28% 300 43% 43%
-28% 40% 40% 41% 40%
-29% 200 38% 38% 38% 38%
-30% -29% 100 35% 36% 35%
-30%
-31% 0 30%
-32% Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11
-33% -32%
40 - 42" Full HD 40 - 42" 120 Hz Edge-LED LED TV panel's price premium, % (RHS)
15.6" NBPC 20" Monitor TV 32" TV 42"
Source: DisplaySearch, J.P. Morgan. Prices as of March 2011. Source: DisplaySearch, J.P. Morgan.
31
TFT-LCD: signals of panel price stabilization
– Moderate price decline from September
The latest trends show that the LCD TV panel prices are expected to stabilize in 1Q11, fueled by a pickup in LCD TV demand.
While there is some slowdown in demand in North America due to inventory in retailers, the leading brands have started to carry
out their promotion campaigns to boost the demand for large-screen TVs.
The TV panel prices are close to cash-cost level and the increasing portion of LED TVs will help blended ASP hold up.
If the panel price approaches near cash costs, we expect the panel makers to reduce UT further, which will eventually result in
panel price stabilization.
In 4Q10, the production cuts initiated by panel makers helped alleviate downward pressure on panel price.
Panel price vs. cash cost Panel price Y/Y change

US$ %
160 147 145 40%
140 20%
120
0%
100
80 -20%
53 52 46
60 43 -40%
40
-60%
20
0 -80%
Nov-09
Nov-10
Jan-09
Jan-10
Jan-11
May-09
May-10
Mar-09
Jul-09
Mar-10
Jul-10
Mar-11
Sep-09
Sep-10
32" TV 19" Monitor 15.6" LED NBPC
Panel price (US$) Cash cost (US$) NBPC 15.4"W MNT 19"W TV 32"
Source: DisplaySearch, J.P. Morgan. Source: Company data, J.P. Morgan estimates.
32
3D TV: 3D TV market outlook (1)
– Positive outlook for global 3D TV market
We estimate 3D TV shipments to reach more than 80 million units, rising at a CAGR of 80%+ from 4.2 million units
in 2010.
The majority of 3D TV sales in 2010 will happen in the mature TV regions including the US, Japan, and Western
Europe, where sizable markets exist for upgrading or replacing order, non-3D sets.
The critical issues for mass consumer acceptance include standardization, content availability and interoperability
of the 3D glasses or eyewear.
Given that all supply chains are participating in 3D market, we expect 3D TV to account for almost one-third of
total LCD TV in the next couple of years.
Global 3D TV shipments trend

Unit in millions, %
Source: iSupply, J.P. Morgan estimates.
33
3D TV: 3D TV market outlook (2)
– Aggressive 3D TV target by major panel makers
Recently, LCD TV panel manufacturers have introduced advanced features including 3D technology along with
ultra-slim form factors and direct-lit LED backlights.
We believe these enhancements in TV panels will stimulate replacement demand and create a market segment by
satisfying consumer preferences.
The global LCD TV panel makers started to offer their 3D panels with aggressive shipment target for 2011.
According to our analysis, the major panel suppliers' 3D TV panel portion as a percentage of total production is
expected to reach as high as 35%. For CMI, the company is planning to have all the new LED TV models
equipped with 3D feature in order to distinguish itself from the competitors. AUO, similarly, targets to increase its
3D TV panel portion up to 10% in 2011.
We are estimating Korean panel makers’ 3D TV portion to remain in a range of 15%-20% in 2011. Sharp is aiming
to gain shares in 3D TV panel industry with 3D TV panel portion target of 10-20%.
Major panel makers’ 3D TV portion as % of total production in FY11E

%
Panel brands 3D TV panel portion as % of total production
SEC 15%
LGD 20%
AUO 10%
CMI 35%
Sharp 10-20%
34
AM-OLED Sector
35
AM-OLED: Investment summary
- Opportunities and challenges
We expect the equipment and OLED material market to witness strong growth thanks to:
Much higher CAPEX requirement than for LCD investment & on-going capacity expansion by AM-OLED manufacturers
Korea-centric nature of AM-OLED will benefit Korean equipment/material makers.
- Self-created competition
AM-OLED is cannibalizing existing LCD businesses; thus AM-OLED TV in near-term is an expensive approach
Contrary to market expectation, Samsung and LG will avoid unnecessary cannibalization of LED TV.
- Winners and losers

Samsung SDI as a key beneficiary of SMD’s AM-OLED business despite concerns over the dilution of SDI’s stake in SMD.
Cautious on Cheil Industries as we think the current valuation fully reflects positive expectations.
We like AM-OLED equipment and material makers as AM-OLED growth offers new growth drivers
OLED stock performance (relative to KOSPI) OLED stock relative performance

1 March, 2010 = 100%, Won in billion 1 March, 2010 = 100%
Source: Bloomberg, J.P. Morgan. *Note: OLED stocks’ aggregate market capitalization. Source: Bloomberg, J.P. Morgan.
36
AM-OLED: AM-OLED market outlook
- Hyper growth outlook
We estimate a significant 122% CAGR from 2010 to 2013, driven largely by growing penetration in smartphones & tablet PCs
AM-OLED market to reach US$4 billion in 2011 (up 200% Y/Y) and US$14 billion (up 48% Y/Y) by 2013
Samsung Mobile Display (SMD), LG Display and AUO are expected to be key players.
Smartphone and tablet PC application to account for 90% of the total AM-OLED demand (area base).
Global AM-OLED market forecast
1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2011E 2012E
Total supply (US$ mn) 556 777 1,123 1,541 1,967 2,364 2,827 3,169 3,997 10,328
Q/Q change (%) 26% 40% 45% 37% 28% 20% 20% 12%
Y/Y change (%) 142% 165% 212% 249% 254% 204% 152% 106% 202% 158%
Total supply (mn units, 4" equivalent) 23 33 50 71 95 120 149 172 178 536
Q/Q change (%) 29% 44% 51% 41% 34% 26% 24% 16%
Y/Y change (%) 166% 194% 249% 295% 311% 259% 195% 141% 239% 201%
Total demand (US$ mn) 536 785 1,136 1,598 1,854 2,214 2,597 3,131 4,055 9,795
Q/Q change (%) 16% 46% 45% 41% 16% 19% 17% 21%
Y/Y change (%) 140% 178% 215% 247% 246% 182% 129% 96% 205% 142%
Total demand (mn units, 4" equivalent) 22 34 51 74 90 112 137 170 181 509
Q/Q change (%) 19% 51% 51% 45% 22% 25% 22% 24%
Y/Y change (%) 163% 209% 253% 292% 302% 233% 168% 130% 243% 181%
Market Share (%) 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2011E 2012E
SMD 93% 93% 83% 80% 80% 78% 79% 78% 85% 79%
LGD 7% 7% 7% 8% 8% 10% 9% 9% 8% 9%
AUO 0% 0% 0% 3% 4% 5% 5% 6% 1% 5%
China/Japan/Taiwan 0% 0% 10% 9% 8% 7% 6% 7% 6% 7%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
37
- Supply-constrained growth
Supply-driven market dynamics for now. Supply and demand to remain balanced.
Due to a limited number of suppliers and high-entry barriers, we foresee demand growth being constrained by supply growth.
Quarterly OLED supply forecast (revenue) Quarterly OLED supply forecast (area)
US$ in millions, % 000’ square meters, %
Quarterly OLED demand forecast (revenue) Quarterly OLED demand forecast (unit)
US$ in millions, % Units in millions, 4" equivalent, %
38
AM-OLED: Supply side analysis
- Supply: SMD to drive supply growth and LGD to follow
We forecast sharp capacity growth, up 268% Y/Y in 2011, coming mainly from the ramp up of 5.5G capacity by SMD.
LGD and AUO to add meaningful capacity, mainly 4G, in 2012. We estimate 173% Y/Y growth in 2012.
AM-OLED capacity analysis

000' square meters / month
Korea Generation Glass size 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E
SMD
A1 4G 730X920 36 39 40 40 40 40 40 40 40 40
Q/Q change (%) 20% 7% 3% 0% 0% 0% 0% 0% 0% 0%
Y/Y change (%) 135% 93% 67% 33% 11% 3% 0% 0% 0% 0%
A2 5.5G 1300X1500 0 20 39 59 88 117 156 185 195 195
Q/Q change (%) na na 100% 50% 50% 33% 33% 19% 5% 0%
Y/Y change (%) na na na na na 500% 300% 217% 122% 67%
A3 8G 2200X2500 0 0 0 0 0 0 0 0 0 28
Q/Q change (%) na na na na na na na na na na
Y/Y change (%) na na na na na na na na na na
LGD
AP2-E2 4G 730X920 3 4 6 10 13 20 24 27 34 37
Q/Q change (%) na 50% 50% 67% 33% 50% 17% 14% 25% 10%
Y/Y change (%) na na na na 400% 400% 289% 167% 150% 83%
P9-OLED 8G 2200X2500 0 0 0 0 0 0 0 0 0 0
Q/Q change (%) na na na na na na na na na na
Y/Y change (%) na na na na na na na na na na
Taiwan Generation Glass size 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E
AUO
Hsinchu 4G 730X920 0 0 0 3 7 10 13 17 20 24
Q/Q change (%) na na na na 100% 50% 33% 25% 20% 17%
Y/Y change (%) na na na na na na na 400% 200% 133%
Others Generation Glass size 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E
China/Japan/Taiwan 4G 730X920 5 7 9 11 13 15 17 20 23 28
Q/Q change (%) na 40% 29% 22% 18% 15% 13% 18% 15% 22%
Y/Y change (%) na na na na 160% 114% 89% 82% 77% 87%
0 0 0 0 0 0 0 0 0 0
Total capacity 44 69 94 123 161 203 250 289 312 351
Q/Q change (%) 45% 58% 36% 31% 31% 26% 24% 16% 8% 13%
Y/Y change (%) 185% 245% 290% 308% 267% 191% 165% 135% 94% 73%

39
- OLED capacity share trend
We expect SMD to continue to represent the lion’s share of the AM-OLED market for the next 12-18 months, with near 80%
share in 2012, followed by LG Display and AUO, which combined are expected to gain 15% of the AM-OLED market by the end
of 2012.
- 4G/4.5G to remain mainstream capacity for now

On area base capacity, by glass size generation, we forecast 4G/4.5G capacity to remain mainstream capacity, accounting for
65% of total capacity in 2011 and the rest with 5.5G.
Looking ahead into 2012 and 2013, our AM-OLED model suggests further share gain by SMD’s 5.5G, despite the addition of 4Q
capacity and the small presence of 8G capacity expected towards the end of 2013.
OLED capacity share in FY11E OLED capacity share trend by generation

%, based on total shipment (area base) %
40
AM-OLED: OLED capex analysis
- Sizeable investment to continue in 2012
Expect another round of meaningful OLED investment cycle in 2012 as SMD and other lead players are likely to compete to
gain and/or maintain market share in the new technology space.
The size of investment could vary depending on technology advancement in key areas such as crystallization and evaporation.
In the near-term, we expect AM-OLED CAPEX to remain higher than that of LCD until the technology matures further and
advances to find a cheaper solution than current AM-OLED manufacturing technologies
- 8G investment an expensive pre-requisite for AM-OLED TV growth

AM-OLED TV is unlikely to have a meaningful impact on AM-OLED demand until the end of 2013
5.5G glass size is not optimal for large size (42" and above) TVs
Commencement of 8G mass production is scheduled for 3Q13
8G capex for AM-OLED fab (60K/ month glass input capacity) could be as high as US$7.5 billion if we assume similar capex
increase as SMD’s 5.5G AM-OLED compared with that of existing 6G TFT-LCD fab, based on our capex analysis.
OLED capex trend SMD’s capex for 5.5G for 2011E

US$ in millions Won in trillion
41
AM-OLED: OLED demand dynamics
- Demand: Mobile device-fueled growth
From demand side, we forecast mobile devices to remain a key growth driver for the next two-three years.
We expect smartphone AM-OLED demand to grow over 210%, exceeding US$3.4 billion this year (or 84% of the total AM-
OLED area demand) from US$ 1.2 billion in 2010 on the back of:
Next to smartphone, tablet PC and NBPC applications are expected to be key areas of growth from 2H11 onwards.
We forecast mobile handset application to account for 84%, followed by NBPC at 6% and tablet PC at 4% of 2011E total
revenue.
Contrary to market expectation of AM-OLED TV mass production from 2012, we expect no meaningful contribution from TV
application until end-13.
OLED revenue share in FY11E OLED unit share in FY11E

% %
42
AM-OLED: AM-OLED price outlook
- OLED panel price premium over LCD
With the increasing influence of consumer electronics in the display space, price elasticity of demand for AM-OLED is expected to
increase as the technology further replaces small-medium LCD displays.
We forecast price premium of AM-OLED panel over LCD panel to narrow further, given our expectation of:
increasing production scalability of AM-OLED makers; and
set makers’ efforts to differentiate their products
As of 4Q10, our analysis suggests 64% price premium for 4" AM-OLED panel (US$24) over the same size TFT-LCD panel (US$15).
We estimate the price premium to decline to 40% level and 4" AM-OLED panel to reach US$22 by the end of 2011.
OLED panel price premium over LCD
US$, %
OLED panel price premium over LCD

US$, %

43
AM-OLED: Unique competitive landscape
- Self-created competition
With their already-dominant M/S in TFT-LCD panel and TVs, AM-OLED puts both Samsung and LG in a unique competitive
landscape, in which one-sided focus on new technology could pose a threat to the existing technology and vice versa..
The cannibalization of existing LCD business and a negative impact on LCD food chain seems inevitable.
Although technology advancement in the crystallization process could help utilize existing TFT-LCD fabs, we expect a
gradual cannibalization in balancing the two technologies.
Hence, we believe the rate of AM-OLED penetration will be somewhat controlled, especially for TV application, to prevent
unnecessary cannibalization of the LED TV market.
While the demonstration of technology leadership in AM-OLED could provide high value add for Samsung and LG’s brand
equity as consumer electronics companies, aggressive investment in AM-OLED TV is an expensive approach for now.
TFT LCD panel makers’ market share trend AMOLED makers’ market share trend
% %
44
AM-OLED: Unique competitive landscape (1)
- LED TV is another challenge
We agree that AM-OLED technology will eventually replace current TFT-LCD technology for TV application and will become a
mainstream TV technology in the long-term.
We believe (1) improving technology; and (2) better affordability of LED TV will be key challenges for AM-OLED TV market growth.
For example, LED TV performance has already reached near an AM-OLED equivalent for picture quality in terms of color gamut,
response time and resolution.
We expect the price gap between the two technologies will narrow further and become more affordable for average consumers.
42" LED TV price premium over LCD TV 42" LED TV panel price premium over LCD TV panel
US$, % %
45
- LED technology share and efficiency
In addition, edge-lit type LED TVs are becoming more competitive vs. direct-lit full LED TVs.
Our discussions with leading LED packagers suggest that the latest LED BLU technology is moving towards enabling
partial-local dimming for edge-lit TV which was believed to be possible in more expensive direct-lit full LED TVs.
We expect such a technology advancement will help LED TV to remain attractive for consumers compared to AM-OLED
technology.
Separately, improving LED chip efficiency (i.e. lumen/watt) has been helping LED TV makers to use less LED chips per
TV (i.e. moving from 4 bar to 2 bar technology in edge-lit LED TV backlights), which we believe will make LED TV more
affordable for average consumers.
LED TV penetration has reached above 20% level as of end-’10 and is expected to reach above 50% by the end-’11.
Edge-lit BLU technology share Number of LED chips required per BLU
% Units, %
46
- High CAPEX is an entry barrier
While we agree with the general concerns about low ROIC and longer return period for AMOLED investment than TFT-
LCD, we believe high capex will be a major entry barrier, along with AM-OLED technology, for new entrants.
Our capex analysis suggests 5.5G (with 100K/month glass input capacity) AMOLED capex requirement is approximately
80% higher than that of 6G TFT-LCD fab (1500x1850) with similar design capacity and the capex for 8G (2200x1250 with
100K/month glass input capacity) could be as high as W8 trillion.
AM-OLED vs. LCD capex analysis

US$ in millions, %
Source: Company data, J.P. Morgan estimates. *Note: 100,000 substrates per month fab.
LCD capex trend

US$ in millions
Source: Company data, J.P. Morgan estimates. *Note: 60,000 substrates per month fab, 5-mask process. Equipment includes array, cell, color filter and module tools.
47
- SMD capex breakdown
Breaking down the capex for 6G TFT-LCD fab, approximately 65% of the capex was spent on equipment and the rest was
spent mainly on facilities (including land).
Based on similar assumptions, we estimate approximately W2.9 trillion to be spent on equipment and the rest on facilities
(including land) for SMD’s 5.5G fab building.
SMD capex for 2011 SMD’s capex for 5.5G (2011E)

Won in trillion
48
AM-OLED: Capex opportunity (1)
- Equipment opportunity much greater than OLED material
Our analysis of LCD historical capex suggests approximately 60% of capex allocation for equipment purchase.
As we view LCD and AM-OLED technology as similar in manufacturing nature, we apply similar capex allocation estimate
for AMOLED investment to gauge potential market opportunities for OLED equipment makers.
Based on our estimates, we expect the capex for AM-OLED to reach US$5.7 billion (up 390% Y/Y) in 2011.
Even with a more conservative percentage allocation assumption of 50% of total capex, the potential market opportunity is
likely to exceed US$2.8 billion or approximately 10x higher than that of the OLED material market in 2011.
We believe: (1) much higher capex requirement than LCD investment; and (2) ongoing capacity expansion by Korean
manufacturers will benefit Korean equipment makers.
Our recent discussions with companies also indicate noticeable efforts by AM-OLED panel makers to localize key
equipment manufacturing.
OLED capex trend SMD’s capex for 5.5G (2011E)

US$ in millions Won in trillion
49
AM-OLED: Capex opportunity (2)
- Lessons from the 2009-2010 LED TV cycle
From LED TV cycle during ‘09-’10, we identify interesting earnings trends in different parts of the supply chain:
Margin expansion for the companies including panel, LED chip/packaging and BLU makers, was short-lived;
Only sapphire ingot makers and equipment makers witnessed meaningful margin expansion; and
Branded TV makers with leadership in LED technology benefited the most in terms of brand recognition
Major TFT-LCD makers’ OPM trend SEMCO’s S-LED OPM trend
% %
Source: Company data, J.P. Morgan. Source: Company data, J.P. Morgan.
Major LED BLU makers’ OPM trend Major LED materials makers’ OPM trend
% %
50
AM-OLED: OLED materials market outlook (1)
- High growth opportunity but higher expectation
We expect the OLED material market to witness strong growth in coming years, reaching US$269 million in 2011 (up
240% Y/Y) and W630 billion in 2012 (up 134% Y/Y).
Due to increasing production localization in Korea, we expect local OLED material suppliers to benefit the most. However,
we are concerned about the overly optimistic expectation about the OLED material market.
Along with higher penetration, we expect AM-OLED components and material market to witness further meaningful
growth over the next two-three years.
We forecast the market—key components and materials market combined—to reach US$568 million this year, up 119%
Y/Y and US$1.3 billion by 2012, up 124% Y/Y.
Separately, we estimate the OLED material market to reach close to US$269 million in 2011, up 240% Y/Y and US$630
million in 2012E, up 134% Y/Y.
Key AM-OLED component/material market OLED material revenue as % of component/material

US$ in millions US$ in millions, %
Source: KDIA, DisplayBank, J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates.
51
AM-OLED: OLED materials market outlook (2)
- AM-OLED cost analysis
Of total AM-OLED module cost, OLED materials (e.g. HTL, ETL, EML, etc) are estimated to account for 23%, followed by
labor cost 9% and PCB 8%.
Given the high capex requirement for AM-OLED manufacturing thus far, depreciation is estimated to be the largest portion
at 38% of cost.
The manufacturing cost of an AM-OLED module, assuming similar production yield as that of LCD, is estimated to be
10%-15% cheaper than LCD, mainly because:
No color filter;
Less polarizer;
No backlight units; and
No liquid crystal requirement.
OLED material breakdown AM-OLED cost analysis

% %
52
AM-OLED: What is an AM-OLED?
OLEDs are a special class of LEDs, manufactured by placing thin layers of organic compounds between two conductors.
They are primarily based on the principle of electro-phosphorescence, wherein certain organic molecules are observed to
emit light on application of electric voltage across them.
- AM-OLED versus TFT-LCD

In general, OLED incorporates a simpler bi-layer structure, consisting of conductive and emissive layers, which allows
thinner form factor as well as lower manufacturing costs compared to TFT-LCD.
The basic difference between the OLED and TFT-LCD display technology lies in the usage of backlight illumination.
In contrast to conventional TFT-LCD display, an OLED display does not require any other source of backlight illumination,
given the self-emissive nature of organic molecules.
In OLED, electric current travels from cathode to anode through layers, while the flow of lights from BLU is controlled by
liquid crystals and polarizers in LCD.
A structural comparison of OLED and LCD
Source: Company data, J.P. Morgan.

53
AM-OLED: Cost analysis on OLED vs. LCD
- Optimizing OLED technology with lower manufacturing cost
The different structure of OLEDs lends itself to the cost advantages over flat panel display made with LCD technology.
The OLED stack structure is simpler than the structure of TFT-LCD and that provides cost-saving potential in the long run.
The OLED manufacturing cost is approximately 30% lower than that of TFT-LCD, largely due to the removal of BLU and
color filter.
The BLU and color filter represent one of the highest costs within TFT-LCD components.
OLEDs do not require a separate light source such as backlighting units (BLU) due to their self-luminous structure;
therefore they provide room for further cost reductions.
Cost analysis on OLED vs. LCD

%
54
AM-OLED: AM-OLED structure
- AM-OLED materials
Hole injection layer (HIL): The hole injection layer is often placed in between the anode and the hole transport layer,
where it accepts positively charged holes and effectively passes them over to the hole transport layer.
Hole transport layer (HTL): The hole-transport layer enhances the ability of the anode to deliver positively charged “holes”
to the emission layer, where the recombination process takes place with the electrons.
Emission material layer (EML): The emissive layer is where the electron-hole recombination takes place to generate the
light source.
Electron transport layer (ETL): In order to achieve a balanced injection and transport of electrons into the emissive layer,
additional organic layer is introduced into the device structure, called electron transport layer. The electron transport layer
optimizes the transport of electrons from cathode to the emissive layer.
Electron injection layer (EIL): The electron injection layer enhances the electron injection efficiency, resulting in improved
device performance.
Passivation: The passivation layer can be adopted to protect OLED from moisture and oxygen, which offers the
enhancement of lifetime and stability.
OLED structure Recombination process in OLED device

%
55
AM-OLED: Introduction to manufacturing process
Key differences are: (1) elimination of color filter and backlight, and (2) the addition of evaporation and encapsulation
processes for AM-OLED due to its nature of self-emission of lights.
- Evaporation
The OLED evaporation condenses thin film layers on a glass substrate through vacuum evaporation of the organic matter.
The evaporation process largely calls for layer-by-layer deposition of high quality luminous RGB layers onto OLED substrate,
which lends its better transmittance quality and attractive form factor.
- Encapsulation
The encapsulation is indispensable in OLED manufacturing process as it protects organic compounds from humidity.
In order to achieve the realization of OLEDs with a sufficient lifetime, the sealing of OLED display is required with extremely
low permeation for oxygen and humidity.
The glass lid is attached on top of the display substrate with power inside to absorb moisture that diffuses through the surface.
Manufacturing process of OLED and LCD
Source: Company data, J.P. Morgan. 56

AM-OLED: Types of deposition technologies
The deposition process is known to be one of the key bottlenecks for OLED manufacturing due to: (1) limited availability of
equipment for commercial manufacturing; and (2) technical difficulties in evaporation for above 1/2 of 4G glass (730X920).
- Vacuum thermal evaporation (VTE)

VTE technology can be used in low-molecule OLED production, which is currently a mainstream technology. This process calls
for thermal evaporation and subsequent condensation of organic vapors onto a cooled substrate.
- Inkjet deposition
This method is considered to be more suitable in large size OLED manufacturing using polymeric instead of low-molecule .Due
to lack of availability of related OLED material and low luminous efficiency, the technology is still under review and R&D.
Manufacturing process of TFT-LCD and AM-OLED
Source: Company data, J.P. Morgan. 57

AM-OLED: Applications of OLEDs
Given superior display resolution, low power usage profile, attractive form factors, and wider display angles compared to
conventional TFT-LCD displays, OLED displays are making impressive inroads into an array of electronics devices.
Higher price points and dominant market technologies have so far acted as a deterrent in the mass-adoption of OLED displays.
Given the expected improvement in cost structure and output efficiencies with the maturation of the technology, we believe
OLEDs would emerge as the perfect display solution in coming years.
Current/Proposed devices employing OLED display
Source: OLED-info.com.
58
Rechargeable Batteries
59
Rechargeable battery (RB) for consumer electronics
- Battery makers see across-the-board end-demand recovery with near-term caution
In light of Japan quake, key material for battery cell making could be in shortage, anode materials in particular.
Battery companies expect shipment growth of 12-14% YoY in 2011E.
Price competition in cylindrical battery segment is likely to remain fierce. Industry leaders are shifting more to lithium polymer
battery, which sells at 15-20% premium over lithium-ion battery.
- Korean companies should gain market share in lithium polymer segment

Increasing smartphone and tablet PC penetration to further enhance lithium polymer as it offers superior design flexibility to
meet various (i.e., slimmer, larger size) design trends.
Korean LiB makers are targeting ~20% YoY capacity growth in 2011E to gain further marker share.
Lithium-ion battery market share trend Lithium-polymer battery market share (2010E)
100%
34% 33% 32% 30% 26%

80% 40% 37% 37% 37% 37% SDI,
12%
8% 7% 13% 15% LG
60% 2% 4% 5% 8% 7% 7% Chem,
9% 10% 10% 10% 9% 7% 7%
12% 8% 8% 13%
4% 7% 8% 15%
40% 8% 11% 12% 13% 18% 20% Sony, 54%
18% 20% 17% Amperex,
15% 13% 15% 15% 15% 21%
12% 12%
20%
27% 23% 24% 23% 24% 21% 21% 22% 20% 20%
0%
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E
Sanyo Sony Samsung SDI BYD LG Chem Others
Source: IIT, Company data, J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates.
60
RB: Electric vehicle battery supply matrix
- Korean makers have the best customer mix
Japanese battery makers are leading in terms of number of auto makers they are supplying to, yet (with the exception of
Sanyo) this is rather constrained to Japanese auto makers.
Korean battery makers SDI and LG Chem, on the other hand, have an alliance with US / European auto makers besides
Hyundai, which are more aggressive in EV development.
Nissan and Mitsubishi are aggressive in EV while Toyota and Honda are more conservative sticking to HEV.
Given the much larger battery size of EV comparing to HEV, AESC and GS Yuasa, suppliers of Nissan and Mitsubishi
should be able to ramp up volume faster.
Sanyo is also well positioned with customer exposure to US and European auto makers.
Battery supply matrix
61
Source: J.P. Morgan.
RB: LiB TAM to quadruple – xEV & ESS to drive secular growth
- LiB to drive steady total addressable market (TAM) growth
In the near future, consumer LiB should continue to drive steady total addressable market (TAM) growth, led by:
Robust unit growth from end-demand
Meaningful battery density growth along with rapidly rising multimedia content
New device types such as e-books, tablets.
We forecast LiB TAM to more than quadruple in the upcoming decade, from US$10 billion (‘09) to US$43 billion (‘20).
- Higher value proposition for xEV to lift profitability outlook

We believe xEV and ESS should be the key growth drivers, going from virtually zero to US$13B each in 2020,
representing a 10-year CAGR of 34% and 48%, respectively.
LiB becomes a critical and high-ticket building block within xEV –its role being significantly elevated as part of the
power chain system instead of serving just in the backend for consumer electronic products.
The tight integration and heavy customization also minimize competition, forming high entire barriers for new entrants,
and should result in sustainable healthy profitability for a prolonged period.
LiB total addressable market LiB CAGR for 2010-2020

US$ in billions %
50 60%
48%
40 50%
40% 34%
30
30%
20
20% 10%
10 5%
10%
0 0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 HEV/EV Consumer Storage Industrial &
Others
HEV/EV Consumer Storage Industrial & Others
62
RB: xEV (EV / PHEV / HEV)
- Battery technology maturing fast
No fundamental technology road blocks for xEV-used battery; evident with recent commercial launches of several PHEV/EV
models such as Mitsubishi Miev, BYD F3DM/E6, Nissan Leaf.
Remaining issues such as cell uniformity and low production yield can be resolved through production process improvement.
- System integration complexity often drags out launch date

xEVs involves extensive change in power chain and body design, which require high level of customization for system
integration which calls for battery makers and auto makers to form JVs for effective collaboration.
Lack of standardization in xEV battery is a headache for auto makers: Different xEV batteries from different vendors have
different product characteristics (capacity, charging performance, life cycle) thus requiring effort from auto makers to evaluate
batteries.
Potential xEV LiB TAM (conservative forecast) Most expect volume ramp-up by 2013-15
US$ in billions
Auto makers lined-up Expected launch date Meaningful volume
Sanyo VW, Honda, Ford, PSA 2011 2015

GS Yuasa Mitsubishi, Honda 2009 (EV) / 2010(HEV)
AESC Nissan, Renault 2010
Samsung SDI BMW 2012 2013
LG Chemical GM, Hyundai 2010-11
BYD Own brand, Daimler 2010 2013
BAK Chery, FAW 2010
Source: Company data, J.P. Morgan estimates. Source: J.P. Morgan based on interview with companies.
63
RB: xEV (EV / PHEV / HEV)
- High battery price to come down sharply by 2013
LiB makers agree that high price of xEV battery are mainly due to high start-up cost with small volume and expect battery
cost to come down sharply over time as volume increases.
Sanyo believes that it is possible to meet the Japanese government’s mandate of reaching US$300/kWh price target by
2015, from ~$1000/kWh now.
- Chinese has early price advantage, yet that could diminish if China market fails to take off
We expect the price gap between Chinese and Japanese/Korean to narrow over the next few years, yet the lower cost
advantage by BYD through vertical integration should persist.
Such cost advantage may allow BYD to eventually penetrate into global auto makers, if it's quality can be validated through
its own xEV in the next 2-3 years.
LiB price (US$/KWh) Historical price trend for Ni-MH and consumer LiB
%
Current 2012/13 2015 4.0

3.5 Ni-MH
Sanyo 1,000 300 3.0
LiB
GS Yuasa 1,300 600-650 2.5 price decline accelerated

at year 2-4
2.0
AESC 1,300 650 300
1.5
LG Chemical 900-1,000 1.0
0.5
BYD 500 200-300
0.0
BAK 400 200 0 5 10 Year
Source: J.P. Morgan based on interview with companies. Source: J.P. Morgan
Note: Year 0 is 1993 for NiMH, 1995 for LiB
64
Rechargeable Battery
Lithium polymer battery capacity share (FY10E) Lithium battery shipment share (FY10E)
% %
Sanyo, 20%
Others, 27%
Sony, 12%
BYD, 7%
LG Chem, Samsung
15% SDI, 20%
Lithium battery cost structure Lithium battery raw material cost breakdown
% %
65
Rechargeable Battery
Anode market share (FY10E) Cathode market share (FY10E)

% %
Separator market share (FY10E) Electrolyte market share (FY10E)

% %
66
LED market outlook
Price Market cap P/E(x) P/B(x) ROE(%)
Company Ticker Rating
(LC) (US$ B) FY11E FY12E FY11E FY12E FY11E FY12E
SSC 046890 KQ NR 43,500 2.3 17.6 12.4 3.6 2.8 22.8 24.8
LG Innotek 011070 KS NR 115,000 2.1 15.4 8.9 1.5 1.3 10.6 16.4
SEMCO 009150 KS N 118,000 8.3 19.4 17.4 2.3 2.0 12.2 11.6
Cree CREE US OW 46.44 4.9 30.8 21.6 2.5 2.1 na na
Epistar 2448 TT OW 109.0 3.2 13.1 12.2 1.9 1.8 14.6 14.7
Ev erlight 2393 TT N 84.5 1.2 13.4 12.6 2.1 2.0 16.0 16.1
Source: Bloomberg for NR companies, J.P. Morgan estimates. *Note: Share prices as of April 7, 2011
67
LED: Market review
- Hyper earnings growth witnessed in 2010 but……
LED chip makers and packagers with LED TV exposure a saw sharp growth in both top / bottom lines during 2010 thanks
to Samsung’s push for LED TV
However, margin expansion for LED chip makers was short-lived due to over-capacity. LED chip makers added
excessive capacity during 1H10 on TV makers optimistic guidance. Looking back, the LED TV cycle benefitted MOCVD
and ingot makers.
SEMCO’s S-LED OPM trend MOCVD and ingot makers margin trend
Source: Company data, J.P. Morgan.
LED makers’ revenue growth in FY10 LED TV shipment targets by TV makers

US$ in millions Units in millions
300%
250%
200%
150%
100%
50%
0%
2009 2010
Epistar Everlight Cree S-LED LG Innotek SSC
Source: Companies, DisplaySearch, J.P. Morgan estimates.
Source: KDIA, DisplayBank, J.P. Morgan estimates.

68
LED: Market outlook
- Cost reduction, cost reduction and cost reduction
Panel makers are attempting to lower LED BLU cost by reducing the number of LED chips per panel along with:
Reducing number of LED bars, and enhancing aperture ratios and increasing light transmission rate.
The primary source of LED BLU price reductions will mainly come from Edge-type development from 4 light bars to 2 light
bars or 1 light bar. Reducing 4 light bars to 2 light bars will reduce the number of LED chips used by nearly 30%.
Reducing 2 light bars to 1 light bar will reduce the number of LED chips used by another 20% and lower the LED BLU costs
by 15-20%.
Such efforts leave LED makers with homework to reduce cost and improve efficiency of LED chips. As a result, LED makers
are adding more MOCVD and migrating to larger size wafer; i.e., better scalability.
Progress in low cost LED BLU
Source: Companies, DisplaySearch, J.P. Morgan estimates.
69
LED: Low utilization remains a key concern…
- Low utilization; a major side effect from 1H10 capacity expansion spree..
We are concerned about LED makers with heavy BLU exposure as we expect their utilization to remain lower than
normal level during 2011E.
Our concerns on production utilization stem mainly from:
Ongoing MOCVD equipment addition in 2011E
Increasing production conversion to 6" wafers from 2" and 4" wafers
- Limited revenue contribution from general lighting

Korean LED makers are targeting higher general lighting market exposure this year at ~10% of total revenue.
Unless we are assuming sharp pick up in LED TV demand, 2011E could be another tough year for Korean LED makers
MOCVD General lighting revenue contribution in 11E

Units %
2000 40%
34%
1500 30%
30%
1000
500 20%
13%
0 10% 10%
10%
2008 2009 2010E 2011E
Nichia TG SEMCO LG Innotek Seoul Opto

0%
Epistar ForEpi Huga Others Epistar Everlight SEMCO LG Innotek SeoulSemi
Source: Company data, J.P. Morgan estimate Source: J.P. Morgan estimate
70
LED: Margin outlook
- Margin pressure clouds 1H11 outlook
Margin pressure on LED component makers may intensify in 1H11, mainly due to margin contraction from set/panel makers
From 4Q10 to end of 2Q11, we forecast LED BLU selling prices to decline by 15-20% for 32-inch and 42-inch LED TVs
LED component costs account for 40% of the LED BLU BOM costs, which represent 40% of the LED TV panel cash costs and
are the biggest portion in TV panel costs
42” FHD LED TVs BLU bill of materials
Source: Display Search, J.P. Morgan
71
LED: ASP outlook
- Meaningful LED BLU price drops in 4Q10 and 1H11
We believe TV LED BLU selling prices will decline by an average of 5-7% Q/Q in 4Q10 and 1H11, whereas NBPC and Monitor's
LED BLU selling prices are expected to decline by approximately 3-5% per quarter.
These developments by panel makers are targeted to reduce BOM costs, by lowering LED content on absolute terms.
LED BLU selling price - TV LED BLU selling price – NBPC & Monitor
US$ US$
Source: DisplaySearch Source: DisplaySearch.
LED BLU selling price Q/Q % - TV LED BLU selling price Q/Q % – NBPC & Monitor
% %
Source: DisplaySearch Source: DisplaySearch
72
LED: LED lighting industry
- LED lighting is in early adoption stage
LED lighting market is still in the early stage and with 5% penetration rate in overall lighting market in 2010.
We look for a 6% CAGR for the Lighting industry over the next 5 years, as a positive mix and adoption of LED drive the light
source business
- LED lighting market to play major roles in the eventual revenue level in 2012
We believe LED lights will represent 5-10% of all bulbs replaced in ‘12 with an associated revenue opportunity of $5-$19bn.
We expect lighting users with high energy or maintenance costs to be first adopters.
Energy efficiency subsidies, the availability of regionally certified (such as Energy Star) LED lighting products, as well as the
diversity of products available, will likely play major roles in the eventual revenue level in 2012.
Annual volume of light bulbs/LED modules Annual sales of light bulbs/LED models
Units in millions US$ in millions

Source: J.P. Morgan estimate
73
LED: Early mover advantage
- High entry barrier for LED lighting industry
We expect LED chip and module manufacturing to become scale driven, cyclical and in the longer term commoditizing business not
suitable to the late entrants in the market.
The Lighting industry overall is likely to become more competitive with increased pressures on returns, particularly post 2015
Near-term growth looks best at Siemens.
- Philips is best positioned in LED lighting space

Philips is the only vertically integrated traditional and LED Lighting company; it is best positioned to develop LED lighting solutions.
- Cost and performance main drivers for fast adoption

Current high end LED lamps can produce 120/130 lumen per watt, a better ratio than fluorescent lamps, the previously most
efficiency traditional lighting technology.
Cost per lumen has been falling at around 20% per annum, i.e. an LED costs 10x less per decade per one unit of light it emits.
Philips Lighting growth model to 2020 (€ mn) Light output per LED accelerated from its long term trend
€ mn Logarithmic scale

Source: Roland Haitz & Lumileds
74
Disruption analysis after the earthquake
75
Japan Earthquake: Semiconductor supply chain
- BT Resin: High tightness expected
According to our checks, Mitsubishi Gas Chemical (MGC) is the sole supplier for BT resin, and has a patent on the compound.
We believe the impact of BT resin shortage would not only be limited to the substrate and OSAT side, but spread across the
entire semiconductor food chain with an indirect impact on foundries and all related handset/smartphone vendors.
Korean players such as SEMCO, LG Innotek and Daeduck have also expressed concern about potential shortages of BT resin.
- Silicon wafers: We expect medium tightness in supply

Shin-Etsu and SUMCO accounted for 32% and 29%, respectively, of global supply of 300mm wafer in 2010.
Shin-Etsu’s Shirakawa has received mechanical damage from the earthquake while SUMCO’s Yonezawa plant and MEMC’s
Utsunomiya plant are also currently suspended.
In our view, the wafer shortage may not be an immediate issue since semiconductor makers typically have one to two months’
inventory as backup, plus they can source from other wafer makers outside Japan, such as MEMC and Siltronics.
But if the power supply issue in Japan cannot be resolved within one month, potential supply-chain disruption could happen
more seriously and broadly.
- Ceria-based CMP slurry: medium tightness expected; further clarity awaited

We believe Hitachi Chemicals (HC), Cabot Microelectronics, Showa Denko and KC Tech are the key ceria-based CMP slurry
suppliers in the world.
According to our checks, HC likely commands 50%-60% share in the global ceria-based CMP slurry market, while KC Tech
caters to around 30%-40% of Korean CMP slurry demand originating from key customers such as Samsung and Hynix.
Ceria-based CMP slurry supply would experience a shortage, given the suspension of operations at HC, yet the impact for
chipmakers may not be across the board since CMP slurry has its exclusive business engagement, similar to photo resist.
- Photo resist: Low tightness expected

Photo-resist, or DUV, is a coating material primarily applied over silicon wafers before they go through light exposure.
Though we again identify ShinEtsu as the key Japanese player for global photo-resist supply, we are less concerned about
photo resist than other materials mentioned here, given ShinEtsu’s plant being located far from the earthquake’s epicenter.
76
Potential impact from Japan earthquake
Recent quakes and tsunamis in Japan have caused panic operations in the semiconductor food-chain, as Japan dominates in supply of
some key materials. We identify four specialty chemicals as shown below which may see shortage, if production cannot resume before
existing inventories deplete.
BT resin supply looks to be the biggest worry, since inventory on hand may not be sufficient enough to cover the time needed for
operation recovery in Japan, and applications for BT-based substrates are broad, including mobile communications and tablet PCs.
MGC - the key vendor controlling some one half of the global BT resin supply, could see recovery prolonging on three infrastructure
issues – power deficit, nuclear radiation and transportation.
Status of key material supply to the SCM sector

Key material Inventory Supply tightness Key supplier Food chain player potentially impacted
Status High Medium Low Japan Non-Japan
Silicon wafer 1-2 months X ShinEtsu, SUMCO MEMC, Siltronics Memory makers such as SEC, Hynix and Toshiba
Foundries such as TSMC, UMC and SMIC
DUV 1-2 months X ShinEtsu, TOK Dow Chemical, JSR Memory makers such as SEC, Hynix and Toshiba
　　　　　 Foundries such as TSMC, UMC and SMIC
BT resin* c. 1 month X Mitsubish Gas Chemical Nanya Plastics Substrate makers such as Kingsus, Nanya PCB and Unimicron
Hitachi Chemical Sumitomo Bakelite OSAT such as ASE, Amkor and SPIL
Doosan Electro Materials Handset makers
Matsushita, LG Chemcials Foundries (indirect impact)
E679/FR5 1-2 months X Hitachi Chemical Nanya Plastics Substrate makers such as Kingsus, Nanya PCB and Unimicron
OSAT such as ASE, Amkor and SPIL
CPU and GPU makers
Foundries (indirect impact)
CMP slurry 1-1.5 months X Hitachi Chemical Cabot Microelectronics LCD driver makers such as Novatek and Himax
Showa Denko KC Tech OSAT such as Chipbond
Panel makers such as SEC, LGD, AUO and CMI
ACF 1-1.5 months X Hitachi Chemical 3M LCD driver makers such as Novatek and Himax
Sony Chemical OSAT such as Chipbond
Panel makers such as SEC, LGD, AUO and CMI
Source: J.P. Morgan estimates. * including BT-like resins.
77
Appendix – semiconductor production process flows
Source: J.P. Morgan.
78
Japan Earthquake: Display supply chain
- ACF (anisotropic conductive film): Low tightness
ACF is primarily used to glue circuits and other key components onto a LCD substrate and is currently employed by almost all
the panel makers for notebooks, monitors, TV and handsets.
According to our checks, Hitachi Chemical’s ACF plant is reported to have received minor architectural damage.
Given supply has already resumed at HC and the positive news flow regarding normal operations at Sony Chemical, we expect
little material impact on ACF supply into the global LCD supply chain
- Glass manufacturers: No material impact for electronic glass

According to Bloomberg, there has not been any critical damage reported for Asahi’s glass LCD manufacturing facility located in
Japan, and the production lines are operating smoothly.
However, the company does identify architectural impact to some of its outsourcing facilities handling a proportion of its
processing operations, but factors in limited impact to its small/mid-sized LCD glass substrates and overall flat panel display
(FPD) business.
Another major glass maker, Corning, also confirmed no material architectural and production impact on its glass-making
operations located in Japan.
- Driver ICs
Our recent checks with Himax and Orise Tech indicate healthy driver IC inventory levels, however, they reiterate near-term
concerns over possible tightness in ACF and 300 mm wafer supply, given more-than-expected delay in the restoration of power
at manufacturing facilities in Japan.
Having said that, we believe large IC makers would still be able to exercise their bargaining power to secure stable raw material
supply, while some supply side disruptions could be felt for fabless companies having high exposure to relatively small
customers.
79
Japan Earthquake: PC and tablet supply chain
- PMIC (power management IC): High tightness
On the PMIC front, we believe Seiko to be a key player, and a principle PMIC supplier for Apple’s iPad food chain.
Given the redesigning of the product and longer qualification time, we believe Seiko PMIC will be harder to replace and could
have an appreciable impact on Apple's (iPad) supply chain in the near term
- HDD motor driver IC: Shortage expected in early June

Increasing concerns are being echoed across the PC supply chain regarding disruption of operations at TI’s Miuara factory.
Miuara’s plant facilities have received architectural damage and we believe it might take some time to restore the operations.
- Aluminum substrate: Recent data-points indicate low tightness

Kobelco and Furukawa are the two key players for aluminum substrate manufacture with M/S of 60% & 40%, respectively.
Newsflows indicate restoration of normal operations at Furukawa’s plant, while Kobelco is to have completed the provisions.
Moreover, our checks indicate more than one month of inventory levels at major substrate makers such as Toyokouhan. Hence,
we believe aluminum substrate supply to be relatively stable.
- ODD: Not much impact

We assume limited impact on ODD supply; Though we hear Sony’s ODD plant is being affected, we clarify that Sony has at
least two plants doing pickup heads, and the one being affected is a much smaller plant.
- Rechargeable batteries
Polymer batteries to experience meaningful tightness due to the high exposure to Japanese anode material
Limited impact to be felt on low-capacity cylindrical/prismatic batteries
- PCB
High tightness in FC-CSP substrate, low tightness in HDI/Conventional
- Electrolytic capacitors
Medium-term tightness expected for power supply vendors for players having significant exposure to Chemicon
80
Company overviews
Price ADR Price Market cap P/E(x) P/B(x) ROE(%) Dividend yield Earnings
(LC) (US$) target (US$ B) FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E CAGR (3yr)
SEC 005930 KS 909,000 420.0 950,000 N 122.8 11.5 10.0 1.5 1.3 14.2 14.2 1.7 1.7 17%
LGE 066570 KS 103,000 na 150,000 OW 13.7 12.6 7.3 1.3 1.1 10.8 16.4 3.6 3.6 -1%
OCI 010060 KS 512,000 na 530,000 OW 10.9 12.8 11.5 4.3 3.3 39.2 32.3 1.1 1.3 38%
SDI 006400 KS 172,500 na 220,000 OW 7.2 22.8 19.8 1.4 1.3 6.0 6.5 1.0 1.0 24%
LGD 034220 KS 37,000 16.9 50,000 OW 12.1 12.6 7.8 1.1 1.0 9.1 13.1 1.5 1.5 14%
Hy nix 000660 KS 32,000 na 25,000 N 17.3 14.7 11.7 2.0 1.7 14.6 15.8 0.0 0.0 -268%
SEMCO 009150 KS 118,000 na 115,000 N 8.1 19.4 17.4 2.3 2.0 12.2 11.6 1.0 1.3 22%
Cheil 001300 KS 114,000 na 80,000 UW 5.2 19.1 16.8 2.8 2.5 10.9 11.0 0.6 0.9 39%
Source: Bloomberg, J.P. Morgan estimates. *Note: Share prices as of April 7, 2011
81
Samsung Electronics (005930 KS)
Neutral; PT: W950,000; Share price: W908,000
Won in billions, Year-end December
FY09 FY10 FY11E FY12E GDR
Sales 136,324 154,630 164,051 181,998 52-w eek range W1,014,000-735,000 Reuters 0593x q.L
Operating profit 10,925 17,297 14,723 16,790 Market cap W133,748B Bloomberg SMSN LI
Net profit 9,761 16,147 13,786 15,671 Market cap US$122,896MM 52-w k range US$ 453.90-285.0
EPS (KRW) 57,015 94,318 80,531 91,539 Shares 147MM Ratio 1:2
Cash 20,884 22,480 20,374 22,738 Free Float 75% Av g daily v ol. 52,649
ROE (%) 14.6 19.9 14.4 14.2 Av g daily v alue W385.9B GDR premium 2.6%
P/E (x ) - Incl. preferred 15.9 9.6 11.3 9.9 Av g daily v alue US$354.6MM
BPS (KRW) 426,684 521,921 598,103 689,643 Av g daily v ol. 0.4MM shares
EV/EBITDA (x ) 7.6 5.9 5.9 5.2 Index KOSPI 2122.79
Div y ield (%) 1.4 1.7 1.7 1.7 Ex change rate W1,088/US$1
Quarterly EPS (KRW) 1Q 2Q 3Q 4Q Date of price 7-Apr-11
EPS (FY10) 23,329 24,983 26,025 19,980 Price target W950,000
EPS (FY11)E 15,877 18,530 22,361 23,763 Consensus PT W1,210,000
EPS (FY12)E 18,022 21,163 26,851 25,503 Difference -21%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Note: Share price as of 7 April, 2011
- Key drivers: - Risks:

Memory (esp. DRAM) is likely to be a key swing factor A sudden and substantial recovery in the global
economy
Oversupply in DRAM appears to be inevitable
Sudden changes in DRAM and LCD prices
Share price will likely be range-bound
Higher-than-expected end-demand for PCs, handsets,
and TVs
Further memory price increase
82
SEC: Sales and OP by division
- Our consolidated earnings model indicates that SEC should have more balanced
earnings for 2010 to 2012
Sales portion by division Sales trend by division
% Won in trillions
70
100%
60
80% 33% 35% 36% 34% 33% 32%
50
60%
28% 29% 27% 25% 26% 26% 40
40% 30
18% 18% 18% 18% 18%
18%
20% 20
21% 19% 19% 23% 23% 23%
0% 10
2007 2008 2009 2010 2011E 2012E
2007 2008 2009 2010 2011E 2012E
Semiconductor TFT-LCD Telecommunication Digital Media
DM Telecom LCD Semicon
OP portion by division OP trend by division

% Won in billions
100% 8% 7% 8% 10,800
14% 3%
26% 25% 9,000
80% 33% 29%
33% 52% 12% 7,200
60% 35% 12%
9%
5,400
40% 25%
21% 60% 3,600
51% 50%
20% 41%
28% 1,800
0% 18%
0% 0
2007 2008 2009 2010 2011E 2012E 2007 2008 2009 2010 2011E 2012E
DM Telecom LCD Semicon Semicon LCD Telecom DM
83
SEC: Quarterly earnings trend
-Memory operation is likely to remain one of the biggest swing factors

We estimate SEC’s earnings have already peaked in 3Q10 on the back of ongoing margin expansion in DRAM business, and
are likely to trend until 1Q11 at least, owing to a significant decline in DRAM and NAND prices.
Among its major operations, memory operations should be a key swing factor for its earnings momentum in the next couple
of quarters, while other businesses are likely to remain relatively less volatile, in our view.
Although we do not expect the memory market to show a meaningful correction in 2011, momentum is likely to significantly
slow down in 4Q10.
SEC- Earnings trend by key operations SEC- Quarterly earnings trend

Won in billions, year-end December Won in billions, year-end December
3,600 4,000
3,000 3,500
2,400 3,000
2,500
1,800
2,000
1,200 1,500
600 1,000
0
500
0
-600 -500
2Q10 4Q10 2Q11E 4Q11E 2Q12E 4Q12E
3Q09 2Q10 1Q11E 4Q11E 3Q12E
Memory TFT-LCD Telecom DM Memory TFT-LCD Telecom DM
Source: J.P. Morgan estimates, Company data Source: J.P. Morgan estimates, Company data
84
SEC: Memory earnings contribution
- DRAM OP contribution
In 3Q10, DRAM OP contributed 52% of total OP. However we believe the proportion to significantly decline from 4Q10 given
our expectation of a meaningful ASP decline
SEC’s total OP is highly dependent on DRAM prices; we expect DRAM prices to show a Y/Y decline from 4Q10, and the
trend is likely to continue into 2011. This is why we expect earnings momentum to slow down since 3Q10
- NAND earnings contribution

For NAND, its earnings contribution is likely to continue to increase in the near term, largely driven by the decreasing
contribution from other businesses.
SEC - DRAM OP and % of total OP SEC – NAND OP and % of total OP

Won in billions, % Won in billions, %
3,000 60% 1,000 30%

2,500 52% 50% 27%
800 25%
2,000 42% 40% 22%
38% 20%
20%
600 18% 18%
1,500 29% 30% 16% 15% 16% 15%
24% 25% 23% 26% 25%
23% 21% 20% 400 13% 14% 14%
1,000 21% 11% 10%
500 10% 200 5%
0 0% 0 0%
1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
DRAM operating profit DRAM OP as a % of total OP (RHS)

NAND operating profit NAND OP as a % of total OP (RHS)
Source: Company data, J.P. Morgan estimates
85
SEC: Share price correlation
- Share price correlation

Contrary to the market’s expectations, we forecast limited DRAM price recovery in 2H11, given our in-house assumptions of a gloomy PC
demand outlook in 2011.
Moreover, mDRAM continuation to SEC's OP would be much diluted than the consensus expectations, in our view. Hence, given ‘hyper’
market expectations for all divisions, we cautiously expect there could be downside risk to consensus earnings.
SEC share price versus OP Y/Y growth SEC share price versus OP Q/Q growth
Won, % Won, %
Source: J.P. Morgan estimates, Company Reports Source: J.P. Morgan estimates, Company Reports.
86
SEC: Memory prices vs. share price
- DRAM and NAND prices vs. share price

Like Hynix, as we indicated in our Hynix report on 18 January, 2011, its share price used to move in-line with DRAM prices while its
DRAM contribution to its total OP is much lower than that of Hynix.
From late-lat year, however, its share price and DRAM prices started to diverge and the stock began to move along with NAND prices
despite NAND contribution to its total OP is still lower than that of DRAM.
DRAM price vs. Share price trend NAND price vs. Share price trend
US$, Won US$, Won
3.5 1,100,000 17 1,100,000
3.0 15 1,000,000
900,000 13
2.5 900,000
11
2.0 800,000
700,000 9
1.5 7 700,000
1.0 500,000 5 600,000

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
64G NAND SEC (RHS)
1Gb DDR3 Spot price SEC (RHS)
87
SEC: DS - Semiconductor division (DRAM)
- DRAM business
According to management’s estimates, DRAM demand will likely remain weak in 1Q11 due to seasonality.
The oversupply in DRAM market will persist in 1Q11, as a result of weak seasonal demand as well as increase in supply.
Management views that the falling DRAM prices and launch of new CPU will translate into the growth in PC contents per box.
SEC expects the industry to post about mid single % Q/Q bit shipment growth in 1Q11 while guiding mid 10% Q/Q bit
shipment growth for SEC’s DRAM for during the same period.
SEC projects DRAM ASP to fall by mid-20% Q/Q for 1Q11.
For full-year 2011, management expects SEC’s DRAM bit shipment to reach +60% Y/Y with ASP declining mid-40% Y/Y.
SEC expects industry bit shipment growth will be low 40% Y/Y for 2011.
DRAM business
Units in millions (1Gb equivalent), Won in billions, US$, year-end December
1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2010E 2011E 2012E
Sales (W billion) 3,474 3,679 4,055 4,199 4,157 4,321 4,662 4,908 17,128 15,406 18,048
Unit shipments (1Gb equiv.) 1,849 2,062 2,392 2,607 2,868 3,241 3,759 4,210 5,467 8,910 14,078
Sequential change, % 15% 12% 16% 9% 10% 13% 16% 12% 72% 63% 58%
Blended ASP (1Gb equiv.), US$ 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 2.7 1.5 1.1
Sequential change, % -23% -5% -5% -5% -10% -8% -7% -6% 15% -43% -26%
Total cost, US$ 1.3 1.2 1.2 1.1 1.0 1.0 0.9 0.8 1.6 1.2 0.9
Cash cost, US$ 1.0 0.9 0.9 0.9 0.8 0.7 0.7 0.6 1.2 0.9 0.7
Operating profit 693 832 939 909 833 867 1,064 1,163 7,068 3,373 3,928
OP margin (%) 20% 23% 23% 22% 20% 20% 23% 24% 41% 22% 22%
Cost reduction, Q/Q
Total cost -13% -8% -6% -3% -8% -8% -10% -7% na na na
Cash cost -16% -6% -5% -3% -8% -8% -9% -6% na na na
Cost reduction, Y/Y
Total cost -28% -25% -18% -27% -23% -23% -27% -30% -26% -24% -26%
Cash cost -26% -24% -18% -27% -20% -22% -26% -28% -22% -24% -24%
Source: J.P. Morgan estimates, Company data
88
SEC: DS - Semiconductor division (NAND)
- NAND business
SEC management expect 2xnm portion to increase 70% or above by end of 2011 (vs. 3xnm 70%+ in 2010 end).
Management is more focused on profitability and embedded market with increasing designing activity.
In 1Q10, NAND demand for smartphones, tablet PCs and SSDs will be continue to be robust.
Management guided that SEC’s NAND bit shipment will grow by a 30% or higher rate Q/Q in 1Q11.
SEC estimates NAND ASP to decrease by a high-single % rate Q/Q for 1Q11 due to seasonal demand pullback.
In 2011, SEC foresees low 20% level bit shipment growth the industry and SEC is targeting higher than market growth.
SEC anticipates that its NAND ASP will decline by mid 30% level Y/Y for 2011.
For the NAND geometry mix, SEC aims 2xnm-and-below portion to reach above 80% of total NAND by end of 2011.
NAND business
Units in millions (8Gb equivalent), Won in billions, year-end December
(8Gb equivalent) 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2010E 2011E 2012E
Sales (W billion) 2,324 2,343 2,362 2,429 2,388 2,479 2,811 2,910 8,088 9,458 10,588
Unit shipments (8Gb equiv.) 1,297 1,453 1,627 1,839 2,078 2,452 3,089 3,552 3,332 6,215 11,170
Sequential change, % 34% 12% 12% 13% 13% 18% 26% 15% 63% 87% 80%
Blended ASP (8Gb equiv.), US$ 1.6 1.4 1.3 1.2 1.0 0.9 0.8 0.7 2.1 1.4 0.8
Sequential change, % -8% -10% -10% -9% -13% -12% -10% -10% -18% -35% -38%
Total cost, US$ 1.1 1.0 0.9 0.9 0.8 0.7 0.6 0.5 1.7 1.1 0.7
Cash cost, US$ 0.7 0.6 0.6 0.5 0.5 0.4 0.3 0.3 1.0 0.6 0.4
Operating profit 754 725 663 649 568 602 878 942 2,268 2,791 2,990
OP margin (%) 32% 31% 28% 27% 24% 24% 31% 32% 28% 30% 28%
Cost reduction, Q/Q
Total cost -20% -8% -6% -7% -9% -13% -18% -11% na na na
Cash cost -19% -9% -6% -7% -10% -14% -17% -11% na na na
Cost reduction, Y/Y
Total cost -40% -35% -35% -36% -28% -31% -40% -43% -35% -39% -37%
Cash cost -38% -36% -37% -36% -29% -32% -40% -43% -28% -37% -37%
89
SEC: DS – TFT LCD division
- TFT-LCD business
SEC management expects continued price decline in 1Q followed by a rebound in 2H while expecting panel demand to see
a gradual pick up from 2Q. 1Q panel shipment to see mid single % growth Q/Q and ASP to see a small increase Q/Q
For TV panels, Chinese New Year demand seems healthy but US/EU demand is weak in 1Q.
For IT panels, 1Q demand should be flat Q/Q and expects the soft demand trend to continue. SEC mgmt plans to focus on
premium products while focusing on cost reduction.
For the whole year, LCD panel ASP will see a mid-high single digit% price decline YoY
TFT-LCD division
Won in billions, unit in millions, year-end December
1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2010 2011E 2012E
Sales (W billion) 6,759 7,305 8,374 8,893 8,132 8,693 9,624 9,197 29,912 31,331 35,646
Total shipments 40 42 46 48 46 49 54 52 151 176 200
NBPC 19 20 21 22 21 22 24 24 61 81 91
Monitor 9 10 10 10 9 10 11 10 40 38 41
TV 12 13 15 17 16 17 19 18 50 56 68
LED TV portion, % 40% 50% 60% 70% 80% 85% 90% 90% 23% 57% 87%
Blended ASP (US$) 153 155 163 165 159 159 161 158 171 159 159
Sequential change, % -1.0% 1.9% 5.1% 0.7% -3.6% 0.3% 1.0% -1.5% 8.6% -7.0% 0.0%
Operating profit -160 125 562 835 282 431 792 477 1,992 1,361 1,982
OP margin (%) -2.4% 1.7% 6.7% 9.4% 3.5% 5.0% 8.2% 5.2% 6.7% 4.3% 5.6%
Cost/panel 156 153 152 149 153 151 148 150 160 152 150
Q/Q change, % 3 (2) (0) (2) 3 (1) (3) 2
Y/Y change, % (2) (3) (11) (2) (2) (1) (3) 1 12 (5) (1)
90
SEC: DMC - Telecommunication division
- Telecommunication business
For 1Q11, SEC projects handset market to see an overall demand slowdown while smartphone competition is expected to
be fierce.
According to management, 2nd generation Galaxy S is scheduled to be launched in 1H11 (dual-core processor + Super
AMOLED).
Management indicated that the company will also focus on telecom equipment on the back of LTE (4Q) network build-out.
SEC plans to take leadership in LTE equipment segment by fully utilizing synergy between devices and the network.
Handset market should grow by high-single % Y/Y in 2011 and SEC is targeting above market growth this year.
Telecommunication division
Units in millions, Won in billions, year-end December
Sales (W billion) 9,917 10,316 11,198 11,734 10,680 11,497 12,306 13,024 38,151 43,164 47,508
Handset shipments (mn) 70 73 79 80 77 81 87 89 280 302 333
Q/Q amd Y/Y change, % -13% 4% 8% 2% -4% 5% 7% 3% 23% 8% 10%
Smartphone shipments 13.0 14.5 16.0 17.5 16.0 18.0 20.0 23.0 24 61 77
% of total 19% 20% 20% 22% 21% 22% 23% 26% 9% 20% 23%
Blended ASP (US$) 126 126 127 131 125 127 127 131 118 128 128
Q/Q and Y/Y change, % 3% 0% 1% 3% -5% 2% 0% 3% -1% 8% 0%
Operating profit 1,213 1,053 1,191 1,250 1,006 1,152 1,280 1,395 4,203 4,708 4,833
OP margin (%) 12% 10% 11% 11% 9% 10% 10% 11% 11% 11% 10%
91
SEC: DMC - Digital media division
- Digital Media business
SEC management expect strong LED TV and 3D TV demand in 2011 while foreseeing ASP decline due to severe price
competition in LCD TV (CCLF lit) areas.
Further focus on improving 3D TV glasses to boost 3D TV sales.
Home appliance market is expected to grow by 5% Y/Y in 2011.
SEC will continue expand its distribution channel and global production sites.
Digital Media division

Won in billions, unit in millions, year-end-December
Total sales 12,981 14,291 14,895 16,176 13,866 15,311 15,767 17,457 57,257 58,344 62,401
DM sales (W billion) 10,264 10,804 11,430 12,909 11,014 11,650 12,128 14,027 45,497 45,408 48,818
TV sales 5,587 6,082 6,598 8,143 6,286 6,819 7,373 9,098 27,038 26,411 29,577
% of DM sales 54% 56% 58% 63% 57% 59% 61% 65% 59% 58% 61%
LCD TV shipments 8 9 10 13 9.5 10.5 11.5 14.5 34 39 46
Q/Q, Y/Y change, % -28% 13% 8% 29% -24% 11% 10% 26% 25% 15% 17%
LCD TV ASP (US$) 520 517 532 530 524 519 517 514 572 525 518
Q/Q, Y/Y change, % 0% -1% 3% -1% -1% -1% -1% 0% -12% -8% -1%
HA sales (W billion) 2,717 3,487 3,465 3,267 2,853 3,661 3,638 3,430 11,760 12,936 13,583
Operating profit 104 286 372 324 208 383 473 314 484 1,086 1,378
OP margin (%) 0.8% 2.0% 2.5% 2.0% 1.5% 2.5% 3.0% 1.8% 0.8% 1.9% 2.2%
92
SEC: Share price trends
- Share price expectation

Despite robust earnings, the stock has moved sideways over a year due to lack of earnings momentum and high market expectations.
Although we believe the current stock price is not demanding from a valuation standpoint, share price appreciation is likely to be limited,
given still high consensus earnings. Hence, we believe the stock will remain range-bound for a while.
However, if the stock shows some correction, we recommend investors accumulate the stock, given a well-diversified product portfolio
and ongoing market share gains in respective markets.
We maintain our Neutral rating with P/BV based Dec.-11 PT of W950,000.
12-month forward P/B bands with ROE 12-month trailing P/B bands with ROE
Won, x Won, x
93
SEC: Share price trends
- SEC vs. KOSPI

Given the largest constituent of KOSPI in terms of market cap, SEC’s stock price movement significantly influences the index’s performance.
However, since early-3Q10 to date, SEC’s share price has underperformed the KOSPI.
We believe the concerns over the company's muted top-line growth and lack of earnings momentum, given eroding component prices,
translated in the prolonged side-ways stock-price movement, while the other sectors in the KOSPI continued to surge, given the hype about
meaningful earnings contribution from new businesses and the robust earnings momentum.
- YTD share price performance

YTD, we have seen SEC's stock price move in-tandem with the index, largely due to improving investor sentiment, given growing
expectations of a meaningful recovery in DRAM prices in 2H11, along with extremely bullish stance on mobile DRAM, though some recent
share price correction has been witnessed largely due to concerns over possible supply-side disruptions post Japan’s earthquake, which
could impact set demand.
SEC versus KOSPI (since Jan, 2010) SEC versus KOSPI (YTD)
Jan 2, 2010 = 100 Jan 1, 2011 = 100
Source: Bloomberg, J.P. Morgan. Source: Bloomberg, J.P. Morgan.
94
SEC: Quarterly earnings model
Won in billions, year-end December
Source: J.P. Morgan estimates, Company Report
95
Hynix Semiconductor (000660 KS)
Neutral; PT: W25,000; Price: W31,950
Sales 7,906 12,099 11,150 12,427 52-w eek range W33,000-20,100 Reuters n/a
Operating profit 192 3,273 1,359 1,813 Market cap W18,889B Bloomberg n/a
Net profit -333 2,657 1,290 1,619 Market cap US$17,356MM 52-w eek range n/a
EPS (Won) -578 4,476 2,175 2,730 Shares outstanding 590MM Ratio n/a
Cash 1,518 2,195 1,412 1,660 Free Float 86% Av g daily v olume n/a
ROE (%) -5.8 37.7 14.6 15.8 Av g daily v alue W270.6B Current discount n/a
P/E (x ) na 7.1 14.7 11.7 Av g daily v alue US$248.7MM 13-w k av g discou n/a
BPS (Won) 9,979 13,772 15,942 18,667 Av g daily v olume 9.4MM shares 52-w k av g discou n/a
EV/EBITDA (x ) 7.5 3.3 4.1 3.5 Index KOSPI 2,123
Div y ield (%) 0.0% 0.0% 0.0% 0.0% Ex change rate W1,088/US$1
Quarterly EPS (Won) 1Q 2Q 3Q 4Q Date of price 7-Apr-11
EPS (FY10) 1,386 1,120 1,784 186 Price target W25,000
EPS (FY11E) 304 434 612 824 Consensus W36,000
EPS (FY12E) 645 675 737 674 Difference (%) -31%

Management’s rather positive guidance Sudden and substantial changes in memory prices
Stabilization of DRAM prices due to memory content growth FX changes against US$
Robust NAND demand from smartphones and tablets Overall macro economy
96
Hynix: DRAM business
- Decent performance amid meaningful ASP decline

For 4Q10, Hynix’s DRAM bit shipment grew 18% Q/Q, while ASP faced downward pressure of 29% Q/Q.
According to management, the industry experienced price deterioration, mainly due to:
Accelerating supply growth; and
Weaker-than-expected PC demand in 2H10
During 4Q10, the revenue portion of specialty DRAM accounted for 60% of total DRAM production.
- DRAM business outlook

Hynix foresees DRAM bit shipment will grow at high-single-digit % Q/Q in 1Q11, as a result of migration to 3x nm technology.
Heading into FY11, the company guided that both Hynix and the industry will show mid-40% Y/Y DRAM shipment growth.
Hynix projects blended DRAM price to drop by a high-teens percentage in 1Q11E and expects mid-30% Y/Y decline for FY11.
The company believes the falling DRAM prices will trigger PC memory content growth and increase the memory consumption.
Hynix Semiconductor—DRAM business

Unit in 1Gb equivalent, Won in billions, year-end December
1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2009 2010 2011E 2012E
ASP (US$) 2.9 3.1 2.8 2.0 1.6 1.6 1.6 1.5 1.4 1.3 1.1 1.0 2.1 2.7 1.6 1.2
Seq. change, % 3.0 6.3 -8.5 -29.2 -18.0 -3.5 -1.0 -1.0 -9.0 -9.0 -11.1 -11.0 -17.2 26.0 -40.7 -24.5
Operating cost (US$) 2.0 2.0 1.8 1.7 1.5 1.4 1.4 1.3 1.2 1.1 1.0 0.9 2.0 1.9 1.4 1.0
Cash Cost (US$) 1.4 1.4 1.3 1.2 1.0 1.0 1.0 0.9 0.8 0.8 0.7 0.6 1.3 1.3 1.0 0.7
Cost change, % -3% 1% -7% -6% -12% -5% -6% -6% -7% -8% -11% -9% -36% -6% -25% -27%
Cash cost chg. % -2% 3% -9% -5% -15% -4% -5% -5% -6% -8% -11% -9% -37% -2% -27% -25%
Shipments (million) 713 764 782 919 1,002 1,082 1,179 1,287 1,389 1,546 1,762 1,980 2,307 3,178 4,549 6,677
Seq. change, % 5.6 7.1 2.4 17.5 9.0 8.0 9.0 9.1 8.0 11.3 14.0 12.3 25.4 37.8 43.1 46.8
Sales 2,359 2,726 2,596 2,158 1,929 2,010 2,169 2,343 2,303 2,331 2,363 2,364 6,053 9,839 8,450 9,361
OP 765 985 904 358 133 167 278 405 352 345 346 310 237 3,011 983 1,353
OP margin (%) 32 36 35 17 7 8 13 17 15 15 15 13 4 31 12 14
Revenue per wafer (US$) 1,017 1,158 1,085 941 798 805 851 901 876 878 881 864 602 1,051 840 875

97
Hynix: NAND business
- Robust demand from smartphones and tablets drove shipment growth

Given NAND ASP drop of 12% Q/Q in 4Q10, Hynix’s NAND operating profit showed a substantial decline in 4Q10.
Hynix’s NAND bit shipment increased by 32% Q/Q during the quarter, which was higher than our previous forecast, backed by:
the technology migration; and
stronger-than-expected demand from the customers
- NAND business outlook

Management anticipates that its NAND bit shipment will grow at mid-teens percentage Q/Q in 1Q11, mainly led by the robust
demand for smartphones and tablet PCs.
According to management, Hynix will outgrow the industry with annual NAND shipment growth of more than 100% Y/Y as
compared to the industry bit shipment growth of 80% Y/Y in FY11E.
Hynix expects NAND ASP to show a flattish growth Q/Q in 1Q11E and 30% Y/Y decline for FY11E.
Hynix Semiconductor—NAND business

Unit in 1Gb equivalent, Won in billions, year-end December
1Q10 2Q10 3Q10 4Q10 1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2009 2010 2011E 2012E
ASP US$ (8Gb equiv .) 2.8 2.7 2.0 1.8 1.7 1.6 1.4 1.2 1.1 1.0 0.9 0.8 3.1 2.2 1.5 0.9
Q/Q ASP, % -12.2 -5.0 -23.7 -12.4 -2.0 -8.0 -13.0 -12.0 -10.0 -10.0 -10.0 -10.0 -6 -29.9 -32.9 -36.5
Operating cost (US$) 2.6 2.4 1.7 1.7 1.5 1.3 1.2 1.1 1.0 0.9 0.7 0.7 3.3 2.0 1.3 0.8
Cash Cost (US$) 1.9 1.8 1.2 1.3 1.1 1.0 0.9 0.8 0.7 0.7 0.6 0.5 2.4 1.5 1.0 0.6
Cost change, % -3% -9% -29% -1% -12% -8% -9% -10% -12% -12% -13% -8% -34% -40% -36% -37%
Cash cost chg. % -4% -7% -30% 3% -14% -7% -9% -9% -12% -11% -12% -8% -39% -38% -34% -36%
Shipments (8Gb equiv .) 119 146 208 274 312 350 395 451 525 616 733 822 348 747 1,508 2,696
Q/Q change, % -0.4 22.3 42.5 31.7 14.0 12.0 13.0 14.0 16.5 17.4 19.0 12.2 -15.6 114.9 101.8 78.8
Sales 384 453 500 577 644 664 653 655 687 725 776 784 1,359 1,914 2,616 2,972
OP 26 50 88 60 107 110 84 72 88 107 134 124 -96 223 372 454
OP margin (%) 7 11 18 10 17 16 13 11 13 15 17 16 -7 12 14 15
Revenue per wafer (US$) 827 865 896 985 1,011 893 820 796 834 881 914 895 871 898 872 881
98
Hynix: Business snapshot
- Memory business
We estimate Hynix’s NAND sales and OP contribution to continue to increase on the back of a strong growth in mobile applications as well
as shrinking PC DRAM.
As we have been saying for a while, the bulk of its profit is still driven by the DRAM business.
Although we believe mDRAM is a relatively safe haven in the DRAM space, meaningful supply growth from all DRAM companies could put
pressure on mDRAM prices in 2H11.
Hynix- Sales breakdown Hynix- OP breakdown

%
%
Source: Company data, J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates
99
Hynix: Mobile DRAM market
- Mobile DRAM market likely to continue to grow
We identify mDRAM to be a long-term growth trend in the DRAM industry, which would help reduce the volatility in the DRAM market.
According to our estimates, the global mDRAM market will continue to experience robust revenue growth in the coming years
(+27%/+12% Y/Y in 2011/2012) and command more than 24% of the total DRAM market revenue in 2011, largely propelled by:
Strong demand from smartphones and tablets;
Expectation of resilient mDRAM ASP in 1H11; and
Shrinking PC DRAM market size
- mDRAM ASP to show meaningful erosion in 2H11E

We estimate mDRAM ASP to decline by 20% in 3Q11 followed by another 20% decline in 4Q11
mDRAM revenue trend by quarter mDRAM ASP trend, Y/Y %

US$ per 1Gb equiv., Y/Y
US$ in millions, % (Y/Y)
100
Hynix: Mobile DRAM market
- Hynix and Mobile DRAM
We recognize Hynix as one of the early movers into the mDRAM market, with an estimated M/S of around 18% in 2010 (shipment basis).
Based on our bottom-up analysis, we still expect Hynix to continue to hold the No.2 position in the global mDRAM market, commanding a
shipment share of about 23% and 22% in 2011 and 2012, respectively:
- ASP premium for mDRAM is expected to narrow down considerably in 2H11

Although we believe that an increasing proportion of mDRAM shipments would incrementally benefit Hynix's profitability, our expectations
of declining industry mDRAM ASP premium in 2H11 could continue to spell some concerns on the market’s hyper expectations of
mDRAMs enjoying continued higher margins throughout 2011.
Of note, we expect the ASP premium for mDRAM to narrow to 26% in 4Q11 from an estimated 111% in 1Q11.
Hynix’s mDRAM market share (on shipment basis) mDRAM ASP trend, Y/Y %
US$ per 1Gb equiv., %
Units in millions (1Gb equivalent), %
101
Hynix: Share price analysis
- Divergence between Hynix’s share price and DRAM prices
Hynix’s share price used to move in line with the DRAM prices. Late last year, however, the share price and DRAM prices started to
diverge, and the stock began to move along with NAND prices.
It is worth noting that the Hynix share price is holding up despite the recent weak spot prices and flat contract prices in the midst of a
meaningful spot price increase before the Chinese New Year
- Hynix’s earnings recovery will be limited

We believe Hynix’s OP peaked in 3Q10 and began to trend down in 4Q10.
We expect the earnings momentum to return in 2Q11 at the earliest, but the magnitude of recovery is likely to be limited, based on our
expectation of weak DRAM prices throughout 2011.
Hynix’s mDRAM market share (on shipment basis) Hynix’s share price vs. operating profit
US$, Won Won, OP in W biillions
Source: Company data, J.P. Morgan estimates. Source: Company data, Bloomberg, J.P. Morgan estimates.
102
Hynix: Share price expectation
- Short-term cautious, but less bearish
Hynix is currently trading at 1.9x FY11E book and 14x FY11E earnings, despite a downward trend in ROE and margins.
Although we believe that Hynix can continue to deliver positive earnings, despite a meaningful DRAM price decline, we doubt that its P/BV
multiple can move up to the historical peak level of 2.0x forward book, since the overall memory market is likely to see a sequential decline.
We continue to believe the stock should trade at a mid-cycle valuation, which is 1.5x forward book.
Hynix—12-month forward P/BV bands Hynix—12-month trailing P/BV bands

Won, X, %
Won, X, %
60,000 60% 60,000 60%

12m forward ROE 12m forward ROE
2.8x 40%
50,000 40% 50,000
2.0x 2.0x
20% 20%
40,000 40,000
0% 1.5x 0%
30,000 1.3x 30,000
-20% 1.0x -20%
20,000 20,000
-40% -40%
0.6x 0.5x
10,000 -60% 10,000 -60%
0 -80% 0 -80%
Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11
Source: J.P. Morgan estimates, Company Report Source: J.P. Morgan estimates, Company Report
103
Hynix: Earnings model

104
LG Display (034220 KS)
Overweight; PT: W50,000; Price: W37,500
Won in billions
FY09 FY10 FY11E FY12E ADR
Sales 20,038 25,511 25,571 28,540 52-w eek range W48,100-32,600 Reuters LPL.N
Operating profit 1,010 1,310 1,102 1,884 Market cap W13,311B Bloomberg LPL US
Net profit 1,153 1,116 1,049 1,696 Market cap US$12,231MM 52-w k range US$ 21.59~13.75
EPS (KRW) 3,222 3,119 2,931 4,739 Shares 358MM Ratio 1:2
Cash 3,362 3,271 1,327 1,838 Free Float 56% Av g daily v ol. 1,086,925
ROE (%) 11.8 10.5 9.1 13.1 Av g daily v alue W105.5B Cur. premium -0.6%
P/E (x ) 11.6 12.0 12.8 7.9 Av g daily v alue US$97.MM
BPS (KRW) 28,551 30,802 33,733 38,471 Av g daily v ol. 2.9MM shares
EV/EBITDA (x ) 3.4 3.1 3.1 2.4 Index KOSPI 2,122.79
Div y ield (%) 2% 2% 2% 2% Ex change rate W1,088/US$1
Quarterly EPS (KRW) 1Q 2Q 3Q 4Q Date of price 7-Apr-11
EPS (FY10) 1,813 1,429 627 -749 Price target W50,000
EPS (FY11)E -529 325 1,670 1,465 Consensus PT W45,000
EPS (FY12)E 810 868 1,319 1,742 Difference 11%
Note: Share price as of 7 April 2011.

Robust shipment growth, along with stable blended ASPs Sudden and substantial changes in panel prices
Major cost reduction efforts Recovery in global consumption
Limited downside risk to panel prices
Substantial expansion in LED TV penetration
Mobile display is a new profit center
105
LGD: Double-digit revenue growth likely to continue
- Long-term margins and ROE trend
Due to the meaningful ASP decline and higher depreciation expense, we forecast its OP margins will decline to 4% in
2011 but we continue to believe its ROE will remain relatively robust on the back of the healthy absolute OP level given
robust top-line.
As panel prices begin to stabilize along with ongoing growth in the display business, we expect its overall earnings to
record meaningful recovery in 2012..
LG Display- OP and OP margin trend LG Display—Net profit and ROE trends

W in billions, % W in billions, %
Source: J.P.Morgan estimates, Company Data Source: J.P. Morgan estimates, Company data.
106
LGD: Overall business
- Revenue and cost reduction trend (Y/Y growth)
We estimate its revenue growth (Y/Y basis) to turn into the positive territory from 3Q11 on the back of the seasonal uptick in demand and
cost reduction likely beginning to accelerate from 2Q11 onwards which should help LGD turn around its operation, according to our
estimates..
LG Display—Y/Y revenue and cost reduction change

% change, Y/Y
107
LGD: Cost structure change; decreasing fixed-cost burden
- Depreciation expense as a percentage of COGS is likely to be significantly reduced due to the
increasing portion of TVs
Although we expect the upward trend in its depreciation expense to remain due to the recent capex increase, we forecast a continued
decline in depreciation expense/square meter due to increasing capacity efficiency.
Also, we estimate its depreciation expense as a percentage of COGS will decline to 17% in 2011 from 24% in 2006.
- Cash cost vs. panel prices; IT panels may rebound due to inventory restocking
According to our channel checks, IT panel prices are already showing signs of stabilization since the second half of October and we foresee
an increase in the prices mainly due to the clients’ replenishing of inventory.
Since suppliers are showing willingness to proactively adjust their UT rates to address inventory concerns, we believe the TFT-LCD industry
to become less volatile, going forward.
LG Display—Depreciation expense and % of COGS LG Display—Depreciation expense per sqm.

Won in trillion, % Won in trillion, %
4.5 30 4.5 393 400

3.6 3.8 4.0
377
3.6 3.8
4.0 350
24 25
3.5 2.8 23
3.5
2.8 2.9 2.8 2.8 2.9 300
3.0 20 2.6 2.5
19 20 3.0 2.6 262 2.5 250
2.5
1.8 16 17 16 15 2.5
1.8 200
2.0 13 2.0
165
1.5 10 150
1.5
1.0 108 101
5 1.0 90 91 100
0.5 0.5 50
0.0 -
0.0 -
2005 2006 2007 2008 2009 2010E 2011E 2012E 2005 2006 2007 2008 2009 2010E 2011E 2012E
Depreciation expense [LHS] Depreciation expense as % of COGS Depreciation expense [LHS] Depreciation exp./m2 [RHS]
108
LGD: Mobile display business (1)
- Smartphone display business
We assume that LGD's smartphone display shipment will increase to 60 million units in 2011 from 12 million units in 2010, while its earnings
contribution will rise to 9% in 2011 from merely 2% in 2010.
Smartphone shipments and LGD’s earnings contribution
Won in billions, unit in millions, year-end 31 December

We estimate display products for smartphone to account for as high as 22% of total OP in 2Q11 given depressed earnings in its large size
panel operations. Display's sales contribution is likely to remain in mid-single digit (near-5%), according to our estimates
LGD’s OP and OP sequential change LGD’s OP vs. share price

109
LGD: Mobile display business (2)
- Tablet PC display business
We estimate its tablet PC display shipments to increase to 32 mn units in ‘11 from 10 mn units in ‘10 with low-teenth ASP decline/year.
Given the much higher ASP compared to smartphone, we estimate its earnings contribution to increase to 16% in 2011 from 5% in 2010.
LG Display—Tablet PC shipments and LGD’s earnings contribution

Won in billions, unit in millions, year-end 31 December

Like display for smartphone, its tablet PC display’s earnings contribution is likely to rise to 37% in 2Q11 which implies that earnings
contribution from the mobile display business will account for almost 60% of total OP in 2Q11.
Tablet PC display sales and % of total sales Tablet PC sales and as a % of total OP
110
LGD: 3D TV business
Since LGD’s launch of FPR (film patterned retarder) products in China on December 15, 2010, the company has been trying to differentiate
its 3D with “No Flicker” from SG (shutter glass) type 3D TVs.
Although it is still premature to draw a conclusion on who would be the winner, it is clear that LGD is very aggressive to push its FPR-based
3D TV panels by working with China TV makers such as Skyworth, Konka, and Hisense as well as LGE, Visio, and Toshiba.
LGD targets 3D TVs to account for 30% of LGD's TV panel shipments in 4Q11 and expects the price gap with 2D LED TVs to decline to 10%
to 15%..
LGD’s 3D TV shipments, and as a % of LGD's shipments

Unit in millions
111
LGD: P/E, P/B band charts
- Buy what is in our view the best panel maker
Although we see few near-term catalysts ahead given prolonged delay of panel price recovery, we see limited downside risk to
current share price since it is trading at near-1.0x book value.
Once panel prices begin to move up, LGD will likely show meaningful earnings recovery along with ongoing cost reduction
efforts.
The stock is currently trading at 1.1x FY11E book and 1.0x FY12E book.
- Valuation vs. momentum

Given the already low market expectation and undemanding valuation, we recommend investors to accumulate the stock rather
than trim their position.
Due to the changes in major assumptions, we recently lowered our FY11 and FY12 earnings forecasts and cut P/B-based
(midcycle valuation) Dec-11 PT to W50,000
LGD- forward 12-month P/B LGD- Trailing 12-month P/B
Won, x Won, x
90,000 25% 80,000 2.4x 25%

12m FWD ROE 2.2x
20% 70,000 12m FWD ROE 20%
70,000 15% 1.8x 15%
1.6x 60,000
10% 10%
50,000 1.3x
50,000 1.1x 5% 5%
40,000
0% 0%
30,000 0.6x -5% 30,000 -5%
0.7x
-10% 20,000 -10%
10,000 -15% 10,000 -15%
112
LGD: Earnings model

113
LG Electronics (066570 KS)
Won in billions
Sales 55,491 55,754 60,138 66,412 52-w eek range W130,000-91,400 Reuters N/A
Operating profit 2,834 177 1,115 2,022 Market cap W14,754B Bloomberg N/A
Net profit 2,350 1,282 1,166 2,330 Market cap US$13,623MM 52-w eek range N/A
EPS (Won) - pref. include 14,541 7,346 6,513 13,018 Shares outstanding 145MM Ratio N/A
DPS (Won) 1,750 1,750 1,750 1,750 Free Float 60% Av g daily v olume N/A
Net Debt 4,262 5,164 5,312 4,120 Av g daily v alue W112.9B Current discount N/A
ROE (%) 22.6 9.0 8.7 15.6 Av g daily v alue US$104.2MM 13-w k av g discount N/A
P/E (x ) 7.0 13.9 15.7 7.8 Av g daily v olume 1.MM shares 52-w k av g discount N/A
BPS (Won) 76,778 71,834 77,492 89,655 KOSPI 2,128
EV/EBITDA (x ) 5.2 14.2 9.0 6.1 Ex change rate W1,083/US$1
Quarterly EPS (Won) 1Q 2Q 3Q 4Q Date of price 08-Apr-11
EPS (FY10) 4,189 4,784 42 -1,433 Price Target W140,000
EPS (FY11)E -152 1,697 2,928 2,040 Consensus PT W140,000
EPS (FY12)E 3,266 3,996 3,431 2,324 Difference (%) 0%
Note: Share price as of 8 April, 2011.

Recovery of handset business Upside Risks:
Falling component prices Better than expected handset margins
Turn-around story in core operations Increasing value of LGD
Meaningful recovery expected in 2011 Downside Risk:
Potential margin pressure on its TV operations due to
higher panel prices
114
LGE: Company overview
- Revenue and OP by divisions

Although its sales composition has been constant, LGE’s OP has been highly volatile due to the performance of the handset
business.
In 2010, its MC division dragged down the overall earnings. We estimate its MC division (mostly handset business) to
meaningfully turn around on the back of the new smartphone line-up.
LG Electronics—Sales by division LG Electronics—OP by division

% 100% %
100%
80% 32% 33% 23% 22% 23% 80% 15%
47% 35%
60% 72% 29%
60% 21%
40% 82%
42% 44% 44% 21%
40% 33% 35% 20% 1% 305% 35% 28%
12% 17%
0%
20%
17% 17% 19% 18% 18% -20% -371%
0% -40%
-20% -60%
2008 2009 2010E 2011E 2012E
2008 2009 2010E 2011E 2012E
HA AE HE BS MC Others
HA AE HE BS MC Others
115
LGE: Mobile Communication
- Smartphone ASP and blended ASP

LGE has experienced a double-digit ASP decline in the past two years due to meaningful price pressure on feature phones with
lack of participation in smartphone segments.
Looking ahead at the next two years, we believe the trend will be reversed on the back of the substantial increase in
smartphones at the expense of feature phones. This could drive top-line growth as well as margins, in our view.
LG Electronics—Smartphones and blended ASP trend LG Electronics—Blended ASP and Y/Y change
US$, % US$, Y/Y, %
250 45% 10% 150 200
140 131 8%
39%40% 113 98 107 114 6% 150
200 37% 5%
35% 100
32%
29% 30% 0% 50
150 26% 116 25%
104 112
108 22% 112 113 114 0
103
20% -5% -6% (50)
100 18% 18% -7%
15% (100)
-10%
50 10% -12% (150)
5% -15% -14% -13% (200)
0 0% 2006 2007 2008 2009 2010 2011E 2012E
1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E
Blended ASP [RHS] Y/Y change [LHS]
Blended ASP Smartphone ASP Smartphone portion, % (RHS)
116
- Historical new handset launches and handset margin trend
Historically, LGE delivered an improvement in handset margin with the launch of new flagship handset models.
LGE has three flagship handset models (Chocolate, Viewty, and Cookies), which have sold more than 10 million units.
The company’s handset profit plunged prior to its new handset debuts, but rebounded significantly thanks to a surge in
sales of its new handset line-ups.
Despite the recent profit slump, we estimate LGE’s handset profitability to bounce back with the introduction of new
smartphone models, ranging from low-end to premium segments by year-end.
LGE is targeting to sell 100 million units of its upcoming Optimus One smartphone in 90 countries through 120 operators.
LG Electronics –Flagship handset debuts and handset margin trend

Units in millions, %
40 Cookies phone Smartphones (Optimus 20%

Chocolate phone Viewty phone launched
35 launched series) launched
launched 15%
30 10%
25
5%
20
0%
15
10 -5%
5 -10%
0 -15%
1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
Source: Company data, J.P. Morgan estimates. Total handset shipment OPM, % (RHS)
117
- Key an eye on Optimus 2X and Optimus Black
Following the success of Optimus One, we think LG Electronics’ new flagship models Optimus 2X and Black should
significantly contribute to the potential turnaround of its handset business.
We are hearing positive feedback and encouraging reviews about Optimus 2X. It has been sold through SKT in Jan-11,
and will be launched at global carriers by end-1Q11. Optimus Black, which is a slim and light smartphone, will also be
launched at the end of 1Q11.
- MWC (Mobile World Congress) should provide further progress

During the Consumer Electronics Show, LGE proved itself to be a tier-1 player vs. previously a tier-2 player on
smartphones and tablets with the latest version of Android phones with high performance along with eyecatching designs.
In MWC, LGE introduced Optimus 3D, which is a glass-free 3D phone and its first tablet, and Optimus Pad, which carries
an 8.9" multi-touch display and features both 3D/HD video recording.
LG Electronics—Flagship models (Optimus 2X and Optimus Black)
Source: Company data

118
LGE: Home Entertainment division
- TV likely to remain a bright spot cushioned by falling component prices and LED TVs
As a pure set maker, LGE has suffered high component prices, especially in the TV business.
As panel prices came down and the Euro began to stabilize, LGE’s TV business managed to post a decent profit in 3Q10.
Despite the margin contraction in 4Q10, we believe LGE can continue to deliver sustainable earnings going forward on the back
of increasing LED TV portion and falling component prices.
Moreover, the price gap between LED TV and conventional LCD TV is narrowing, which is likely to stimulate end-demand further
in the coming months.
As a pure set maker, LGE has suffered high component prices, especially in the TV business.
LGE’s shipments have constantly outpaced the industry average, and the trend is likely to continue in 2011 and 2012, in our
view. Hence, we believe its market share gain story remains intact.
LGE LCD TV shipment vs. Global LCD TV shipment growth LED TV shipments as % of total LCD TVs
% %
70% 12,000 88% 100%

59% 80%
60% 52% 10,000 75% 80%
65% 70%
50% 43% 8,000 60%
37% 50% 60%
40% 34%
29% 29% 6,000 35%
30% 21% 40%
18% 4,000 27%
20% 13% 16% 19%
10% 2,000 6% 20%
0% - 0%
2008 2009 2010 2011E 2012E
1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
LGE LCD TV shipment growth Global LCD TV shipment growth
LED TV shipments LED TV as % of total LCD TVs
Source: Company data, Display Search, J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates.
119
LGE: AE (A/C and new businesses) division
- Its CAC sales will account for 40% of total AC sales in 2012
The company recently announced its A/C sales target of US$10 billion in 2013 from less than W5 trillion in 2010.
We believe the growth will be largely driven by the Commercial Air Conditioning (CAC) business, given that the company is
aggressively penetrating the CAC market.
Hence, we forecast its CAC sales to account for as high as 40% of total AC sales in 2012 from 30% in 2010.
For Residential Air Conditioning (RAC), despite the saturated domestic market, we believe the company can continue to
grow on the back of new distributors such as Lowes in the US.
Of note, the company has added new businesses into its A/C division and changed the name to AE (Air Conditioning and
Energy solution). As a result, AE includes solar, LED lighting and water treatment businesses.
LGE - AE (AC & Energy solution) sales breakdown LG Electronics- CAC sales as % of total
W in billions %
45%
5,500
40% 40%
4,500
35% 35%
3,500
30% 30%
2,500
25% 25%
1,500 22%
20%
500 2008 2009 2010 2011E 2012E
2008 2009 2010 2011E 2012E
CAC (Commercial AC) RAC(Residential AC & Others) CAC as % of total sales
120
LGE: Share price expectations
- Accumulate ahead of a meaningful recovery

We highlight our view that LGE is one of the few Korean/global tech companies that should show a meaningful recovery in 2011
because of:
(1) the low base in 2010;
(2) biggest beneficiary from falling component prices;
(3) a turn-around story in its core operations.
Hence, we recommend investors accumulate the stock ahead of fundamental recovery, since we think the share price will move
suddenly and substantially once there is any signal of recovery.
Although the stock has outperformed compared to the local index in the past couple of months, its share price performance is
still well behind its global peers and the stock is still trading at the low end of the historical trading range despite an
improvement in ROE.
Hence, we expect LGE’s share price to catch up with its global peers in the near future..
12 month forward P/B band chart 12 month trailing P/B band chart
Won, x Won, x
220,000 45% 270,000 3.4x 50%

2.6x
40% 240,000
190,000 40%
12-month fwd ROE trend (RHS) 2.1x 35% 210,000 2.7x
160,000 30% 180,000
1.5x 12-month fwd ROE trend (RHS) 30%
25% 2.0x
130,000 150,000
20% 20%
120,000 1.3x
100,000 15%
0.9x 10% 90,000
70,000 10%
5% 60,000
40,000 0% 30,000 0%
121
LGE: Earnings Model
Won in billions, year-end-December
2010 2011E 2012E
1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2009 2010 2011E 2012E
Revenue 13,217 14,410 13,429 14,698 13,334 14,899 15,394 16,511 14,853 16,492 17,014 18,053 55,491 55,754 60,138 66,412
H ome Appliance 2,381 2,722 2,750 2,819 2,492 2,821 2,814 2,977 2,647 2,996 2,991 3,169 9,541 10,672 11,103 11,804
A/C and Energy Solution 1,172 1,628 1,107 913 1,372 1,848 1,308 1,126 1,512 2,083 1,530 1,374 4,296 4,820 5,655 6,498
H ome Entertainment 5,548 5,727 5,772 6,648 5,544 6,045 6,806 7,850 6,124 6,736 7,539 8,550 19,636 23,695 26,245 28,949
Mobile C ommunications 3,172 3,403 3,020 3,381 2,929 3,205 3,607 3,569 3,518 3,640 4,049 3,915 18,198 12,975 13,310 15,122
H andset 3,140 3,373 2,971 3,328 2,879 3,157 3,562 3,526 3,474 3,596 4,003 3,869 17,066 12,812 13,125 14,942
Sy stem 32 30 49 53 50 47 45 43 44 44 45 46 1,132 164 185 180
Others 944 929 780 937 997 981 858 989 1,053 1,036 906 1,045 -812 3,591 3,826 4,040
Depreciation 352 352 330 320 321 325 328 331 334 337 340 343 1,485 1,354 1,305 1,354
Operating costs 12,736 14,284 13,614 14,943 13,186 14,581 14,999 16,257 14,271 15,801 16,494 17,825 52,658 55,577 59,023 64,391
% of Revenue (% ) 96.4 99.1 101.4 101.7 98.9 97.9 97.4 98.5 96.1 95.8 96.9 98.7 94.9 99.7 98.1 97.0
EBIT 481 126 -185 -245 148 319 395 254 582 691 521 228 2,834 177 1,115 2,022
% of Revenue (% ) 3.6 0.9 -1.4 -1.7 1.1 2.1 2.6 1.5 3.9 4.2 3.1 1.3 5.1 0.3 1.9 3.0
H ome Appliance 207 185 67 78 92 126 74 94 200 197 92 73 478 537 386 563
Margin (% ) 8.7 6.8 2.4 2.8 3.7 4.5 2.6 3.2 7.6 6.6 3.1 2.3 5.0 5.0 3.5 4.8
A/C and Energy Solution 43 59 -52 10 48 83 -13 -17 76 135 -8 -33 176 60 101 170
Margin (% ) 3.7 3.6 -4.7 1.1 3.5 4.5 -1.0 -1.5 5.0 6.5 -0.5 -2.4 4.1 1.2 1.8 2.6
H ome Entertainment 150 -26 86 -65 84 97 127 18 123 137 145 19 593 145 327 425
Margin (% ) 2.7 -0.5 1.5 -1.0 1.5 1.6 1.9 0.2 2.0 2.0 1.9 0.2 3.0 0.6 1.2 1.5
Mobile C ommunications 29 -119 -303 -261 -108 -22 173 126 141 174 260 137 1,335 -654 168 712
Margin (% ) 0.9 -3.5 -10.0 -7.7 -3.7 -0.7 4.8 3.5 4.0 4.8 6.4 3.5 7.3 -5.0 1.3 4.7
H andset 28 -120 -304 -262 -109 -23 171 125 140 173 258 136 1,338 -657 163 708
Margin (% ) 0.9 -3.5 -10.2 -7.9 -3.8 -0.7 4.8 3.5 4.0 4.8 6.4 3.5 7.8 -5.1 1.2 4.7
Others 53 27 17 -8 32 34 34 33 42 47 32 31 130 88 133 152
Pre Tax Profit 786 39 -17 -374 -31 345 596 415 668 818 702 476 2,865 434 1,325 2,663
Tax ex pense (credit) 112 30 -24 -117 -4 41 71 50 84 102 88 59 514 0 159 333
Net Profit 675 856 8 -257 -27 304 524 365 585 715 614 416 2,350 1,282 1,166 2,330
EPS (W) 4,689 5,292 47 -1,585 -168 1,877 3,239 2,257 3,613 4,420 3,795 2,571 16,271 8,148 7,205 14,400
EPS (W) inc. pref. Shares 4,189 4,784 42 -1,433 -152 1,697 2,928 2,040 3,266 3,996 3,431 2,324 14,541 7,346 6,513 13,018
Margins (%)
Operating Margin 3.6 0.9 -1.4 -1.7 1.1 2.1 2.6 1.5 3.9 4.2 3.1 1.3 5.1 0.3 1.9 3.0
EBITDA Margin 6.3 3.3 1.1 0.5 3.5 4.3 4.7 3.5 6.2 6.2 5.1 3.2 7.8 2.7 4.0 5.1
N et Margin 5.1 5.9 0.1 -1.7 -0.2 2.0 3.4 2.2 3.9 4.3 3.6 2.3 4.2 2.3 1.9 3.5
Sequential Growth (%)
Rev enue -8 9 -7 9 -9 12 3 7 -10 11 3 6 12 0 8 10
EBIT 336 -74 -247 33 -160 115 24 -36 129 19 -25 -56 32 -94 532 81
N et Profit 86 27 -99 na na na 73 -30 60 22 -14 -32 387 -45 -9 100
EPS 87 13 -99 na na na 73 -30 60 22 -14 -32 387 -50 -12 100

122
Samsung SDI (006400 KS)
Won in billions
FY09 FY10 FY11E FY12E FY09 FY10 FY11E FY12E
Sales 4,950 5,124 4,704 4,559 ROE (%) 4% 7% 6% 9% 52-w eek range W189,000-134,000
Sales grow th -21% 4% -8% -3% ROIC (%) 4% 12% 13% 15% Market cap W7,859B
Operating profit 107 287 265 332 BPS (Won) 105,857 125,233 132,866 144,542 Market cap US$7,221MM
OP grow th 56% 168% -8% 26% P/B (x ) 1.6x 1.4x 1.3x 1.2x Shares outstd. 46MM
Pre-tax profit 222 423 496 774 Div y ield (%) 0.1% 0.1% 0.9% 0.9% Free Float 60%
Net profit 218 385 414 650 EPS 1Q 2Q 3Q 4Q Av g daily v al. W89.1B
EPS (Won) 4,493 7,740 8,316 13,060 FY10 1,164 1,626 3,482 1,733 Av g daily v al. US$81.9MM
P/E (x ) 38.4x 22.3x 20.7x 13.2x FY11E 1,350 1,773 2,687 2,505 Av g daily v ol. 0.5MM shares
Cash 1,434 1,066 1,232 1,527 FY12E 2,195 3,199 4,266 3,400 Index KOSPI 2,122.79
Gross debt 955 358 221 139 Price Target 220,000 Ex change rate W1,088/US$1
Equity 5,136 6,231 6,611 7,192 Consensus 200,000 Date 7-Apr-11
Debt-equity 19% 6% 3% 2% Difference 10.0%

Leadership in energy storage (RB business, with added Sudden and substantial change in the global economy
focus on:
currency impact (US$/Won)
RB for automotives in the long term
demand for mobile applications
SMD contribution will continue to be positive
delay of RB for automotive market
123
SDI: Rechargeable battery and AM-OLED-in-one
- Leadership in consumer electronics now and xEV from 2013
Agree with general concern on SMD stake dilution. However, we think most of the concerns are in the price @ 1.4x
P/B (w/ 9% ROE) while SMD’s contribution will continue to grow.
SDI stock offers a meaningful exposure to AM-OLED growth in addition to exposure to rechargeable batteries for
consumer electronics now and EV in the longer term, in our view.
Rechargeable battery forecast (Won in billions, %)
SMD earnings forecast (Won in billions, %)
124
SDI: SOTP Valuation
- SOTP Valuation
To derive out PT, we applied 2012E earnings estimates of Rechargeable battery (consumer electronics) and
Samsung Mobile Display. We used present value of 2015E earnings estimates of SB Limotive for electric vehicle
battery operation.
- Inexpensive valuation for multiple exposure

At 13x P/E, 1.2x P/B with 9% ROE on 2012 earnings, we believe SDI stocks look attractive as an exposure to pure
play rechargeable battery for both consumer electronics and xEV.
Sensitivity analysis on changes of SDI’s stake in SMD

Won in billions, share in millions of shares
SOTP valuation
Near-term Rechargeable Battery for CE 3,621
Mid-term Samsung Mobile Display (SMD) 4,531
Long-term Rechargeable Battery for x EV 2,100
Total v alue 10,252
Outstanding shares 48
Implied fair value 212,974
Global peers valuation table

Price Market cap P/E(x) P/B(x) ROE(%)
(LC) (US$ B) FY11E FY12E FY11E FY12E FY11E FY12E
SDI 006400 KS OW 172,500 7.2 20.7 13.2 1.3 1.2 6.3 9.0
LG Chem 051910 KS OW 471,000 28.7 11.8 9.8 3.2 2.5 30.7 28.2
BYD 1211 HK NR 30.40 8.9 19.4 16.4 2.5 2.2 13.9 14.7
Sony 6758 JP N 2,595 30.6 14.6 10.7 0.8 0.8 5.8 7.4
Note: Prices as of Apr. 7, 2011
Source: Bloomberg, J.P.Morgan estimates
125
SDI: Sensitivity analysis
- SMD is not a risk but a good investment
At issuance price of SMD right offering, SDI is estimated to have gained (unrealized) approx. W800bn or 86% return on
its investment. Implied market cap of SMD is W4.8 tn which is 5x P/E based on our forecast for 2012E.
- Does SMD need more cash next year?

Yes, SMD may need to raise W2~3 tn in 2012E for second phase of 5.5G or even 8G. We expect SMD to generate
EBITDA of W2.2 tn in 2011E and W3.8 tn in 2012E.
However, we believe it is too early to discuss SMD’s future financing decision. We also note that SMD’s debt-to-equity
ratio should improve to 50% level post the potential rights issue, from approximately 106% before the right issue.
SOTP valuation: Sensitivity to changes in SDI’s stake in SMD

Pre-rights issue Samsung Mobile Display Samsung SDI Samsung Electronics
Total shares iss ued ('000 s hares ) 40,000
Number of s hares held ('000 s hares ) 20,000 20,000
% stake in SMD 50% 50%
Rights issue details Samsung Mobile Display Samsung SDI Samsung Electronics
Capital increas e (W bn) 2,000
Per share price (issue price, W) 71,881
New share iss ue ('000 shares) 27,824
**Es tim ated participation (W bn) 300 1,700

Participation % of total 15% 85%
**Es tim ated allotm ent ('000 shares) 4,174 23,650
Post-rights issue Samsung Mobile Display Samsung SDI Samsung Electronics

Number of s hares held ('000 s hares ) 24,174 43,650
Total shares iss ued ('000 s hares ) 67,824
% stake in SM D 35.6% 64%
Value of SMD stake Pre-rights issue Post-rights issue Value at issuance price
Book value of SMD for SDI (W bn) 632 932 1,738
Per share value (W) 31,587 38,543 71,881
Source: J.P. Morganin
Changes estimates.
value (%) 22% 86%
Im plied m arket cap of SMD (W bn) 4,875
126
SDI: Share price expectations
- Multiple exposures to capture growth in tech space

We expect share price to see some volatility on potential battery material shortage and SMD stake dilution.
However, we expect SDI shares to outperform as market focuses on its leadership in lithium battery for consumer
electronics in near-term and for xEV in longer-term.
We note a high level of interest in Samsung SDI’s focus on energy storage business along with EV battery business.
We are of the view that SDI stock offers attractive multiple exposures to growth segments in tech space.
Samsung SDI—12-month forward P/BV bands Samsung SDI—12-month trailing P/BV bands
Won, x Won, x
127
SDI: Earnings model
Source: Company, J.P. Morgan estimates.
128
Samsung Electro-Mechanics (009150 KS)
Neutral; PT: W115,000; Price: W118,000
Won in billions
Sales grow th 30% 26% 13% 20% ROIC (%) 13% 20% 16% 16% Market cap W8,814B
OP grow th 286% 61% -1% 15% P/B (x ) 3.3x 2.5x 2.3x 2.0x Shares outstanding 75MM
Net profit 306 667 564 655 Quarterly EPS (KRW) 1Q 2Q 3Q 4Q Av g daily v alue W131.2B
EPS (Won) 3,695 13,093 6,094 6,762 EPS (FY09) -62 1,106 1,773 890 Av g daily v alue US$120.6MM
P/E (x ) 31.9x 9.0x 19.4x 17.4x EPS (FY10)E 807 5,590 3,672 3,050 Av g daily v olume 1.1MM shares
Cash 1,084 695 1,185 1,531 EPS (FY11)E 903 1,719 2,271 1,263 Index KOSPI 2,122.8
Gross debt 1,719 1,710 2,063 2,068 EPS (FY12)E 1,185 1,914 2,354 1,371 Ex change rate W1,088/US$1
Equity 2,819 3,803 4,225 4,679 Date 07-Apr-11
Net debt-equity 23% 27% 21% 11% Price target KRW 115,000

Slowdown in S-LED’s earnings momentum A sudden and substantial change in the global economy
Intensifying competition in MLCC Significant delay in the LED adoption
Low utilization rate for its LED business Severe ASP erosion for MLCC/FC BGA with intensifying
competition
129
SEMCO: Limited contribution from general lighting
- Without substantial ASP erosion, general lighting market take-off will be delayed
Despite LED lighting’s competitive advantages, the high price point of LED chips (around 5-10x higher) in general lighting
still prevents applications from diffusing quickly into residential lighting.
As such, we project that LED general lighting market is unlikely to show meaningful growth unless the industry witnesses
remarkable ASP erosion.
- Increasing ASP pressure from LED TV to result in deterioration in LED ASP

As a result of muted growth of the LED general lighting market, we project that LED BLU will take a pivotal position in
SEMCO’s LED business.
We expect that its blended LED ASP will sharply decrease as the major LED makers experience the margin squeeze from
both set and panel makers.
General lighting sources comparisons SEMCO—Annual LED revenue proportion trend

US$, X %
Incandescent Fluorescent LED 100% 2% 4% 5%

15% 14%
Product Philips Philips
80% 45% 46%
TL5 14WI 840 T5 Econic 59%
Life 1000 hr 20,000 hr >25,000 hr 60%
Price (US$) $1 $4-8 $35 98% 96% 95%
40% 85% 86%
LED lighting's price multiple (X) 5-10x
55% 54%
Source: Company data, J.P. Morgan estimates. 20% 41%
0%
2005 2006 2007 2008 2009 2010 2011E 2012E
Mobile and General Lighting LED LED BLU
130
SEMCO: Key concerns about the LED sector
- Key concerns about the LED sector

We are concerned specifically about 1) MOCVD capacity expansion by Chinese LED chip makers, and 2) increasing
production conversion to 6" wafers from 2" and 4" wafers.
As more LED chip makers are converting their chip production to 6" wafer capacity, we remain cautious about the lower
production yield associated with wafer size migration
SEMCO is expected to convert 10% of its total LED chip production capacity into 6" while Innotek plans to begin 6" during
1H11
Of note, we are assuming approximately 25% productivity gains in 6" vs. 2" or 4" wafers for LED chip makers; however,
we believe stabilization of yield will have to come first in discussing productivity
SEMCO—MOCVD capacity trend SEMCO—Conversion of MOCVD equipment

Units %
131
SEMCO’s LED: Less LED per BLU
- Less LED per BLU trend is not in favor of LED chip makers
As of end-2010, for edge-lit LED BLU, we estimate two-bar technology accounted for 45% and four-bar for 55%.
We expect the trend to continue on the back of ongoing cost reduction efforts by LCD panel makers.
Although still in the early stage (and limited to 32"-and-below size TVs for now), the increase in one-bar technology
adoption will further accelerate the number of LED chips per LED BLU, in our view.
Additionally, we believe price premium from improved product mix (i.e., price premium of higher efficiency LED chips) will
not be able to fully off-set the downward trend in LED prices and per-box requirements
Edge-lit BLU technology share Number of LED chips required per BLU
% Units, %

Source: Company data , J.P. Morgan estimates.
132
SEMCO’s MLCC: MLCC business outlook
- MLCC business to show a resilient trend

Thanks to ongoing proliferation of high-end mobile devices, we expect SEMCO’s MLCC shipments to increase by 23%
YoY in 2011 and resilient ASP trend from MLCC requirement per box increase and product mix improvement.
Our per-box analysis suggests an increase in MLCC requirement, and we expect the upward trend to continue as smart
phone penetration rises going forward.
In addition, ongoing changes in form factor (i.e., slimmer and smaller) and the increase of a key function in mobile devices
will further enhance smaller high-capacity MLCC adoption by SEMCO’s customers.
Our checks indicate that high-end (0603 and 0402 size) MLCC price premium over low-to-mid-range is as high as 20-30x,
and the sales contribution from the high-end portion should grow on the back of rising smart phone penetration.
SEMCO—MLCC shipment trend Per-box MLCC requirement

Units in billions, % Microfarad, units
Source: Company data , J.P. Morgan estimates.
133
SEMCO: Share price expectations
- Lacking positive catalyst in 2011

In our view, SEMCO share price is unlikely to outperform its peers and the KOSPI as we expect the company’s LED
earnings momentum to see a YoY slowdown in 2011E.
Based on our earnings estimate revisions, we have lowered our P/BV based Dec-11 PT to W115,000 from W130,000,
which implies 12% downside from the current share price.
Our PT is based on a target P/BV multiple of 2.4x 12-month forward BVPS, which is the average for the past two years,
when the LED business began and continued to make a contribution to SEMCO’s earnings.
We believe this methodology is well justified given material LED earnings contribution to SEMCO’s earnings and high
share price correlation with LED earnings.
SEMCO—12-month trailing P/BV band chart SEMCO—12-month forward P/BV band chart
Won, X, % Won, X, %
160,000 35% 160,000 35%
3.7x 3.1x
140,000 30% 30%
140,000
25% 12m-foward ROE
120,000 12m-trailing ROE 2.9x 120,000 2.3x 25%
20%
100,000 2.0x 20%
15% 100,000 1.6x
10% 15%
80,000 80,000
1.2x 5% 10%
60,000 60,000
0% 0.9x 5%
40,000 -5% 40,000 0%
20,000 -10% 20,000 -5%
Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11
05 12 0 05
Source: Company data, J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates. 12 0
134
SEMCO: Earnings model
135
OCI (010060 KS)
Won in billions
Sales 2,102 2,606 3,332 3,972 ROE (%) 28% 35% 39% 32% 52-w k high W529,000
Sales grow th -1% 24% 28% 19% ROIC (%) 23% 25% 29% 26% 52-wk low W179,000
Operating profit 538 717 1,048 1,193 BPS (Won) 65,394 84,548 119,104 157,379 Market cap W11,838B
OP grow th -9% 33% 46% 14% P/B (x ) 8.3x 6.1x 4.3x 3.3x Market cap US$10,878MM
Pre-tax profit 465 730 1,106 1,245 Div y ield (%) 0.4% 0.6% 0.9% 1.0% Outstnd Shrs 23MM
Net profit 385 617 962 1,074 1Q 2Q 3Q 4Q Free Float 71%
EPS (Won) 17,048 25,627 39,940 44,599 EPS (FY09) 2,046 4,337 6,876 3,828 Av g daily v al. W86.B
P/E (x ) 30.0x 20.0x 12.8x 11.5x EPS (FY10) 4,361 6,419 6,475 7,734 Av g daily v al. US$79.MM
Cash 432 530 533 725 EPS (FY11)E 8,965 9,149 9,361 10,152 Av g daily v ol. 0.2MM shares
Gross debt 808 606 524 372 EPS (FY12)E 10,646 10,873 10,402 10,870 Index KOSPI 2,122.1
Equity 1,478 2,036 2,869 3,790 Ex change rate W1,088/US$1
Net debt-equity 25% 4% 0% -9% Price target KRW 530,000 Date of price 7-Apr-11

Long-term contracts and competitive cost structure should Weaker-than-expected solar end-demand and, in turn, a
continue to drive earnings growth faster decline in polysilicon prices than our estimates;
Unfavorable supply/demand outlook, but price elasticity Faster-than-expected polysilicon supply growth at
could take off competitors, which may cause a sharper price decline
Further margin improvement given ongoing strong spot Increasing competition from other alternative energies
prices
P4 ramps and potential opportunity in semiconductor wafer
136
OCI: Updates on the polysilicon business
- Tougher price outlook; OCI remains competitive
OCI has managed to achieve higher capex efficiency by saving approximately W100 billion (or 10% of the total capex) for P3
expansion.
Management attributed the cost savings to the ongoing improvement in engineering expertise, gained from P1, P2 and part of
P3 capacity expansion.
We expect OCI to achieve similar efficiency for the debottlenecking process (P3.5 and P3.7), and, in turn, further enhance its
production cost reduction efforts, going forward.
Based on our estimates, we expect OCI’s fully-loaded cost per kg to fall to approximately US$28 in 4Q 2011 from US$32 in
1Q 2011 (assuming an 8-9% cost reduction in 2011), while foreseeing both spot and contract price to reach around US$50 by
4Q 2011.
Even in a tougher price environment, our calculation suggests that OCI should be able to maintain 40%+ OP margins, thanks
to the high contract base exposure (80%+ for 2010).
OCI—Polysilicon ASP and margin trend

US$/kg, %
95 55%
85 50%
75
65 45%
55 40%
45 35%
35
25 30%
15 25%
1Q09 3Q09 1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
ASP Fully loaded cost OP margin, % (RHS)
137
OCI: Solar sector outlook
- We prefer upstream over downstream
With fewer competitors upstream and higher entry barriers, including higher capex requirements and scale, upstream
manufacturers should have stronger pricing power than their downstream counterparts.
We identify OCI as one of the most attractive upstream players given the:
Likely superior economies of scale from the on-going capacity expansion; and
Higher earnings visibility on solid customer base, which is composed of 80%+ of contract-based customers and of
60%+ Asia-based customers.
While we believe that lower-cost manufacturers will fare better in 2011 in a scenario of declining solar ASPs, we have a
relative preference for upstream polysilicon makers over downstream cell/module makers.
There are fewer polysilicon makers in the supply chain, as polysilicon manufacturing comes with significantly higher entry
barriers, including higher capex requirements and economies of scale.
In addition, gains in the market share in upstream are less difficult than downstream as upstream is not yet dominated by
Asian manufacturers compared to the US/EU, where Hemlock and Wacker are already the two largest suppliers.
Solar ASP trend by segment 2011E top 5 market share in the solar value chain
% %
Source: PVInsights.com Source: J.P. Morgan estimates.

138
OCI: Earnings impact from new orders
- Where is OCI now?
The contribution of new LT contracts for 2012E will be 26% of the total polysilicon revenue;
OCI should have sufficient capacity to take on an additional US$ 2.4bn worth of LT contract orders
- What does US$3.7bn mean for 2012E revenue and backlog?

The aggregate of new LT contracts signed YTD is estimated to contribute 26% of the total polysilicon revenue and 28% of
the total shipments in 2012.
Our analysis of the total backlog amount with different contract periods suggests US$ 2.2bn in revenue for 2012E, which
is slightly higher than our current forecast for OCI’s polysilicon 2012 revenue of US$2bn (or W2.3tn).
Of note, adding the new LT contract orders to the existing order backlog, the total backlog amounts to US$11bn as of
end-2011.
Contribution of new LT contracts to Poly-si revenue

US$ in millions, %
Amount of backlog from FY12E to FY18E

US$ in millions, US$, Metric tons
139
OCI: Polysilicon long-term contracts
Polysilicon long-term contracts
US$ in millions

140
OCI: Polysilicon capacity for additional LT contracts
- How much room does OCI have to take on new LT contracts?
Based on capacity expansion schedule of P3.7/P4, our analysis suggests US$ 2.4bn worth of capacity for additional LT contract orders.
We expect the majority of shipments for any additional LT contracts, if any, should take place mainly from starting in 2013, based on the
P4 ramp-up schedule.
However, should OCI continue to see stronger-than-expected demand from customers, we would not rule out the possibility of earlier
ramp-up of P4, which could provide upside to our 2012E earnings.
- Key assumptions
80% allocation (19,440 MT per year) of additional capacity (24,300 MT per year) from P3.7 and P4 to new LT contracts signed this year
20% allocation (4,860 MT per year) of additional capacity (24,300 MT per year) to spot market and/or short-term agreement sales; and
US$45 per kg as contract price
- Near-term favorable environment

Management indicated that the recent strength in polysilicon spot price should continue for the next 2-3 months, thanks to the continued
demand pull-in ahead of the potential subsidy-cut discussions.
Increasing awareness of safety issue involving nuclear power plants post Japan earthquake should continue to have a positive impact
on the alternative-energy sector and related policies.
Amount of backlog from FY12E to FY18E

US$ in billions
US$ in billions

141
OCI: Share price expectations
- New-order wins have been a key share price driver
YTD, OCI has outperformed the KOSPI by 45%. We expect OCI’s share price to show positive momentum in 2011, given:
Sequential earnings growth Q/Q; and
Sufficient capacity addition to meet the rising demand from polysilicon customers.
Ongoing capacity expansion by cell/module makers to remain cost-competitive should benefit OCI in the form of new orders
and/or new customers this year.
Historically, in addition to strong earnings, contract order wins have been a key share price driver for OCI shares.
Any capacity expansion beyond P4 should be a positive catalyst in medium-term as new capacity expansion plan is an
indication of LT contract demand.
OCI— Long-term contract order wins and share price performance

Won
500,000
450,000 Orders from ReneSola/Yingli

Orders from LG Siltron, Suntech
Order from Nexolon
400,000 Order from Green Energy Tech
350,000
Series of orders from Green
300,000 Energy, Danen Technology,
Order from Motech Industries Orders from Yingli, Ferrotec Motech, Changzhou, Neo Solar
250,000 Order from Comtech Solar Power, SKC, and Comtech
Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11
OCI
Source: Bloomberg, J.P. Morgan
142
OCI: Valuation is undemanding
- Nearing our PT but we see upside risks
Our Dec-11 PT of W530,000 is derived using OCI’s three-year historical average forward P/E multiple of 13x, based on our
2012 earnings estimates.
OCI—12-month trailing P/E bands OCI—12-month forward P/E bands

Won, x Won, x
700,000 700,000
45x 27x
600,000 33x 600,000 20x
500,000 500,000
22x 12x
400,000 400,000
300,000 300,000
10x 5x
200,000 200,000
100,000 100,000
0 0
Apr-07 Dec-07 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Apr-07 Dec-07 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11
1 57 5 1 57 5
Source: Bloomberg, J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan estimates.
OCI—12-month trailing P/BV bands OCI—12-month forward P/BV bands

Won, x Won, x
700,000 45% 700,000 45%
8.0x 7.0x
12m-trailing ROE (RHS) 40% 40%
600,000 600,000 12m-forward ROE (RHS)
35% 4.7x 35%
500,000 5.6x 30% 500,000 30%
25% 400,000 25%
400,000
20% 20%
3.3x 300,000 2.7x
300,000 15% 15%
200,000 10% 200,000 10%
1.0x 5% 0.9x 5%
100,000 100,000
0% 0%
0 -5% 0 0 7x -5%
Apr-07 Dec-07 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11 Apr-07 Dec-07 Aug-08 Apr-09 Dec-09 Aug-10 Apr-11
05 10
2 05 21 0
143
OCI: Earnings model
144
Cheil Industries (001300 KS)
Underweight; PT: W80,000; Price: W114,000
Won in billions
Sales grow th 14% 18% 7% 7% ROIC (%) 12% 16% 16% 14% Market cap W5,700B
OP grow th 10% 27% 16% 12% P/B (x ) 3.7x 3.2x 2.8x 2.5x Shares outstanding 50MM
Net profit 127 244 298 338 Quarterly EPS (KRW) 1Q 2Q 3Q 4Q Av g daily v alue W57.5B
EPS (Won) 2,540 4,885 5,955 6,770 EPS (FY09) 373 932 463 772 Av g daily v alue US$52.9MM
P/E (x ) 44.9x 23.3x 19.1x 16.8x EPS (FY10) 1,320 1,674 1,296 594 Av g daily v olume 0.5MM shares
Cash 92 89 59 106 EPS (FY11)E 1,104 1,594 1,847 1,410 Index KOSPI 2,122.14
Gross debt 496 313 323 368 EPS (FY12)E 1,429 1,791 2,064 1,486 Ex change rate W1,088/US$1
Equity 1,970 2,541 2,933 3,221
Net debt-equity 21% 9% 9% 8% Price target KRW 80,000

Margin pressure on LCD components from panel makers’ Better-than-expected polarizer demand and price;;
cost reduction efforts
Faster-than-expected OLED materials market growth
Mid-term structural decline of polarizer demand caused by
increasing AM-OLED penetration Sudden and substantial change in the global economy
Most expensive electronics materials company globally
145
Cheil Industries: Key reasons for our cautious stance
- AM-OLED business outlook
Strong AM-OLED growth to benefit Cheil Industries but expectations seem too high. JPM global AM-OLED model
suggests market size of US$260mn in 2011 and US$630 mn in 2012 for OLED materials including HTL, HIL, ETL and
EML.
Cheil Industries to generate 7% OPM on W5bn sales in 2011E from OLED material business. The OLED related
earnings translate into 2% of OP in 2011E.
AM-OLED contribution to Cheil’s earnings

AM-OLED (W bn, %) 2011E 2012E
Sales 6 36
% change na 500%
% of total sales 0.1% 0.6%
OP 0 8
% of total OP 0.1% 1.7%
Cheil as % of global market 2% 5%
Global OLED material market (ETL/HIL/HTL only) 309 725
% change 178% 123%
OLED materials as % of OLED component/material OLED component and materials market

US$ in millions, US$ in millions,
Source: KDIA, Company data, J.P. Morgan estimates. Source: KDIA, DisplayBank, J.P. Morgan estimates.
146
Cheil Industries: Key reasons for our cautious stance
- Polarizer business outlook
Cheil Industries is expected to gain further market share in Samsung Electronics, reaching 52% by end of 2011E. With
recent qualification on TV polarizer (46” and 55”), we expect the company to gain meaningful exposure.
However, our concerns lie mainly on 1) less favorable outlook for IT panel polarizer market compared to LCD TV and 2)
structural decline of polarizer demand caused by increasing AM-OLED penetration in longer-term.
OLED materials as % of OLED component/material
Source: DsiplayBank, J.P. Morgan estimates
OLED materials as % of OLED component/material OLED materials as % of OLED component/material

US$
Source: DsiplaySearch, J.P. Morgan estimates Source: DsiplaySearch, J.P. Morgan estimates
147
Cheil Industries: Valuation looks rich
- Valuation: more than fully reflecting positive expectations
Based on our FY12 earnings forecast, the stock is trading at 17x P/E and 2.4x P/B with 11% ROE; these earnings multiples are much
higher than our estimates for its global peers such as LG Chemicals, Nitto Denko, and Sumitomo Chemical.
The valuation premium is attributable to high expectations on:
Growth potential of OLED material business

Potential upside from LCD TV polarizer business
While we agree that there will be a positive contribution from these new businesses, we are of the view that the current valuation is
difficult to justify.
Cheil Industries’ SOTP valuation

Won in billions, x
4.4 Average EV/EBITDA multiple of LG Chem, Honam Petro and Hanwha Chem
3.5 Average EV/EBITDA multiple of LG Chem, Nitto Denko and Sumitomo Chemical
3.6 Average EV/EBITDA multiple of LG Fashion and Handsome
15.0 EV/EBITDA multiple of Duksan Hi-Metal (with 40% premium)
Source: Bloomberg estimates, J.P. Morgan estimates.
148
Cheil Industries: Share price outlook
- Share price outlook
Thanks to rosy outlook for new businesses such as AM-OLED and TV polarizer business, the share price has shown stellar
performance in the last 12-months.
Even based on optimistic scenario, we believe current valuation is hard to justify. Hence, we recommend investors take profit and
find a good re-entry point after meaningful share price correction. We see 30% downside risk from current share price
Cheil—12-month trailing P/E bands Cheil—12-month forward P/E bands

Won, x Won, x
140,000 140,000
120,000 25x 120,000 22x

18x
100,000 100,000
80,000 15x 80,000 14x

20x 10x
60,000 10x 60,000
40,000 40,000
20,000 20,000
1 5 70 5 70
Source: Bloomberg, J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan 1estimates.
Cheil—12-month trailing P/BV bands Cheil—12-month forward P/BV bands

Won, x Won, x
130,000 18% 130,000 3.2x 18%

3.5x
16% 16%
110,000 110,000
2.6x 2.5x 14%
14%
ROE 90,000 ROE 12%
90,000 12%
10% 1.7x 10%
70,000 1.8x 70,000
8% 8%
50,000 6% 50,000 1.0x 6%
1.0x 4%
4% 30,000
30,000 2%
2%
10,000 0%
10,000 0%
12 0
12 0
149
Cheil: Earnings model
150
AUO (2409.TW, OW)
Share price: NT$24.65 (28 March 11) (Reuters: 2409.TW, Bloomberg: 2409 TT) 12-month forward P/E bands
(NT$ in billions, year-end Decem ber) NT$
(Year-end: Decem ber) FY09E FY10E FY11E FY12E 120.0
Sales (NT$B ) 359.3 467.2 496.4 548.9
100.0
Operating Profit (NT$B ) -15.2 10.5 12.0 21.3
EBITDA (NT$B ) 74.9 97.8 103.7 122.0 80.0
Pre Tax Profit (NT$B ) -27.3 8.6 15.2 27.3 60.0
Pre Tax EPS (NT$) -3.10 0.97 1.72 3.09
40.0
Net profit reported (NT$B ) -26.8 6.7 13.8 24.6
MV of Employee Bonus (NT$B ) 0.0 0.0 1.8 2.5 20.0
Adjusted Net Profit (26.8) 6.7 13.8 24.6 -
New Taiw an GAAP EPS (NT$) (3.0) 0.8 1.6 2.8 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
New Taiw an GAAP P/E (x) nm 34.0 16.5 9.3
Gross Debt (NT$B ) 183.5 181.7 142.0 109.7
AU Optronics 5x 9x 13x 17x
Cash (NT$B ) 85.8 89.5 53.5 55.8
Equity (NT$B ) 274.9 282.3 294.2 313.0 12-month forward P/B & ROE bands
ROE (%) -9.3 2.4 4.8 8.1 NT$ ROE (%)
Core ROIC (%) -3.9 2.4 3.1 8.5 100.0 30
Y/E BPS (NT$) 31.1 32.0 33.3 35.4
80.0 20
Cash Div. (NT$/Share) 0.3 0.0 0.2 0.5
Quarterly EPS (NT$) 1Q 2Q 3Q 4Q 60.0 10
EPS (FY10) E 0.80 1.24 0.01 -1.30
40.0 0
EPS (FY11) E -0.56 0.05 0.96 1.12
EPS (FY12) E 0.71 0.58 0.85 0.64 20.0 -10
- -20
Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10
AU Optronics 1x 1.5x
2x 2.5x ROE
Source: Bloomberg, J.P. Morgan estimates.
Proven execution: AUO is capable of quickly adjusting its UTR to counter cyclical downturn, as fixed cost becomes less critical in
the display sector, this becomes critical.
Value creation will be the main focus for 2011 : LED TV, 3D TV, AMOLED, LTPS, and touch-enabled total solutions will be key
themes that could help secure a stable blended ASP and profitability.
Price target: Dec -11 PT of NT$35 is based on 1.0x FY12E P/BV, the mid-cycle valuation of recent trading band.
Key risks: Sudden and substantial decline in panel prices, and unfavorable changes in end demand.
151
AUO: Climbing out of the bottom
- Panel price likely key catalyst for share price
LED TV penetration should provide strong support for blended ASP, current price premium is still much higher than CCFL.
IT panel price has rebounded, TV panel price likely to bottom out by the end of 1Q11.
Much value is created at panel level provided new features such as LED TV, FHD TV, 3D TV, Connected TV continue to
spur the demand in turns.
Panel price M/M trend Panel price Y/Y trend
20%
40%
10% 20%
0%
0% -20%
-10% -40%
-60%
-20% -80%
Jan-09
Mar-09
Jul-09
Sep-09
Jan-10
Mar-10
Jul-10
Sep-10
Jan-11
May-09
Nov-09
May-10
Nov-10
Jan-09
Mar-09
Jul-09
Sep-09
Jan-10
Mar-10
Jul-10
Sep-10
Jan-11
May-09
Nov-09
May-10
Nov-10
NBPC 15.4"W MNT 19"W TV 32" NBPC 15.4"W MNT 19"W TV 32"
Source: Display Search, J.P. Morgan. Source: Display Search, J.P. Morgan estimates.
AUO’s revenue mix LED panel price premium and penetration

% 100% 60%
100%
90% 48% 82% 87% 50%
80% 42% 41%
80%
38% 72% 75%
70% 65% 70% 40%
60% 33%
60% 27%
50% 30%
40% 40% 50%24% 21% 19% 19%
40% 30% 18%
33%
43% 24% 14% 20%
30% 15%
20% 42% 45% 49%
39%
20% 10%
36% 5%
10% 19%
10% 0% 0%
0%
1Q10 3Q10 1Q11E 3Q11E 1Q12E 3Q12E
2006 2007 2008 2009 2010E 2011E 2012E
S&M Others NBPC Monitor TV (LED) TV (CCFL) LED vs CCFL price premium [RHS] LED portion [LHS]
Source: Company data, J.P. Morgan estimates. Source: Display Search, J.P. Morgan estimates.
152
AUO: Seeing a structural change
- Cost structure improvement implies less AUO- ASP change vs. OP trend
volatility
40 30%
Improving capacity efficiency + higher material cost portion
30 20%
= less fixed cost burden
10%
20
Pricing power shift from panel makers to component 0%
makers; cost reduction will mainly come from LED 10
-10%
components 0
-20%
1Q11E
2Q11E
3Q11E
4Q11E
1Q12E
2Q12E
3Q12E
4Q12E
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Increased brightness -10
-30%
-20
Development of Edge-type -40%
-30 -50%
UT adjustments by panel makers ease the potential
OP [LHS] Blended ASP change, %
overstock concern
Much less intensive capacity expansion plans by panel
makers
Depreciation expense trend Cost reduction trend

% 0%
120 30%
101
90 26% 87 92 -5%
100 25%
82 81 -5%
21% 22% -10%
80 20% 20% 20% 20%20% -8%
53 -11% -10%
60 15% -15% -13%
40 10% -20%
20 5% -21%
-25% -23%
0 0% 2006 2007 2008 2009 2010E 2011E 2012E
2006 2007 2008 2009 2010E 2011E 2012E
AUO cost per sqm., Y/Y %
Depreciation expense (NT$M) [LHS] Depreciation expense as % of COGS
153
AUO: An underperformer in the past 12M
Price Performance
- Share price has been suppressed due to
inventory concern, panel price declines, 40
uncertainty in end-demand
Now, panel prices are showing positive signs, IT panel
NT$ 32
price is trending upward, while TV panel price is stabilizing.
Inventory has returned to normal levels, new demand will 24

provide upside catalysts
Feb-10 May-10 Aug-10 Nov-10 Feb-11
LED TV sold well (up 27% Y/Y) in China CNY, labor
holiday could be expectable. 2409.TW share price (NT$
TSE (rebased)
Source: Bloomberg.
AUO’s share price vs. quarterly OP Share price versus Monthly sales
% 70 60,000
40 70 60 50,000
60 50 40,000
20 40
50 30,000
30
0 40 20,000
20
30 10,000
-20 10
20 0 0
-40 10 Jan-03 Jan-04 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Share Price (NT$) Mon Sales (NT$M) [RHS]
OP Share price (RHS)
Source: Bloomberg, J.P. Morgan. Source: Bloomberg, TEJ, J.P. Morgan.
154
AUO: Earnings model
2010E 2011E 2012E
(NT$ in billions, year-end December) 1Q 2Q 3Q 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2010E 2011E 2012E
Revenue 111.6 128.6 124.4 102.6 102.0 115.9 136.4 142.0 131.8 134.1 141.9 141.0 467.2 496.4 548.9
TV 54.1 64.9 69.7 50.3 50.3 59.6 73.7 75.5 68.8 69.7 74.8 72.7 239.0 259.1 286.0
Monitor 22.9 23.1 16.2 16.4 16.5 17.5 18.9 18.7 17.8 17.6 17.9 17.4 78.7 71.6 70.7
NBPC 18.7 20.6 16.2 14.4 15.3 17.3 20.9 23.0 21.8 21.8 22.5 22.4 69.8 76.5 88.6
Small / Medium & others 15.9 19.9 22.4 21.5 20.0 21.5 22.9 24.8 23.4 25.0 26.7 28.5 79.7 89.3 103.6
Depreciation -22.7 -21.4 -21.2 -22.0 -21.6 -22.6 -23.3 -24.1 -24.3 -25.1 -25.3 -26.0 -87.3 -91.6 -100.7
COGS -97.3 -108.3 -118.2 -107.1 -102.0 -109.8 -120.1 -123.9 -118.4 -122.2 -127.2 -128.5 -430.9 -455.8 -496.3
Gross Profit 14.3 20.3 6.2 -4.5 0.0 6.2 16.3 18.2 13.5 11.9 14.7 12.5 36.3 40.7 52.6
Operating Ex pense 6.1 7.1 6.0 6.5 6.1 6.4 7.8 8.3 7.7 7.5 8.0 8.0 25.8 28.6 31.3
EBIT 8.1 13.2 0.2 -11.1 -6.0 -0.3 8.5 9.9 5.8 4.4 6.7 4.5 10.5 12.0 21.3
Net Interest Income -1.0 -1.0 -0.9 -0.9 -0.9 -0.9 -0.9 -0.8 -0.7 -0.7 -0.7 -0.6 -3.8 -3.4 -2.7
Net Other Income 0.5 0.1 0.6 0.6 1.5 1.6 1.7 1.8 2.0 2.0 2.3 2.4 1.9 6.5 8.7
Pre Tax Profit 7.7 12.3 0.0 -11.4 -5.5 0.4 9.3 10.9 7.0 5.7 8.3 6.3 8.6 15.2 27.3
Tax 0.4 1.1 -0.2 0.0 -0.5 0.0 0.8 1.0 0.7 0.6 0.8 0.6 -1.2 -1.4 -2.7
Net Profit 7.1 11.0 0.1 -11.5 -5.0 0.4 8.5 9.9 6.3 5.2 7.5 5.7 6.7 13.8 24.6
EPS (NT$) 0.8 1.2 0.0 -1.3 -0.6 0.0 1.0 1.1 0.7 0.6 0.8 0.6 0.8 1.6 2.8
Glass output ('000 sqm) 3,976 4,531 4,693 4,347 4,286 4,849 5,655 5,812 5,595 5,808 6,196 6,189 17,203 20,602 23,788
% change -1% 14% 4% -7% -1% 13% 17% 3% -4% 4% 7% 0% 36% 20% 15%
TV 2,387 2,731 3,118 2,682 2,681 3,154 3,799 3,906 3,748 3,937 4,254 4,254 10,918 13,540 16,192
Monitor 930 994 853 939 937 982 1,047 1,043 1,026 1,051 1,097 1,091 3,715 4,009 4,265
NBPC 615 666 626 662 668 713 809 864 821 821 844 844 2,569 3,053 3,330
Capacity Breakdown% (input area basis)
5G and below 29% 28% 28% 28% 28% 25% 25% 25% 25% 24% 23% 23% 28% 26% 24%
6G 36% 34% 32% 32% 32% 29% 29% 29% 28% 28% 27% 26% 34% 30% 27%
7G+ 35% 38% 40% 40% 40% 46% 46% 46% 47% 48% 50% 51% 38% 45% 49%
ASP / m 2 841 847 792 725 727 734 746 753 724 706 697 685 818 741 702
% change -2% 1% -6% -8% 0% 1% 2% 1% -4% -3% -1% -2% -3% -9% -5%
Cash cost / m 2 570 563 592 589 563 539 515 508 498 494 481 479 590 528 488
% change -8% -1% 5% -1% -5% -4% -4% -1% -2% -1% -3% 0% -5% -10% -8%
Margins (%)
Gross Margin 12.8 15.8 5.0 -4.4 0.0 5.3 11.9 12.8 10.2 8.9 10.4 8.9 7.8 8.2 9.6
Operating Margin 7.3 10.3 0.2 -10.8 -5.9 -0.2 6.2 6.9 4.4 3.3 4.7 3.2 2.2 2.4 3.9
EBITDA Margin 27.6 26.9 17.2 10.7 15.2 19.2 23.3 23.9 22.8 22.0 22.5 21.6 20.9 20.9 22.2
Net Margin 6.4 8.5 0.1 -11.2 -4.9 0.4 6.2 7.0 4.8 3.8 5.3 4.0 1.4 2.8 4.5
Rev enue -2.9 15.3 -3.3 -17.5 -0.5 13.6 17.6 4.1 -7.2 1.7 5.8 -0.6 30.0 6.3 10.6
Gross Profit 62.8 42.4 -69.3 n.m. n.m. 13,472.0 164.1 11.7 -26.0 -11.6 23.6 -15.0 415.5 12.1 29.2
EBIT 327.9 62.6 -98.2 n.m. n.m. n.m. n.m. 16.3 -41.6 -23.2 51.3 -33.4 n.m. 14.7 77.1
EPS n.m. 54.3 -99.1 n.m. n.m. n.m. 1,980.6 16.8 -36.5 -17.9 44.6 -24.4 n.m. 106.4 77.8

155
CMI (3481.TW, N)
(NT$ in billions, year-end Decem ber) NT$
FY09 FY10E FY11E FY12E
160
Sales (NT$B ) 164.7 487.0 585.7 667.3
Operating Profit (NT$B ) -3.5 -4.8 5.4 23.9 120
EBITDA (NT$B ) 8.6 70.1 110.7 142.9
Pre Tax Profit (NT$B ) -3.2 -13.5 2.6 22.2 80
Pre Tax EPS (NT$) -1.0 -2.1 0.4 3.0
40
Net profit reported (NT$B ) -2.4 -14.8 2.3 19.3
MV of Employee Bonus (NT$B ) 0.0 0.0 0.2 1.9
0
Adjusted Net Profit -2.4 -14.8 2.3 19.3
1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/10 7/10
New Taiw an GAAP EPS (NT$) (0.7) (2.3) 0.3 2.6
New Taiw an GAAP P/E (x) nm nm 103.9 12.2 Innolux 10x 15x 20x 25x
Gross Debt (NT$B ) 46.5 288.1 256.4 234.8
Cash (NT$B ) 36.5 59.0 33.1 33.6 12-month forward P/B & ROE bands
Equity (NT$B ) 94.7 258.4 260.6 279.6 NT$ ROE (%)
ROE (%) -2.5 -8.4 0.9 7.1 160 25
Core ROIC (%) -2.8 -1.5 1.1 9.2
20
Y/E BPS (NT$) 29.18 35.33 35.64 38.23 120
Cash Div. (NT$/Share) 0.20 0.00 0.00 0.05 15
P/B 1.1 0.9 0.9 0.8 80 10

Quarterly EPS (NT$) 1Q 2Q 3Q 4Q
5
EPS (FY10) E 0.88 1.31 (0.50) (3.30) 40
0
EPS (FY11) E (0.78) (0.23) 0.49 0.83
0 -5
EPS (FY12) E 0.53 0.57 0.79 0.75
1/06 5/06 9/06 1/07 5/07 9/07 1/08 5/08 9/08 1/09 5/09 9/09 1/10 5/10 9/10
Abs. Per.(1M, 3M, 12M) -5.0% -16.9% -33.3%
Rel. Per.(1M, 3M, 12M) -2.9% -16.2% -40.0 Innolux 1x 2x 3x 4x ROE
Source: Company data, J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan estimates.
Prolonged delay of synergy from the merger: Despite a meaningful capacity growth after the merger, CMI’s profitability is
consistently behind its global peers. We suspect the lack of customer base and poor product mix are the main reasons.
Potential spin-off of mobile display business: We are concerned at the rationale, given that its mobile-display business, including
touch panels, is likely to remain the most- profitable business with higher growth opportunity.
Price target: Dec-11 PT of NT$32 is based on 0.9x FY11E book value

Key risks: Sudden and substantial changes in panel prices, and significant changes in consumer demand.
156
CMI: Ongoing losses and uncertainties cloud the near-term outlook
- Prolonged vertical integration may take long to see impact
Vertical integration may not see meaningful impact prior to 3Q11
Potential spin-off of mobile division may dilute share value
- Less attractive compared to AUO

It is worth noting that the percentage contribution of TV panels to CMI’s revenues is
considerably lower compared to with AUO’s due to smaller exposure to large-size TV
More than 50% of its TV shipments are in 26” and below sizes, in contrast with less than
30% for SEC, LGD, and AUO, due to customer mix
We expect AUO’s ASP to see sequential increase throughout 2011 due to its increasing
portion of LED TV panels, and aggressive cost reduction efforts, while CMI would continue
to suffer from continual ASP erosion due to relatively low exposure to high-ASP large LED
TV panels
CMI versus AUO – TV as % of total revenues CMI versus AUO – Blended ASP trends
60%
900 6%
50% 3%
800
0%
40%
-3%
700
30% -6%
20% 600 -9%
2Q10 4Q10 2Q11E 4Q11E 2Q12E 4Q12E 2Q10 4Q10 2Q11E 4Q11E 2Q12E 4Q12E
CMI/AUO price gap (RHS) CMI AUO

CMI AUO
Source: J.P. Morgan estimates. Source: Company data, J.P. Morgan estimates.
157
CMI: Earnings model
2010E 2011E 2012E
(NT$ in billions, year-end December) 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2010E 2011E 2012E
Revenue 69.0 148.2 139.4 130.4 122.7 139.1 158.5 165.4 155.2 161.5 173.1 177.4 487.0 585.7 667.3
Large-Size Panels Total 62.1 131.7 113.5 101.8 92.6 103.2 117.1 119.9 113.3 116.8 123.4 121.4 409.1 432.9 474.9
S&M Panels Total 6.9 16.4 25.9 28.6 24.7 27.1 30.6 33.1 30.9 32.9 35.7 39.9 77.8 115.6 139.4
Touch Panel Total - - - - 5.3 8.7 10.7 12.4 11.0 11.9 14.0 16.1 - 37.2 52.9
Depreciation 6.2 23.7 24.9 24.2 24.4 25.2 26.0 26.8 27.6 28.4 29.2 29.9 79.0 102.4 115.1
COGS 61.9 128.8 134.9 140.0 121.5 133.2 145.8 149.4 142.2 147.7 157.0 161.6 465.6 549.9 608.4
Gross Profit 7.2 19.4 4.5 (9.6) 1.2 6.0 12.7 15.9 13.1 13.8 16.2 15.9 21.3 35.8 58.8
Operating Ex pense 2.9 7.4 7.7 8.2 6.5 7.3 8.2 8.5 8.1 8.5 9.1 9.3 26.1 30.4 35.0
EBIT 4.2 12.0 (3.2) (17.8) (5.3) (1.3) 4.6 7.5 5.0 5.3 7.1 6.6 (4.8) 5.4 23.9
Net Interest Income (0.3) (1.4) (1.4) (1.4) (1.4) (1.4) (1.4) (1.4) (1.4) (1.5) (1.4) (1.3) (4.5) (5.7) (5.6)
Net Other Income 0.2 0.9 0.2 (5.5) 0.1 0.9 1.0 1.0 0.9 1.0 1.0 1.0 (4.2) 2.8 3.9
Pre Tax Profit 4.1 11.5 (4.4) (24.7) (6.6) (1.9) 4.1 7.0 4.4 4.8 6.7 6.3 (13.5) 2.6 22.2
Tax 0.7 1.6 (1.0) (0.5) (0.9) (0.2) 0.5 0.9 0.6 0.6 0.9 0.8 (0.8) (0.3) (2.9)
Net Profit reported 3.4 9.5 (3.6) (24.1) (5.7) (1.7) 3.6 6.1 3.9 4.1 5.8 5.5 (14.8) 2.3 19.3
EPS (NT$) 0.9 1.3 -0.5 -3.3 -0.8 -0.2 0.5 0.8 0.5 0.6 0.8 0.7 -2.3 0.3 2.6
Glass output ('000 sqm) 4,233 4,646 4,435 4,512 4,512 5,067 5,771 5,876 5,678 6,010 6,484 6,474 17,826 21,226 24,646
% change 15% 10% -5% 2% 0% 12% 14% 2% -3% 6% 8% 0% 43% 19% 16%
TV 2,442 2,838 2,899 2,715 2,715 3,153 3,704 3,756 3,583 3,849 4,212 4,186 10,894 13,328 15,830
Monitor 1,431 1,393 1,174 1,398 1,392 1,465 1,553 1,553 1,537 1,584 1,664 1,664 5,396 5,962 6,449
NBPC 355 411 358 399 406 449 514 567 558 577 609 623 1,523 1,936 2,368
Capacity Breakdown% (input area basis)
5G and below 37% 34% 32% 31% 31% 30% 30% 29% 28% 28% 27% 27% 33% 30% 27%
6G 41% 44% 45% 45% 45% 44% 44% 44% 43% 43% 43% 42% 44% 44% 43%
7G+ 22% 22% 23% 24% 24% 26% 26% 27% 29% 29% 30% 31% 23% 26% 30%
Capacity ('000 Sq M) 5,929 6,478 6,859 7,116 7,274 7,604 7,850 7,978 8,376 8,663 8,867 9,071 26,383 30,706 34,978
% change 5% 9% 6% 4% 2% 5% 3% 2% 5% 3% 2% 2% 24% 16% 14%
Output area result
ASP / m2 922 870 783 740 708 703 700 704 688 670 656 647 829 703 664
% change 31% -6% -10% -5% -4% -1% 0% 1% -2% -3% -2% -1% 21% -15% -6%
Cash cost / m2 643 612 584 563 538 515 495 481 469 456 444 435 595 505 450
% change 21% -5% -5% -4% -4% -4% -4% -3% -3% -3% -3% -2% 15% -15% -11%
Margins (%)
Gross Margin 10.4 13.1 3.2 -7.4 1.0 4.3 8.0 9.6 8.4 8.5 9.3 8.9 4.4 6.1 8.8
Operating Margin 6.1 8.1 -2.3 -13.6 -4.3 -1.0 2.9 4.5 3.2 3.3 4.1 3.7 -1.0 0.9 3.6
EBITDA Margin 15.1 24.1 15.5 4.9 15.6 17.2 19.3 20.7 21.0 20.9 20.9 20.5 15.2 18.4 20.8
Net Margin 4.9 6.4 -2.6 -18.5 -4.7 -1.2 2.2 3.7 2.5 2.6 3.4 3.1 -3.0 0.4 2.9
Rev enue 48.2 114.6 -6.0 -6.4 -5.9 13.4 13.9 4.3 -6.1 4.0 7.2 2.5 195.6 20.3 13.9
Gross Profit 305.5 170.5 -76.9 n.m. n.m. 399.9 113.6 25.1 -18.1 5.4 17.4 -1.8 406.0 67.9 64.2
EBIT n.m. 184.7 n.m. n.m. n.m. n.m. n.m. 63.4 -33.5 5.9 34.2 -6.9 n.m. n.m. 339.3
Net Profit 493.6 181.7 n.m. n.m. n.m. n.m. n.m. 71.5 -36.6 7.0 40.4 -5.8 n.m. n.m. 751.0
New TWN GAAP EPS 402.8 47.7 n.m. n.m. n.m. n.m. n.m. 71.5 -36.6 7.0 40.4 -5.8 n.m. n.m. 751.0

158
Epistar (2448.TW, OW)
NT$B (Year-end: Dec) FY09 FY10E FY11E FY12E
200
NT$
Sales 13 20 23 26 40x
Operating Profit 2 5 5 7 20x
160
EBITDA 4 7 8 10
Net profit 2 6 7 8 120 15x
MV of Employ ee Bonus 0 1 1 1
Adjusted Net Profit 2 6 7 8 80 10x
New Taiw an GAAP EPS (NT$)* 3 7 8 9
New Taiw an GAAP P/E (x ) 43.8 15.8 13.7 12.8 40
Gross Debt 6 7 7 7
Cash 22 14 14 14
-
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Equity 36 46 50 53
Y/E BPS (NT$) 46 55 59 62 Source: Bloomberg, J.P. Morgan estimates.
P/B (x ) 2 2 2 2
ROE (%) 6 14 15 15 12-month forward P/B & ROE bands
Core ROIC (%) 10 25 27 14
Cash Div . (NT$/Share) 0 0 5 5 4x 20%
NT$, %
Qtr EPS (NT$) 1Q 2Q 3Q 4Q 160 3x
EPS (FY10) 1.3 2.2 2.3 1.4 15%4
120 2x
EPS (FY11) E 1.4 2.3 2.6 2.0
EPS (FY12) E 1.7 2.4 2.9 1.8 10%3
80 2
Local 1M 3M 12M 1x 1
Abs. Perf.(%) 7.6 14.6 10.2 40 5%
Rel. Perf.(%) 13.3 20.4 3.5
- 0%
Source: Company data, J.P. Morgan estimates. Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Epistar Forward ROE

Source: Bloomberg, J.P. Morgan estimates.
Focus on high-margin TV and lighting: TV and lighting together account for more than 50% of revenue in 2011E vs. 40% in 2010,
which translates to higher overall margin. Epistar is targeting a minimum ~25% revenue growth and above 30% GM for 2011.
General lighting exposures and pricing power gains : (1) its pricing power over LED packagers, via horizontal integration, and
(2) diversification away from LED backlight businesses.
Strategic moves will likely have meaningful positive impact: (1) to gain control of LED supplies, or (2) to aim for large potential
of general lighting market.
Price Target: Dec-11 PT of NT$130 is based on 15.5x FY11E P/E
Key risks: (1) Unexpected rises/falls in LED supply/demand (2) Unexpected significant falls in LED chip price
159
Epistar: Strategic moves start to see meaningful impact
Major LED makers’ MOCVD installment trends Epistar revenue mix by application
2000
35%
1500 30%
30% 28%
22% 23%
1000 25%
20%
18% 19% 18%
20% 17% 17%
500 15%
14%
11% 11% 11%
9% 9% 9%
0 10% 7%
5% 3% 2% 2%
2008 2009 2010E 2011E
0%
Handset NB/MNT TV Lighting Signage Automotive Others
Nichia TG SEMCO LG Innotek Seoul Opto
2009 2010E 2011E
Epistar ForEpi Huga Others

Source: Companies, J.P. Morgan estimates.
Note: Based-on year-end figures
Horizontal integration is Epistar’s competitive advantage: Epistar and its affiliated group control close to 20%
of total LED supply which should help Epistar weather the potential over-supply better than the competitors.
High-margin LED s are the focus: We expect Epistar’s peak season to be propelled by new TV models and
continuous LED lighting penetration. Several Epistar’s JV targeted at general lighting will also start to
contribute the bottom line starting 2Q11E.
160
Epistar: Earnings model
2010E 2011E 2012E
(NT$ in M, year-end Dec) 1Q 2Q 3Q 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2010E 2011E 2012E
Revenue 4,030 5,244 5,679 4,813 4,579 6,586 6,810 5,427 5,360 7,084 7,685 6,361 19,766 23,402 26,490
Depreciation -496 -511 -515 -525 -573 -616 -657 -699 -740 -781 -825 -870 -2,047 -2,545 -3,216
COGS -2,589 -3,184 -3,365 -3,547 -3,175 -4,375 -4,304 -3,521 -3,404 -4,348 -4,488 -4,250 -12,685 -15,374 -16,490
Gross Profit 1,441 2,060 2,314 1,265 1,404 2,211 2,506 1,906 1,957 2,736 3,197 2,111 7,081 8,027 10,000
Operating Ex pense -409 -511 -628 -586 -563 -832 -893 -709 -677 -907 -999 -800 -2,134 -2,996 -3,383
EBIT 1,032 1,550 1,686 679 842 1,379 1,614 1,197 1,280 1,828 2,198 1,311 4,947 5,031 6,617
Non-Operating Income 100 255 492 426 271 417 440 371 344 467 503 418 1,273 1,499 1,733
Pre Tax Profit 1,132 1,804 2,178 1,105 1,113 1,796 2,054 1,568 1,624 2,296 2,701 1,729 6,220 6,530 8,350
Tax Ex pense/(Credit) 129 115 274 -64 -83 -135 -154 -117 162 230 270 173 -453 489 -835
Net Profit (reported) 1,003 1,689 1,904 1,170 1,196 1,930 2,208 1,685 1,462 2,066 2,431 1,556 5,766 7,020 7,515
EPS reported (NT$) 1.30 2.20 2.31 1.38 1.41 2.28 2.61 1.99 1.72 2.44 2.87 1.84 7.19 8.28 8.87
New Taiwan GAAP EPS (NT$) 1.30 2.20 2.31 1.38 1.41 2.28 2.61 1.99 1.72 2.44 2.87 1.84 7.19 8.28 8.87
Shipments (Mn)
4-element 3,306 4,560 5,130 4,560 4,560 5,130 5,400 4,800 4,800 5,100 5,670 5,040 17,556 19,890 20,610
InGaN 4,416 5,400 5,550 4,845 4,800 7,200 7,500 6,240 6,480 8,700 9,300 7,920 20,211 25,740 32,400
Blended ASP (NT$)
4-element 0.26 0.26 0.26 0.25 0.25 0.25 0.25 0.23 0.22 0.22 0.22 0.22 0.26 0.24 0.22
InGaN 0.65 0.67 0.67 0.65 0.61 0.66 0.65 0.61 0.59 0.62 0.63 0.60 0.66 0.64 0.61
Revenue breakdown
Handset 19% 20% 20% 25% 20% 15% 10% 10% 9% 9% 8% 8% 21% 14% 9%
NB 12% 12% 9% 5% 10% 15% 15% 10% 10% 10% 10% 10% 9% 13% 11%
TV 23% 25% 25% 20% 24% 30% 35% 26% 25% 28% 30% 25% 23% 31% 30%
Lighting 19% 19% 20% 19% 22% 17% 18% 26% 29% 25% 26% 33% 19% 20% 28%
Regular 4-element 15% 15% 12% 14% 10% 10% 10% 10% 10% 10% 10% 10% 14% 10% 11%
Others 10% 7% 12% 15% 12% 11% 10% 16% 15% 16% 14% 12% 11% 9% 9%
Margins (%)
Gross Margin 35.8 39.3 40.7 26.3 30.7 33.6 36.8 35.1 36.5 38.6 41.6 33.2 35.8 34.3 37.8
Operating Margin 25.6 29.5 29.7 14.1 18.4 20.9 23.7 22.0 23.9 25.8 28.6 20.6 25.0 21.5 25.0
EBITDA Margin 39.8 40.4 39.9 26.4 32.5 31.5 34.6 36.5 39.4 38.2 40.7 36.0 36.7 33.7 38.7
Net Margin 24.9 32.2 33.5 24.3 26.1 29.3 32.4 31.1 27.3 29.2 31.6 24.5 29.2 30.0 28.4
Rev enue 4.6 30.1 8.3 -15.3 -4.8 43.8 3.4 -20.3 -1.2 32.2 8.5 -17.2 55.6 18.4 13.2
Gross Profit 12.4 42.9 12.3 -45.3 11.0 57.4 13.4 -24.0 2.7 39.8 16.9 -34.0 130.0 13.4 24.6
EBIT 16.6 50.1 8.8 -59.7 24.0 63.8 17.0 -25.9 7.0 42.9 20.2 -40.3 195.7 1.7 31.5
Net Profit (reported) 6.3 68.4 12.7 -38.6 2.3 61.4 14.4 -23.7 -13.3 41.3 17.7 -36.0 232.9 21.7 7.1
New Taiw an GAAP EPS 6.3 68.3 5.3 -40.3 2.3 61.4 14.4 -23.7 -13.3 41.3 17.7 -36.0 177.1 15.2 7.1

161
Everlight (2393.TW, N)
Share price:NT$87.2(11
NT$82.8 (28Jun
March
10)11) (Reuters: 2393.TW, Bloomberg: 2393 TT) 12-month forward P/E bands
30x
160
NT$
NT$B (Year-e nd: Dec) FY09 FY10E FY11E FY12E
Sales 11.4 17.9 20.7 21.7 20x
120 1
Operating Profit 1.7 2.7 2.8 3.0
EBIT DA 3.0 4.3 5.1 6.0
80
Net profit 1.8 2.6 2.6 2.8 10x 1
MV of Employee Bonus 0.2 0.3 0.3 0.3 8

40
Adjusted Net Profit 1.8 2.6 2.6 2.8 5x 5
New T aiwan GAAP EPS (NT $)* 4.9 6.3 6.3 6.7
-
New T aiwan GAAP P/E (x) 17.2 13.2 13.3 12.5 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Gross Debt 6.7 6.8 7.4 7.7
Cash 8.0 7.1 6.7 7.1 Source: Bloomberg, J.P. Morgan estimates.
Equity 14.6 16.0 16.8 17.8 12-month forward P/B bands
Y/E BPS (NT $) 35.5 38.2 40.1 42.5
P/B (x) 2.4 2.2 2.1 2.0 160 20%
NT$
ROE (%) 14.8 17.2 16.0 16.1 5x
Core ROIC (%) 20.5 25.3 18.5 22.5 120 16%
3x
Cash Div. (NT $/Share) 3.2 0.0 4.3 4.3 12%
Qtr EPS (NT$) 1Q 2Q 3Q 4Q 80
2x 8%
EPS (FY10) E 1.3 2.1 1.6 1.3
40 4%
EPS (FY11) E 1.2 1.6 1.8 1.6 1x
EPS (FY12) E 1.5 1.7 1.8 1.7
- 0%
Local 1M 3M 12M Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Abs. Perf.(%) -1.1 1.5 -20.9
Rel. Perf.(%) -3.9 -8.1 -29.3
Everlight Forward ROE
Source: Company data, J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan estimates.
Bargaining power has shifted to chipmakers: As LED upstream has become more horizontally integrated, Everlight’s GM has
continued to slip and its EBIT has declined for the last three consecutive quarters.
Meaningful LED BLU price drops in 2011: Panel makers may demand LED suppliers provide more meaningful price concessions,
LED BLU selling prices are expected to decline by approximately 3-5% per quarter.
Limited exposure to LED general lighting: We estimate Everlight will only have 10% revenue exposure to the net growth engine
for LED industry, as compared to 7% in 2010
Price target: Dec-11 price target of NT$85 based on 13x FY11E P/E
Key risks: (1) More/less than expected pricing pressure from panel makers (2) Unexpected significant
falls in LED chip price
162
Everlight: Earnings model
2010E 2011E 2012E
(NT$ in M, year-end Dec) 1QE 2Q 3Q 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2010E 2011E 2012E
Revenue 3,696 4,606 4,955 4,636 4,444 5,196 5,703 5,335 4,860 5,488 5,894 5,480 17,893 20,677 21,722
Depreciation -326 -349 -403 -478 -530 -563 -602 -641 -679 -718 -756 -795 -1,556 -2,336 -2,947
COGS -2,358 -3,021 -3,612 -3,408 -3,277 -3,783 -4,088 -3,832 -3,502 -3,959 -4,246 -3,941 -12,399 -14,981 -15,648
Gross Profit 1,338 1,584 1,343 1,228 1,166 1,412 1,615 1,503 1,358 1,529 1,648 1,539 5,494 5,696 6,074
Operating Ex pense -582 -852 -669 -682 -646 -707 -784 -758 -683 -778 -808 -769 -2,785 -2,895 -3,039
EBIT 756 733 673 547 521 705 830 745 675 751 839 770 2,709 2,801 3,035
Non-Operating Income -65 175 152 147 148 147 144 142 142 141 139 138 409 580 560
Pre Tax Profit 692 908 825 694 669 852 974 887 817 892 978 908 3,118 3,381 3,595
Tax Ex pense/(Credit) 146 43 144 155 149 190 217 198 182 199 218 203 -488 -754 -802
Net Profit reported 541 866 683 539 520 662 757 689 635 693 760 705 2,628 2,627 2,793
EPS reported (NT$) 1.32 2.07 1.63 1.29 1.24 1.58 1.80 1.64 1.51 1.65 1.81 1.68 6.30 6.27 6.66
New Taiwan GAAP EPS (NT$) 1.32 2.07 1.63 1.29 1.24 1.58 1.80 1.64 1.51 1.65 1.81 1.68 6.30 6.27 6.66
Shipments (Mn)
SMD 3,038 4,224 4,995 4,895 4,800 5,670 6,270 6,168 5,760 7,020 7,695 7,500 17,151 22,908 23,868
Lamp 468 576 576 518 540 612 648 612 540 612 648 612 2,138 2,412 2,412
Display 23 29 36 35 32 36 43 41 42 48 53 50 124 151 162
Infrared 513 542 570 536 504 567 656 587 576 648 713 638 2,160 2,313 2,385
Others 247 420 71 120 114 137 164 120 114 137 164 120 858 535 535
ASP (NT$)
SMD 0.9 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.8 0.7 0.6
Lamp 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Display 8.3 8.1 8.0 8.0 7.6 7.6 7.4 7.4 7.2 7.0 6.8 6.6 8.1 7.5 6.8
Infrared 1.0 1.0 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8 0.7 0.9 0.8 0.8
Others 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 0.7 0.7 0.6
Margins (%)
Gross Margin 36.2 34.4 27.1 26.5 26.2 27.2 28.3 28.2 27.9 27.9 28.0 28.1 30.7 27.5 28.0
Operating Margin 20.5 15.9 13.6 11.8 11.7 13.6 14.6 14.0 13.9 13.7 14.2 14.0 15.1 13.5 14.0
EBITDA Margin 29.3 23.5 21.7 22.1 23.7 24.4 25.1 26.0 27.9 26.8 27.1 28.5 23.8 24.8 27.5
Net Margin 14.6 18.8 13.8 11.6 11.7 12.7 13.3 12.9 13.1 12.6 12.9 12.9 14.7 12.7 12.9
Rev enue 9.8 24.6 7.6 -6.4 -4.2 16.9 9.8 -6.4 -8.9 12.9 7.4 -7.0 56.9 15.6 5.1
Gross Profit 11.9 18.4 -15.3 -8.5 -5.0 21.1 14.3 -6.9 -9.6 12.6 7.8 -6.6 38.1 3.7 6.6
EBIT 72.4 -3.1 -8.1 -18.8 -4.7 35.3 17.8 -10.3 -9.4 11.3 11.8 -8.3 61.2 3.4 8.4
Net Profit reported -10.4 60.0 -21.1 -21.1 -3.6 27.4 14.3 -8.9 -7.9 9.2 9.6 -7.2 46.0 0.0 6.3
New Taiw an GAAP EPS -16.0 56.6 -21.1 -21.1 -3.6 27.4 14.3 -8.9 -7.9 9.2 9.6 -7.2 29.5 -0.6 6.3

163
Asia Pacific Equity Research
April 2011
Semiconductor Contract Manufacturers

Mid-cycle correction offers a re-entry opportunity
Regional Semiconductors Regional Semiconductors

Rick Hsu AC JJ Park
+886 2 2725 9874 +822 758 5717
rick.ic.hsu@jpmorgan.com jj.park@jpmorgan.com
J.P. Morgan Securities (Taiwan) Limited. J.P. Morgan Securities (Far East) Ltd, Seoul Branch
Taiwan Semiconductors Taiwan Semiconductors

Cynthia Chou Narci Chang
+886 2 2725 9898 +886 2 2725 9899
cynthia.hy.chou@jpmorgan.com narci.h.chang@jpmorgan.com
J.P. Morgan Securities (Taiwan) Limited. J.P. Morgan Securities (Taiwan) Limited.
See the end pages of this presentation for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan 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 inve
stment decision.
Investment summary
We remain bullish on the SCM sector despite our near-term inventory concern and potential impacts on key material supply
as a result of Japan’s earthquake.
We see the inventory correction this time as short-lived – Buy on weakness as value re-emerges post the correction which
may offer a second chance to get in.
Our top picks are TSMC and SPIL.
Key theme: we are envisioning a multi-year market-share-gain cycle for the SCM sector, with foundries to gain shares
against IDMs and Taiwan OSAT to gain shares against overseas peers on expansion of Cu addressable market. This theme
remains intact despite inventory concern.
Foundry: we prefer TSMC.
We see the sector growth as driven by: 1) a structural IDM outsourcing, 2) ARM-based solution, and 3) new
customer/product.
We expect TSMC to re-rate in valuations on a structural ROE improvement.
OSAT – OW SPIL and ASE; prefer SPIL.

We see the sector growth as driven by: 1) expansion of Cu addressable market, 2) ARM-based solution and CPU
business, and 3) IDM outsourcing in China.
Taiwan to lead in Cu wirebonding, SPIL to catch up with ASE in 2Q11.
165
Stock for action: a second chance to get in …
Recap our recommendation in September 2010 regarding investment timing for SCM stocks, we said “We think the time to buy is
now”, per the four barometers we’ve been monitoring.
The best timing seems to have gone, but we see a second chance to buy as emerging, thanks to an expected but short-lived
inventory correction in 2Q11.
Correlation between SCM stock and industry barometer

1Q00=100 Foundry UTR vs stock prices
1Q95=100 Foundry earnings vs stock prices NT$B
800 70 160 120%
700 60 140
100%
600 50 120
500
40 80%
100
30
400 80 60%
20
300 60
10 40%
200 0 40
100 -10 20%
20
0 -20
0 0%
1Q95
3Q95
4Q95
2Q96
4Q96
2Q97
4Q97
2Q98
4Q98
2Q99
4Q99
2Q00
4Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
2Q12
1Q00
2Q00
4Q00
1Q01
3Q01
4Q01
2Q02
3Q02
1Q03
2Q03
4Q03
1Q04
3Q04
4Q04
2Q05
4Q05
1Q06
3Q06
4Q06
2Q07
3Q07
1Q08
2Q08
4Q08
1Q09
3Q09
4Q09
2Q10
3Q10
1Q11
3Q11
4Q11
2Q12
Foundry index Net profits Foundry index UTR (RHS)
1Q95=100 Chip inventory vs stock prices Day
1,000 120 1Q95=100 OSAT capital intensity vs stock prices
900 1,000 80%
800 100
800 60%
700 80
600 600
500 60 40%
400
400
40 200 20%
300
200 20 0 0%
100
1Q95
3Q95
4Q95
2Q96
4Q96
2Q97
4Q97
2Q98
4Q98
2Q99
4Q99
2Q00
4Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
0 0
1Q95
3Q95
4Q95
2Q96
4Q96
2Q97
4Q97
2Q98
4Q98
2Q99
4Q99
2Q00
4Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
Inventory (RHS) Foundry index OSAT index

OSAT index (LHS) Capital intensity
Source: Bloomberg, Company, J.P. Morgan estimates. * Foundries include TSMC, UMC and SMIC, OSAT include ASE and SPIL.
166
… post an inventory correction
We stay Bullish on the SCM sector as the short-lived inventory correction doesn’t harm our view.
TSMC and SPIL are our top choices, while SMIC may see potentials in 65nm market share gains at the expense of UMC.
SCM: valuation and investment summary

Company Blmbrg Price* ADR PT Rating P/B (x) P/E (x) ROE (%) Earnings Dividend yield*
Ticker (LC) (US$) (LC) FY10E FY11E FY10E FY11E FY10E FY11E Cagr (3yr) FY10E FY11E
Foundry
TSMC 2330 TT 68.60 11.94 88.00 OW 3.1 2.7 11.0 11.2 0.3 0.2 10-12% 4.4% 4.4%
UMC 2303 TT 14.70 2.73 16.00 N 0.9 0.8 7.8 10.0 0.1 0.1 10-15% 3.4% 6.8%
SMIC 981 HK 0.60 3.83 0.60 N 1.0 0.9 nm 62.6 0.0 0.0 15-20% 0.0% 0.0%
Vanguard 5347 TT 14.40 na 15.50 N 1.1 1.1 12.1 10.8 0.1 0.1 15-20% 2.8% 4.2%
OSAT
ASE 2311 TT 32.55 5.68 40.00 OW 2.1 1.8 10.7 10.5 0.2 0.2 10-15% 1.1% 2.5%
SPIL 2325 TT 36.05 6.20 47.00 OW 1.8 1.8 20.0 14.9 0.1 0.1 20-25% 7.2% 4.2%
PTI 6239 TT 95.30 na 130.00 OW 2.0 1.9 8.6 8.3 0.2 0.2 10-15% 3.7% 6.7%
Source: Bloomberg, J.P. Morgan estimates. * Based on 3/22/2011 closing. ** Paid against prev ious y ear.
Stock Rating PT* Curr Px Up/downside* Investment theme Risk

TSMC OW 88.00 68.60 28% 1. Leadership advantage (primary source) to enjoy the lion's shares in IDM outsourcing 1. Prolonged inventory correction
2. Domination in ARM-based AP foundries thanks to its lead in advanced nodes 2. ARM-based AP inventory risk stemming from 2H Tablet market
3. New product/customer further add to growth potential 3. New entrants GF and Samsung to induce oversupply risk and price competition
UMC N 16.00 14.70 9% 1. Balanced management among capex, depreciation, dividend and ROE 1. Downside: prolonged inventory correction
2. Cash dividend yield likely double to 6% this year to attract investors 2. Upside: 40nm ramp faster than expectation
3. But slow ramp in 40nm poises a risk of losing market shares on rising 65nm competition
SMIC N 0.60 0.60 0% 1. Likely a bumpy 1H operations due to 65nm transition plus inventory adjustment 1. Upside: faster than expected 65nm migration
2. But SMIC may ramp up 65nm orders this year to threaten UMC 2. Downside: any mismatch between depreciation and cape
Vanguard N 15.50 14.40 8% 1. Order-inventory mismatch on LCD drivers which account for 2/3 of sales 1. Upside: LCD driver inventory adjustment faster than expected
2. PMIC and CIS diversification ramping ahead of expectation to offset driver risk 2. Downside: PMIC and CIS ramp slower than expected
ASE OW 40.00 32.55 23% 1. Continued market share gains this year on Cu demand expansion overseas 1. Prolonged inventory correction
2. Gaining shares in China (low pin-count business) through industry consolidation 2. Capex discipline, competition catch-up in Cu from overseas peers
3. Lead in technology developments to expand high pin-count business 3. 3D IC packaging to potentially shift supply-chain value to the front-end
SPIL OW 47.00 36.05 30% 1. Manufacturing realignment about to end, structural recovery to kick in from 2Q11 1. Prolonged inventory correction
2. Cu customer base has expanded to lift scale, improve margins and market shares 2. Execution when Cu ramps up in scale
3. New orders such as CPU and AP ramp in scale to drive growth further 3. 3D IC packaging to potentially shift supply-chain value to the front-end
* Local currency (NT$, HK$), based on 3/22/2011 closing.
167
Advanced IDM outsourcing (More for Moore)
IDMs’ lack of investments in 40nm and below should accelerate outsourcing and spur market share gains for foundries this year.
In our view, this is non-organic demand for technology advances following the typical Moore’s Law (more for Moore).
Over 25 IDMs invested and built capacity at 130nm. This number dropped to 10 at 45/40nm and will be just two at 22nm – a
great opportunity for foundries to grab market shares, in our opinion.
Consolidation of logic & analog IDMs at technology migration

130nm 90nm 65nm 45/40nm 32/28nm 22/20nm
Intel Intel Intel Intel Intel Intel
Samsung Samsung Samsung Samsung Samsung Samsung
IBM IBM IBM IBM IBM (2)
STMicro STMicro STMicro Crolles alliance Crolles alliance
Panasonic Panasonic Panasonic Panasonic Panasonic
Crolles alliance* Crolles alliance Crolles alliance Renesas (5)
Renesas Renesas Renesas TI
TI TI TI Tohsiba
Tohsiba Tohsiba Tohsiba NEC
NEC NEC NEC Fujitsu
Fujitsu Fujitsu Fujitsu (10)
AMD AMD AMD
Motorola Freescale Freescale
Infineon Infineon (13)
Sony Sony
Philips NXP
Potential share gains for foundries
Cypress Cypress
Sharp Sharp
Hitachi (18)
Mitsubishi
Siemens
ADI
Atmel Samsung Samsung Samsung Samsung Samsung
On Semi SMIC SMIC GF GF GF
Rohm CSM (IBM) CSM (IBM) SMIC SMIC SMIC
Sanyo UMC UMC UMC UMC UMC
(26) TSMC TSMC TSMC TSMC TSMC
* Crolles alliance includes Freescale, NXP and STMicro
168
TSMC deserves a re-rating; our top pick
In our view, TSMC should be the biggest beneficiary under our IDM outsourcing theme, plus the expanding demand for ARM-based
solutions and new customer/product contribution.
With the sector entering a new phase of growth, we expect TSMC to lift its structural ROE to the 25% range in the next few years, from
20% on average over the stagnant period of FY03-09.
Amid FY03-09 where TSMC virtually saw no earnings growth, the stock was de-rated to around 3x P/BV, from 5x in the 90s where ROE
was around 30% on average. The ROE boost over FY10-13 could re-rate the stock to the 4x P/BV range, in our opinion, with our
forecast of 10% earnings CAGR.
TSMC – ROE trend TSMC – P/BV trend
50% X
10
40% 9
30% 8
7
20% 6
10% 5 4.2 ?
4
0%
3
-10% 2
2.2 2.0
-20% 1
0
FY87
FY89
FY91
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
FY11E
FY13E
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Source: Company, J.P. Morgan estimates. Source: TEJ, J.P. Morgan estimates.
169
At OSAT, our preference is SPIL
On 14 Feb, we upgraded SPIL to OW because we saw its market share loss trend as stabilizing and expect it to soon reverse in 2Q11,
gradually but structurally, primarily driven by:
1) Faster Cu catch-up which looks likely 2 quarters ahead of our previous expectation, thanks to SPIL’s faster expansion of Cu customer
base that removed our previous concern of scale issue.
2) New CPU business, including AMD APU and ARM-based AP packaging, should ramp up in scale this year to further help business
recovery at SPIL.
SAT sales differential – SPIL vs. ASE Cu sales contribution comparison*
80% 50%
75%
70% 40%
65%
60% 30%
55%
50% 20%
45%
40% 10%
35%
30% 0%
1Q11E
2Q11E
3Q11E
4Q11E
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
ASE SPIL
Source: Company, J.P. Morgan estimates for Feb-Sep 11. Source: Company, J.P. Morgan estimates. * Cu sales divided by total wirebonding sales
170
P&L impact and possible floor price
Given a wide range of BT resin related applications across mobile communication and PC, we estimate some 0-30% P&L impact across
the SCM stocks under our coverage, depending on the time table of operation recovery in Japan.
Our scenario analysis below shows potential P&L impact on TSMC, ASE and SPIL for FY11 associated with different assumption of
recovery time in Japan, with direct or indirect impact, and potential floor price if our worst-case scenario is to happen (NT$58/$25/$23 for
TSMC/SPIL/ASE).
BT resin is a critical material used to produce IC substrates (also known as CCL) – key substrates for wirebonding and FC-CSP focusing
on high pin-count chip packaging with high temperature resistance.
Scenario analysis – BT shortage impact to P&L and stock price of selected SCM player
Current Production fully recovered from
JPM estimate April May Jun July Aug Comment
TSMC 3Q/4Q revenue growth +8% /+9% +9% /+0% +9% /+0% +2% /+6% -7% /+11% -15% /+20% Assuming indirect BT sales exposure c. 20%
FY11 EPS 6.11 6.11 6.11 5.80 5.50 5.30
EPS impact 0% 0% -5% -10% -13%
Floor price (11x P/E) 67 67 67 64 61 58
SPIL 2Q/3Q revenue growth +7% /+15% +7% /+15% +3% /+19% -13% /+27% -22% /+30% -22% /+12% Assuming direct BT sales exposure 35-40%
FY11 EPS 2.42 2.42 2.37 2.05 1.87 1.66
EPS impact 0% -2% -15% -23% -31%
Floor price (15x P/E) 35 35 34 30 28 25
ASE* 2Q/3Q revenue growth +7% /+9% +7% /+9% +4% /+13% -10% /+25% -20% /+26% -20% /+9% Assuming direct BT sales exposure 25-30%
FY11 EPS 3.10 3.10 3.03 2.83 2.53 2.31
EPS impact 0% -2% -9% -18% -25%
Floor price (10x P/E) 30 30 29 28 25 23
Source: J.P. Morgan estimates. * SAT sales only.
171
TSMC (OW, PT=NT$88)
In our view, TSMC should be the biggest beneficiary under our IDM outsourcing theme. With the sector entering a new phase of growth,
we expect TSMC to lift its structural ROE to the 25% range in the next few years, from 20% on average over the stagnant period of
FY03-09.
Amid FY03-09 where TSMC virtually saw no earnings growth, the stock was de-rated to around 3x P/BV, from 5x in the 90s where ROE
was around 30% on average. The ROE boost over FY10-13 could re-rate the stock to the 4x P/BV range, in our opinion. Our PT is
based on an ROE-adjusted P/BV of 3.9x.
TSMC – ROE trend TSMC – P/BV trend
50% X
10
40%
9
30% 8
7
20%
6
5 4.2 ?
10%
4
0%
3
-10% 2
2.2 2.0
1
-20%
0
FY87
FY89
FY91
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
FY11E
FY13E
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
172
UMC (N, PT=NT$16)
UMC’s “most viable second source” strategy appears to have paid off in 65nm, which has helped recover its ROE back to the 10% level.
However, we see a risk as emerging that its 40nm ramp looks too slow to offset rising competition in 65nm from SMIC.
We therefore downgraded the stock on 7 March and cut PT to NT$16 which is based on an ROE-adjusted P/BV of 0.9x. We think the
stock will likely hover around book with no catalysts near term.
On the bright side, management’s approach of balancing expansion (cape) against depreciation, ROE and dividend looks welcomed by
investors. Rising cash dividend this year could help hedge against downside.
UMC – ROE trend UMC – P/BV trend
50% 12
40% 10
30%
8
20%
6
10%
4
0%
-10% 2
1.0 0.5
-20% 0
FY11E
FY13E
FY87
FY89
FY91
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
Jul-85
Jul-87
Jul-89
Jul-91
Jul-93
Jul-95
Jul-97
Jul-99
Jul-01
Jul-03
Jul-05
Jul-07
Jul-09
P/BV Mean Mean + s Mean - s
173
SMIC (N, PT=HK$0.6)
Despite volatile history, SMIC’s ROE may stabilize at the mid- to high-single range in the next 2-3 years, which should help stabilize its
P/BV at a fair range of 0.8-1.0x, in our industry hierarchy. We set PT for SMIC at HK$0.6, based on ROE-adjusted P/BV of 0.9x.
Though we are Neutral on the stock, SMIC stands at a good potential to gain shares in the 65nm market, given its expanding customer
base. 1H11 operations look bumpy given our expected inventory correction, but we await its 65nm executions to review our model.
SMIC – ROE trend SMIC – P/BV trend
2.0
10%
1.8
0%
1.5
1.4
-10%
1.0
-20%
-30% 0.5
-40% 0.11
0.0
Jul-04
Nov-04
Jul-05
Nov-05
Jul-06
Nov-06
Jul-07
Nov-07
Jul-08
Nov-08
Jul-09
Nov-09
Jul-10
Nov-10
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
-50%
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY13E
Source: Company, J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan estimates.
174
Vanguard (N, PT=NT$15.5)
We were surprised by Vanguard’s LCD driver customers resuming orders despite still excess inventory. Though its PMIC and CIS are
ramping fast to help, this order-inventory mismatch may cause inventory overhang to impact Vanguard. Management on 8 March cut 1Q
guidance, supporting our inventory overhang concern.
We forecast normalized ROE will de-rate to around the low-teen level over FY11-13, as compared with that in FY04-08 post its business
transition. Our ROE-adjusted P/BV method works out a 1.2x P/BV, yielding a NT$15.5 PT which we believe as reasonably capturing its
a bit bumpy operations in 1H11.
Vanguard – ROE trend Vanguard – P/BV trend
30% X
7
irrelevant due to memory setup
15% 6
5 Foundry setup
0% average P/BV = 1.9x
4
-15%
3 2.4
-30% 2
1
-45%
0.5
0
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
-60%
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY13E
175
ASE (OW, PT=NT$40)
Thanks to its lead in Cu wirebonding, ASE successfully gained market shares last year mainly against local peers. We expect ASE to
expand the Cu addressable market this year, gaining shares from overseas peers.
We expect ASE’s normalized ROE to stabilize at the high-teen range over FY10-13, meaning the stock should trade at the high side of a
fair range of 1.0-2.5x post the Y2k de-rating.
Our PT of NT$40 is based on ROE-adjusted P/BV of 2.2x, an up-cycle valuation we believe as meriting ASE’s lead in Cu transition, as well
as demand expansion from low pin-count business in China and high pin-count business on the trend of smartphone and tablet PCs.
ASE – ROE trend ASE – P/BV trend
40% 10
8.2
30% 8
20%
6
10%
4
2.6
0%
2
-10%
0.9 0.8
0
-20%
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
FY11E
FY12E
FY13E
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
176
SPIL (OW, PT=NT$47)
SPIL has replaced ASE to become our preferred OSAT exposure, thanks to its fast Cu customer base expansion to kick off a strong
earnings recovery from 2Q11.
We expect ROE to recover on gradual market share improvement through Cu catch-up and rising demand for high pin-count business
on the back of smartphones and tablet PCs. But SPIlL looks unlikely to recover ROE back to the high levels in FY05-07, thus above 2.5x
P/BV looks demanding in our opinion.
We are using our ROE-adjusted 2.3x P/BV to value the stock, which we see as fair valuation that works out a PT of NT$47. OW.
SPIL – ROE trend SPIL – P/BV trend
30% X
10
20% 8
6
10%
4 3.2
0%
2
1.0 1.2
-10% 0
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY13E
177
Risks to our ratings, forecasts and PT
FX volatility: Currency risk could weight on top-line and erode profitability of SCM companies under our coverage, should NT$
continue to appreciate against US$. Our current assumption is NT$29/US$ for FY11-12.
Prolonged inventory correction/end-demand: Should end-demand for PC, handset and consumer devices during holiday seasons fail
to materialize as we expect, inventory correction could prolong into 2H11, hurting SCM companies.
Competition/capex discipline: In light of active capacity builds by GF and Samsung, TSMC could lose cape discipline in order to
“match” competition to secure its market shares. This could cause industry oversupply, spur price competition, hurt margins and
overall profitability. Same argument may apply to OSAT industry.
Migration risk: IDMs’ migration to advanced technologies could pull back existing outsourcing orders to fill up any spare capacity
released by the migration. Any mismatch between the outsourcing demand for advanced tech and order pullbacks to fill up released
capacity could cause order volatility at foundries, diluting the total outsourcing potential.
Cu catch-up/execution: should SPIL’s execution amid its Cu scale expansion turn out below our expectation, we would review
forecasts and PT with downside bias. If Amkor and STATS-ChipPac ramp up Cu development ahead of expectation, our thesis of
Taiwan OSAT to gain market shares would be at risk.
178
Taiwan IC Design
179
Taiwan IC Design: Cherry Pick
Novatek (OW, PT of NT$120): Our top pick – buy on the bottom
Richtek (N, PT of NT$230): Earnings growth to be eaten up
Ralink (NR): Pricing erosion is the key concern
MStar (NR): Management’s outlook positive
Mediatek (OW, PT of NT$540, covered by Alvin Kwock): 1Q11 the trough quarter
IC design: Valuation comparison

Company Name Ticker Rating Price EPS (NT$) P/E(x) P/B(x) ROE (%)
(NT$) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E
Novatek 3034 TT OW 86.50 8.60 10.54 10.1 8.2 2.2 2.1 22.8 26.2
Richtek 6286 TT N 220.00 14.80 16.90 14.9 13.0 4.9 4.5 33.1 34.8
Mediatek 2454 TT OW 342.50 19.50 30.00 17.6 11.4 3.2 2.8 18.5 26.3
Mstar 3697 TT NR 236.50 16.41 18.10 14.4 13.1 3.0 2.8 32.9 28.3
Ralink 3534 TT NR 97.40 6.13 7.21 15.9 13.5 2.0 2.0 13.7 16.5
Realtek 2379 TT NR 54.40 4.26 4.67 12.8 11.6 1.4 1.4 11.2 12.5
Source: Bloomberg, Company data, J.P. Morgan estimates. *Estimates for Non-rated (NR) stocks are all based on Bloomberg consensus. *Price are as of 24 March 2011.
180
Novatek is our top pick (OW, PT of NT$120) – buy at the bottom
Positive signals from latest update of CNY TV sales

LCD TV up 28% Y/Y vs. Street consensus of 10-15% Y/Y with rural area growing faster (32%)
Domestic brands gained market share to 64% with stronger demand for small size TVs ÆTaiwan panel makers
(AUO/CMI) shall benefit more vs. Korea players
Inventory concern post CNY is clearly overblown
Structural changes to require more driver IC per unit

From IT panel to TV to featured TV: resolution upgrade, more driver IC required
From feature phone to Smartphone: higher ASP, resolution upgrade
Most attractive valuation on our/Bloomberg estimates

Lowest P/E
Major indicators all point to the upside
Attractive dividend yield
Share price: NT$86.5 (24 Mar 11) (Reuters: 3034.TW, Bloomberg: 3034 TT)
NT$B (Year-end: December) FY09 FY10 FY11E FY12E FY09 FY10 FY11E FY12E
Sales 27.0 36.3 41.4 47.8 Y/E BPS (NT$) 34.6 36.8 38.7 41.8 52-Week range NT$73.2-113.0
Operating profit 4.1 5.2 5.9 7.1 P/B (x) 2.5 2.4 2.2 2.1 Market cap US$1.74B
EBITDA 4.5 5.6 6.3 7.6 adj ROE (%) 20.6 21.5 22.8 26.2 Shares out. (Com) 596Mn
Pre-tax profit 4.1 5.1 5.9 7.3 adj CORE ROIC (%) 21.8 23.0 21.2 23.3 Free float 78%
Net profit 4.0 4.6 5.2 6.3 Cash Div. (NT$/Share) 4.5 5.0 5.5 6.2 Index 8,576.4
MV of employee bonus 0.6 0.7 0.8 1.0 Quarterly EPS (NT$) 1Q 2Q 3Q 4Q Exchange rate NT$29.6/US$1
Adjusted Net Profit 4.0 4.6 5.2 6.3 EPS (FY10) 2.0 2.1 2.1 1.5 Avg daily vol 4.7Mn
New Taiw an GAAP EPS (NT$) 6.80 7.69 8.60 10.54 EPS (FY11) E 1.6 1.9 2.5 2.6 Avg daily val US$14.8Mn
New Taiw an GAAP P/E (x) 12.7 11.3 10.1 8.2 EPS (FY12) E 2.3 2.7 3.0 2.6 2011 Div Yld 5.5%
Cash 14.6 16.0 16.7 18.7 Market cap NT$ 52Bn US$ 2Bn QFII 30.0%
Gross Debt 6.4 8.0 8.6 8.3 DCF Value (6/2011) NT$115
Equity 20.6 22.0 23.2 25.0 Price Target (6/2011) NT$120
Source: Bloomberg, Company data, J.P. Morgan estimates.
181
Novatek: Positive signals from CNY TV sales
LCD TV unit grew by 28% Y/Y with rural area growing faster (30%+) than urban (~10%)
Domestic brands gained market share to 64% against foreign brands
CNY holidays: LCD TV sell through CNY holidays: Aggregate LCD TV sell through
Unit: 10K
28.4% Y/Y
2010 CNY 2011 CNY
LCD TV sell through breakdown by region LCD TV sell through breakdown by size
Domestic Foreign
2010 Ne 2010 CN 2010 Lab 2010 Gol 2011 Ne 2011 CN

w Year Y or Holida den Wee w Year Y
ys k 2010 CN 2010 Lab 2010 Gol 2011 Ne 2011 CN
Y or Holida den Wee w Year Y
Source: AVC. ys k
182
Novatek: Structural change to raise # of driver IC per panel
From IT panel to TV to feature/function TV
The major growth driver has changed over time
Higher resolution will require more driver ICs per panel
Large-panel driver IC growth by application Lg-panel driver IC growth contribution by application

250% 100%
200%
150% 50%
100%
50%
0%
0%
-50%
-50%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
2011E
2012E
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
2011E
2012E
Monitors Mobile PCs LCD TVs 40" and abov e
Monitors Mobile PCs LCD TVs 40" and abov e
Global LCD TV shipment forecast Number of driver IC required per panel

300
40"+ the focu s 15 14

250
10
200
10 8
150
100
5
50
0
0
IT panel Normal HD Full HD (120Hz)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
2011E
2012E
# of driv er ICs
10.4" to 14" 15" to 19" 20" to 25" 26" to 27" 30 " to 3 2"
37" 40/42"+ 46"/47" 47"+
Source: Display Search, Company data, and J.P. Morgan estimates..

183
Novatek: We expect the share price to move upward
All the 4 major indicators are pointing to the upside
Novatek share price vs. large-panel shipment Y/Y Novatek share price vs. panel makers’ NI
NT$B
250 80% 250
40
200 60%
200 30
40% 20
150 150
20% 10
100 100 0
0%
-10
50 -20% 50
-20
0 -40% 0 -30
4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11
4Q11
Aggregate AUO & CMI NI (RHS)
Nov atek share price (LHS) Nov atek share price (LHS)
Global large-panel shipment Y/Y
Novatek share price vs. qtly revenue Y/Y Novatek share price vs. panel price Y/Y
250 150% 250 40%
200 100% 200 20%
150 50% 150 0%
100 0% 100 -20%
50 -50%
50 -40%
0 -100%
0 -60%
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11E
4Q11E
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10
4Q10
2Q11E
4Q11E
Nov atek share price (LHS) Rev enue Y/Y Nov atek share price (LHS) Panel price YoY
Source: Display Search, Bloomberg, Company data, and J.P. Morgan estimates..
184
Novatek: Most attractive valuation on our/Bloomberg estimates
Lowest P/E compared with major Taiwan IC design names, on our/Bloomberg estimates
Novatek is trading at 10.1x/8.2x FY11E/FY12E earnings vs. peer average of 15.1x
Still below its post-08-downturn mid-cycle valuation of 12x-13x
2011E dividend yield of 6%
IC design: Valuation comparison

Company Name Ticker Rating Price EPS (NT$) P/E(x) P/B(x) ROE (%)
(NT$) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E
Novatek 3034 TT OW 86.50 8.60 10.54 10.1 8.2 2.2 2.1 22.8 26.2
Richtek 6286 TT N 220.00 14.80 16.90 14.9 13.0 4.9 4.5 33.1 34.8
Mediatek 2454 TT OW 342.50 19.50 30.00 17.6 11.4 3.2 2.8 18.5 26.3
Mstar 3697 TT NR 236.50 16.41 18.10 14.4 13.1 3.0 2.8 32.9 28.3
Ralink 3534 TT NR 97.40 6.13 7.21 15.9 13.5 2.0 2.0 13.7 16.5
Realtek 2379 TT NR 54.40 4.26 4.67 12.8 11.6 1.4 1.4 11.2 12.5
Source: Bloomberg, Company data, J.P. Morgan estimates. *Estimates for Non-rated (NR) stocks are all based on Bloomberg consensus. *Price are as of 24 March 2011.
Novatek: 12-month trailing P/E bands Novatek: 12-month forward P/E bands
240
(NT$) 240 (NT$)
200 200
160 160
120 120
80
80
40
40
0
0
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-
02 03 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11
Nov atek 5x 10x 15x 28x Nov atek 4x 10x 15x 20x
Source: Bloomberg and J.P. Morgan estimates. Source: Bloomberg and J.P. Morgan estimates.
185
Richtek (N, PT of NT$230) – Bottom-line growth to be eaten up
Despite the multiple growth expected this year, we believe margin erosion remains the key concern due to 1) near-term NT$
appreciation, 2) higher OPEX given the expected legal fees, and 3) severe pricing competition triggered by TI’s new capacity
Near-term NT$ appreciation

Every NT$1 appreciation would cause 30-60bps of margin erosion
Higher OPEX due to legal fee

No specific timeline while we expect Richtek to book legal fee for next 2-3 quarters
Margin impact: additional 1% OP margin
Pricing competition caused from TI’s new capacity

The market may start to feel pressure in 1H11 however the biggest impact shall come in 2H11 when TI’s
phase 2 capacity expansion takes effect
In 2011, Richtek may only have ~15% contribution from 8” capacity, implying that it would use mostly 6”
capacity to compete with US competitors’ 12” (TI, Maxim, ADI, Intersil…etc)
Share price: NT$220.0 (24 Mar 11) (Reuters: 6286.TW, Bloomberg: 6286 TT)
NT$B (Year-end: Dec) FY09 FY10E FY11E FY12E FY09 FY10E FY11E FY12E 52-Week range NT$197.5-357.1
Sales 8.00 11.61 13.11 15.18 Y/E BPS (NT$) 33.6 40.5 44.8 48.6 Enterprise value NT$29.9B
Operating Profit 1.74 2.51 2.55 2.90 P/B (x) 6.5 5.4 4.9 4.5 Shares out. (Com) 150Mn
EBITDA 1.95 2.77 2.83 3.21 Adj ROE (%) 30.7 36.0 33.1 34.8 Free float 65%
Pre Tax Profit 1.67 2.41 2.48 2.83 Adj CORE ROIC (%) 87.0 114.0 98.9 94.7 Index 8,576.40
Net profit 1.54 2.18 2.21 2.53 Cash Div. (NT$/Share) 7.0 8.0 10.6 10.7 Exchange rate NT$29.6/US$1
MV of Employee Bonus 0.39 0.54 0.55 0.63 Quarterly EPS (NT$) 1Q 2Q 3Q 4Q Avg daily vol: 2.04Mn
Adjusted Net Profit 1.54 2.18 2.21 2.53 EPS (FY09) 1.27 2.59 3.53 3.01 Avg daily val: US$16.47Mn
New Taiw an GAAP EPS (NT$) 10.41 14.57 14.80 16.90 EPS (FY10) E 3.51 4.12 4.18 2.75 Avg daily val: NT$487.19Mn
New Taiw an GAAP P/E (x) 21.1 15.1 14.9 13.0 EPS (FY11) E 2.90 3.34 3.98 4.59 QFII 34%
Cash 2.20 3.28 3.32 4.09 Market cap NT$ 33Bn US$ 1Bn 2011 Div yield 4.8%
Gross Debt 0.03 0.02 0.02 0.02 DCF Value (6/2011) NT$221
Equity 5.0 6.1 6.7 7.3 Price Target (6/2011) NT$230
Source: Bloomberg, Company data, J.P. Morgan estimates.
186
Richtek – pricing pressure remains the major concern for 2011E
Richtek: share price vs. monthly sales Y/Y Richtek: share price vs. Qtly sales Y/Y
500 300% 400 150%
400 300 100%

200%
300
100% 200 50%
200
0% 100 0%
100
0 -100% 0 -50%
Jan-04 Jan-05Jan-06 Jan-07 Jan-08Jan-09 Jan-10 Jan-11 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11E
Share price (LHS) Monthly rev YoY (RHS) Share price (LHS) Qtly rev enue YoY (RHS)
Source: Company data, Bloomberg, and J.P. Morgan estimates. Source: Company data, Bloomberg, and J.P. Morgan estimates.
Richtek: 12-month forward P/E bands Richtek: 12-month trailing P/E bands
400 (NT$) 400 (NT$)
300 300
200 200
100 100
0 0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Richtek 7x 14x 21x 28x Richtek 9x 15x 25x 35x
Source: Company data, Bloomberg, and J.P. Morgan estimates. Source: Company data, Bloomberg, and J.P. Morgan estimates.
187
KSDA tables as at 8 April, 2011
Target Price/Fair Value Target Price/Fair Value
Company Ticker Date Rating Price (W) Company Ticker Date Rating Target price (W)
Samsung Electronics 005930 KS March 14, 2009 N 440,000 Hy nix Semiconductor 000660 KS February 5, 2009 N 8,000
April 26, 2009 N 520,000 February 16, 2009 UW 8,000
June 7, 2009 N 560,000 April 25, 2009 UW 8,000
July 6, 2009 N 560,000 June 12, 2009 UW 9,000
July 26, 2009 N 620,000 July 25, 2009 UW 11,000
September 6, 2009 N 780,000
October 13, 2009 N 19,000
October 6, 2009 N 780,000
October 25, 2009 N 19,000
Nov ember 1, 2009 N 780,000
January 22, 2010 N 22,000
January 31, 2010 N 800,000
April 14, 2010 N 27,000
March 29, 2010 N 800,000
April 22, 2010 N 27,000
May 2, 2010 N 820,000
May 9, 2010 N 27,000
May 17, 2010 N 820,000
July 7, 2010 N 820,000 July 12, 2010 N 27,000
July 31, 2010 N 820,000 July 22, 2010 N 25,000
September 14, 2010 N 820,000 September 23, 2010 N 23,000
October 30, 2010 N 820,000 October 29, 2010 N 23,000
January 7, 2011 N 820,000 January 18, 2011 N 25,000
January 30, 2011 N 950,000 January 27, 2011 N 25,000
April 5, 2011 N 950,000 March 3, 2011 N 25,000

Company Ticker Date Rating Price (W) Company Ticker Date Rating Price (W)
LG Electronics 066570 KS March 19, 2009 UW 74,000 LG Display 034220 KS April 16, 2009 N 28,000
April 21, 2009 UW 92,000 June 10, 2009 N 31,000
June 17, 2009 UW 105,000 July 17, 2009 N 36,000
July 23, 2009 UW 115,000 October 16, 2009 N 36,000
October 22, 2009 UW 115,000 Nov ember 12, 2009 OW 40,000

January 6, 2010 OW 53,000
January 8, 2010 UW 115,000
January 21, 2010 OW 53,000
January 27, 2010 N 125,000
March 16, 2010 OW 53,000
April 2, 2010 N 125,000
April 1, 2010 OW 55,000
April 29, 2010 N 125,000
April 22, 2010 OW 60,000
July 25, 2010 OW 140,000
June 9, 2010 OW 60,000
July 29, 2010 OW 140,000
July 14, 2010 OW 60,000
October 7, 2010 OW 130,000 July 23, 2010 OW 60,000
October 29, 2010 OW 130,000 September 16, 2010 OW 55,000
Nov ember 23, 2010 OW 130,000 October 22, 2010 OW 55,000
January 14, 2011 OW 150,000 January 12, 2011 OW 52,000
February 9, 2011 OW 150,000 March 28, 2011 OW 50,000
188
Company Ticker Date Rating Price (W) Company Ticker Date Rating Price (W)
Samsung SDI 006400 KS April 28, 2009 N 80,000 Samsung Electro-Mechanics 009150 KS February 7, 2009 N 40,000
May 27, 2009 OW 130,000
February 18, 2009 N 40,000
June 23, 2009 OW 130,000
April 25, 2009 N 40,000
July 22, 2009 OW 130,000
August 27, 2009 OW 165,000 June 3, 2009 OW 75,000
September 25, 2009 OW 210,000 July 24, 2009 OW 85,000
October 21, 2009 OW 210,000 September 1, 2009 OW 115,000
Nov ember 25, 2009 OW 210,000 October 23, 2009 OW 115,000
April 22, 2010 OW 190,000
April 5, 2010 OW 150,000
April 28, 2010 OW 190,000
April 26, 2010 OW 150,000
June 20, 2010 OW 240,000
July 25, 2010 OW 150,000
July 27, 2010 OW 240,000
October 28, 2010 OW 220,000 August 5, 2010 N 130,000
January 28, 2011 OW 185,000 October 22, 2010 N 130,000
April 5, 2011 OW 220,000 January 26, 2011 N 115,000
Company Ticker Date Rating Price (W) Company Ticker Date Rating Price (W))
OCI 010060 KS August 7, 2009 OW 300,000 Cheil Industries 001300 KS July 8, 2008 OW 68,000
July 24, 2008 OW 68,000
August 14, 2009 OW 300,000
September 19, 2008 OW 68,000
September 23, 2009 OW 370,000
December 3, 2008 N 40,000
October 20, 2009 OW 370,000
February 6, 2009 N 40,000
February 22, 2010 OW 250,000
April 30, 2009 N 40,000
March 21, 2010 OW 250,000
July 29, 2009 N 45,000
April 21, 2010 OW 250,000
Nov ember 1, 2009 N 45,000
August 13, 2010 OW 390,000
February 24, 2010 N 55,000
October 13, 2010 OW 390,000
May 5, 2010 N 87,000
Nov ember 19, 2010 OW 390,000
March 22, 2011 UW 80,000
January 19, 2011 OW 390,000
February 8, 2011 OW 500,000 Source: Bloomberg, J.P. Morgan.
March 7, 2011 OW 530,000
March 24, 2011 OW 530,000
Source: Bloomberg, J.P. Morgan.
189
Disclosures
Companies Recommended in This Report (all prices in this report as of market close on 08 April 2011)
Cheil Industries (001300.KS/W114,000/Underweight), Hynix Semiconductor (000660.KS/W31,300/Neutral), LG Display (034220.KS/W37,500/Overweight), LG
Electronics (066570.KS/W102,000/Overweight), Samsung Electro-Mechanics (009150.KS/W118,000/Neutral), Samsung Electronics (005930.KS/W898,000/Neutral),
Samsung SDI (006400.KS/W173,000/Overweight)
•Important Disclosures
•Client of the Firm: Hynix Semiconductor is or was in the past 12 months a client of JPM. LG Display is or was in the past 12 months a client of JPM; during the past
12 months, JPM provided to the company investment banking services and non-investment banking securities-related service. LG Electronics is or was in the past 12
months a client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and
non-securities-related services. Samsung Electro-Mechanics is or was in the past 12 months a client of JPM. Samsung Electronics is or was in the past 12 months a
client of JPM; during the past 12 months, JPM provided to the company investment banking services, non-investment banking securities-related service and non-
securities-related services. Samsung SDI is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment
banking securities-related service.
•Investment Banking (past 12 months): J.P. Morgan received, in the past 12 months, compensation for investment banking services from LG Display, LG
Electronics, Samsung Electronics.
•Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months
from LG Display, LG Electronics, Samsung Electronics.
•Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for products or services other than investment banking from LG
Display, LG Electronics, Samsung Electronics, Samsung SDI. An affiliate of JPMS has received compensation in the past 12 months for products or services other
than investment banking from LG Display, LG Electronics, Samsung Electronics.
•J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Cheil Industries and owns
5,808,890 as of 8-Apr-11. J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Hynix
Semiconductor and owns 26,127,070 as of 8-Apr-11. J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the
Equity Linked Warrants of LG Display and owns 20,318,180 as of 8-Apr-11. J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity
Provider) for the Equity Linked Warrants of LG Electronics and owns 21,094,780 as of 8-Apr-11. J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a
Market Maker (Liquidity Provider) for the Equity Linked Warrants of Samsung Electro-Mechanics Co. Ltd. and owns 8,242,700 as of 8-Apr-11. J.P. Morgan Securities
(Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Samsung Electronics and owns 35,666,710 as of 8-Apr-
11. J.P. Morgan Securities (Far East) Ltd, Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of Samsung SDI and owns
18,967,070 as of 8-Apr-11.
Disclosures
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135
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Overweight Neutral Underweight
(buy) (hold) (sell)
J.P. Morgan Global Equity Research Coverage 47% 42% 11%
IB clients* 50% 45% 33%
JPMS Equity Research Coverage 43% 49% 8%
IB clients* 70% 62% 56%
*Percentage of investment banking clients in each rating category.
For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral
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136
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Asia Pacific Equity Research

JJ ParkAC Rick Hsu AC

Justin J. ParkAC Cynthia Chou AC

- Gloomy demand outlook for PCs in 2011

- Sunny days ahead for NAND thanks to smartphones and tablets

- Increasing portion of Mobile DRAM to help reduce volatility of DRAM market

Annual DRAM+NAND revenue trend

DRAM NAND NAND as % of Memory (RHS)

Source: WSTS, J.P. Morgan estimates

Quarterly DRAM+NAND revenue trend

DRAM NAND Q/Q growth (RHS)

Source: WSTS, J.P. Morgan estimates

Quarterly DRAM revenue trend Annual DRAM revenue trend

- Major DRAM makers’ cost status

600 25% 500 20%

Servers Desktops NBPC Servers Desktops NBPC

- Reduced volatility in DRAM industry due to declining share of PC DRAM

Global DRAM shipment versus capacity trend

PC Mobile DRAM Consumer Electronics

Source: Companies, J.P. Morgan estimates

- DRAM market share

DRAM supply/demand trend

Demand (LHS) Supply (LHS) % Over./(Under) supply (inc. inv.) (RHS)

Source: Companies, J.P. Morgan estimates

- Recent price spike to further deter memory content addition

DRAM cost as a percentage of PC cost DRAM + panel as a percentage of PC cost

Quarterly NAND revenue trend Annual NAND revenue trend

NAND demand by application

- NAND market share

J.P. Morgan research—Initial roll-up of estimated global tablet build plans

Source: Company reports and J.P. Morgan estimates.

- What it means for NAND?

Global NAND supply and demand trends

Supply/demand (excluding inv,) ASP change, Q/Q (RHS)

Source: Companies, J.P. Morgan estimates

mDRAM shipments as % of total DRAM shipments, by company (2009-12E)

Source: Company data, J.P. Morgan estimates.

mDRAM revenue trend by quarter mDRAM demand as a % of total DRAM shipments

mDRAM demand by application

Source: Company data, J.P. Morgan estimates.

Mobile DRAM content in currently available smartphones and tablets

mDRAM demand from smartphones mDRAM demand from tablets

Smartphones Tablet PCs Sm artphones T ablets

mDRAM supply trend by quarter mDRAM supply as a % of total DRAM supply

- Slight upward revision in demand assumptions

Global TFT-LCD supply/demand dynamics

Source: Company data, J.P. Morgan estimates.

TFT-LCD demand by application

Source: J.P. Morgan estimates, DisplaySearch.

- Strong LCD TV demand

- LCD TV blended ASP trend

TFT-LCD demand by application LCD TV blended ASP

Unit increase % (LHS) Area increase % (LHS) Area - Unit (RHS)

Source: Company data, J.P. Morgan estimates.

TFT-LCD supply side assumptions

Source: Company data, J.P. Morgan estimates.

- Blended TV prices remain resilient

Panel price changes LED vs. LCD TV panel price trends

-25% 600 55%

– Moderate price decline from September

Panel price vs. cash cost Panel price Y/Y change

Global 3D TV shipments trend

Anode market share (FY10E) Cathode market share (FY10E)

Separator market share (FY10E) Electrolyte market share (FY10E)