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TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc Handset and smartphone proportion 2,000 1,500 1,000 40% 30% 20% Higher resolution video, games content is becoming widespread and games are being written for higher-resolution devices. Real time HD is still highly restricted by availability and pricing of bandwidth. 500 10% - 0% 2009 2010f 2011f 2012f Handsets Smart phones/total handsets Source: Company, HSBC estimates Content/system rises Growth in average GB/system will remain strong for the foreseeable future. We forecast GB/system for smartphones to double each year during 2011- 12e driven by: Lower NAND prices – higher bit supply growth led by Toshiba and Samsung on increased wafer capacity, rapid process migration and adoption of TLC should drive ASPs to fall by c38%/year for 2011-12e. We estimate NAND on a 16GB Apple iPhone 4 to account for 14% of BOM, a level which we think will be maintained going forward. We assume most non-Apple smartphones will use less NAND than Apple to lower prices, obliging the consumer to buy flash cards to fulfil extra storage needs. Availability of larger capacity mobile NAND. We expect Apple uses 1x 32GB NAND module for its iPhone 4 and 2x 32GB NAND modules for the 64GB iPod Touch. Rapidly rising screen resolutions. Smartphones are increasingly converging on a screen size 3.5-4” and WVGA (800x480)- level screen resolution including Apple iPhone 4 (960x 640), Samsung Galaxy S and HTC Desire. HD and gaming support rise far better graphics performance on latest SoCs). Cannibalisation of media players. Longerterm NAND content growth in developed markets will to a large extent depend on how far smartphones substitute media players. Consumers currently buy flash cards to supplement onboard storage. Smartphone NAND usage 20,000 15,000 10,000 5,000 - Source: Company, HSBC estimates 2009 2010f 2011f 2012f Total smart phone (GB m) % of total NAND demand Smart phones/total handset NAND 100% 80% 60% 40% 20% Low-end smartphones also drive NAND growth. We expect proliferation of low- to midend smartphones and rising penetration of smartphones in emerging markets could incrementally drive NAND demand in excess of expectations. In particular, handset vendors such as Huawei, ZTE, LG Electronics and others are more than likely to chase greater global market share with more affordable smartphones. We believe white box makers are looking at USD100-120 for very basic smartphones. Huawei has mentioned previously that USD150 is the pricing point required for smartphones to drive potential 3G usage in China. We think a low-end smartphone with a BOM of cUSD80 could ship with up to 8GB of internal NAND by next year. In this case, the NAND cost would equate to 10-16% 0% 29
TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc of BOM, which we think is a reasonable level for such vendors to absorb. Smartphone NAND content/system growth will persist for the foreseeable future as smartphone development mirrors that of PCs. Multi-tasking, multimedia and wireless broadband (3G in emerging markets and 4G in developed) are very powerful drivers for NAND and DRAM demand. As operating systems and applications become more demanding on systems requirements (just look at Android 3.0), advances in hardware specifications – processor, screen, volatile and non-volatile storage – are inevitable. Effects of tablet cannibalisation on Samsung Purely from a memory perspective, we estimate the net-net impact of tablet cannibalisation on Samsung Electronics’s profits to be minor next year. In drawing this conclusion we assumed that 1) tablets shave 5% off global DRAM demand for 2011-12; 2) tablets account for 5% of NAND demand this year rising to c13% next year, most of which is incremental additional demand. The minimal net-net effect would obviously not be the case for other memory vendors, which have different product mixes. We also assessed the broader impact on Samsung Electronics of tablet cannibalisation of netbooks and notebook PCs. We think the impact varies widely depending how much of a tablet or notebook’s components Samsung supplies. The impact also depends on whether tablets cannibalise notebooks or netbooks: Either way, proliferation of tablets should be positive for Samsung, as tablets increase the opportunity for the firm to supply more of the costly parts such as application processors and NAND that constitute these devices. likely benefits every time a consumer buys a tablet instead of a netbook. If DRAM prices fall to cUSD30/2GB module, then Samsung's chunk of operating profit from a notebook falls to cUSD24, close to that derived from a tablet. Apple iPad versus notebook and netbook costs, OP for SEC iPad (32GB) Cost Supplier(s) OPM OP App processor 15 Samsung 15% 2 NAND 51 Samsung/Toshiba 28% 14 mDRAM/NOR 9 Samsung/Elpida 42% 4 9.7" LED backlit LCD 100 LGD/Samsung 15% 15 Total 175 Total 35 Notebook (4GB) Supplier(s) OPM OP DRAM (2x2GB DDR3) 72 Samsung et al 38% 27 HDD(250GB, 5400rpm) 30 Samsung et al 5% 2 14" LED backlit LCD 50 Samsung et al 11% 7 Total 152 Total 36 Netbook (2GB) Supplier(s) OPM OP DRAM (1x2GB DDR3) 36 Samsung et al 40% 14 HDD(160GB, 5400rpm) 28 Samsung et al 5% 1 10" LED backlit LCD 21 Samsung et al 11% 6 Total 85 Total 22 Source: HSBC estimates Base assumptions: If we assume that Samsung supplies all of the apps processor, NAND, mDRAM, NOR and LCD for a 32GB iPad, we estimate its operating profit per iPad at cUSD35. This is similar to our estimate operating profit of USD36 for a regular 4GB notebook if Samsung supplied all the DRAM, HDD and LCD screen. For a netbook, operating profit possible is much lower at cUSD22. If we assume that Samsung does not supply screens but all the other components mentioned earlier in tablets (SoC, NAND, mDRAM/NOR) and notebooks (DRAM, HDD), then Samsung's operating profit on a tablet could reach cUSD20 compared to cUSD29 for a 4GB notebook. If tablets cannibalise netbooks, which appears the most likely in our view, then Samsung 30
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Asia Memory-Bad memories fading

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