DISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.14April2019Americas/UnitedStatesEquityResearchSemiconductorDevicesSemiconductorsResearchAnalystsJohnW.Pitzer2125384610john.pitzer@credit-suisse.comCharlesKazarian2125384160charles.kazarian@credit-suisse.comAdaMenaker2123253472ada.menaker@credit-suisse.comQUARTERLYCyclicalBottomandSecularOptionalityOffsetsMutedRecoveryBottomLine:WeexpectC1QmostlyINLINEwithamodestdownwardbiastoC2Q/2H.ResultswillvalidateaC1Qbottomalbeitonedampenedbyamoremodestrecoveryasmacrouncertaintyandsluggishdemandlinger.WiththeSOXup~30%YTDandatall-timehighs,withFTMEPShavingmodestdownside,withrevisionsat~50%ofanormalcorrection,andwithvaluationsat5-yrrelativehighstoSPX,thesentimentisoverwhelminglyskewedtowardsstocksconsolidating/retreatingthruearnings–theSemiBullisaselusiveastheHiggsBoson.Weviewthe“wall-of-worry”asconstructiveandcontinuetohaveapositivebiasmorethansupportiveofourCY19SOXtargetof1650establishedatthebeginningofCY18.Focusonthefollowing:(1)Semisareunder-shippingconsumptionforthefirsttimesinceearly2017,(2)InventoryiselevatedBUTdecliningespeciallyatend-customers,and(3)Capacityadjustmentscommenced3-6monthsearlierthanusual.Moreimportant,structurallySemisstillscreenassignificantlyundervalued:Risingbarrierstoentry,slowingsupplygrowth,andenddemandlessleveredtoconsumerprovidesthefoundationforstructurallyimprovingpricing/profitabilityandaSemisCAGRthatislikelytoacceleratefrom3-5%toatleast6-8%.Inaddition,SemisarecriticaltotheDataDrivenEconomyandas5GlowersthecostofdatatransportandAI/MLlowersthecostofdataanalytics,weseenewapplicationsadding200-400bpsofCAGRupside.Focustoomuchonth...
