Top Stock Picks And Broad Market Analysis In The Semiconductor Space From Managing Director At Bank Of America Merrill Lynch

67 WALL STREET, New York - June 22, 2011 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This Special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling 952-7433 or via The Wall Street Transcript Online.

Companies include: IBM Microelectronics; International Rectifier; Lam Technology; Micron Research; and many more.

Mr. Heyler: The investment themes we're looking at: There is a nearly-term cycle call, and at the time there is our longer-term structural call. Our longer-term structural call is very, very bullish on foundry and OSAT, driven by effectively mobile-media devices - including tablets and smartphones, which are increasingly moving the world away from central desktop computing to mobile and cloud computing - and that plays very then into this ecosystem. So that positions the group for above 10% average annual growth in sales over the then and there five years.

TWST: You mentioned consolidation because there are going to be fewer companies that can deliver the level of innovation markets need. What is happening with the technology in other words making it more difficult to deliver?

Mr. Heyler: To be successful in the business, there are actually three factors. There is innovation, however also scale and customer partnerships. Fabs now are simply so large that most companies aren't big enough to even fill a 12-inch wafer facility. Nearly all nonmemory companies are fabless or fab-lite and need a foundry to deliver scale, research and customized support. Research is at any rate a challenge as always, with ever-finer miniaturization. The upcoming 28-nanometer node in logic is one of the challenging nodes that requires a high-k metal gate to reduce power leakage. So though Abu Dhabi is supporting GLOBALFOUNDRIES with capital, execution in scale and technology is hugely challenging. We estimate that nine manufacturers will move to the 28-nanometer size, so that leaves several IDMs - Intel, Samsung, STMicro - and a few foundries - TSMC, GLOBALFOUNDRIES, UMC and potentially SMIC. So that's actually a pretty narrow group of manufacturers outside memory. Intel is fantastic in making CPUs, yet we don't think its operations and business model is optimal for the highly segmented mobile media IC market.

Mr. Heyler: It all the same is a global market for semis. Much of the growth, although, has been driven out of Asia Pacific due to low penetration of electronics. The rapid growth in smartphones is going to be a key driver out here going forward. In terms of the industry, structurewise we find that the U.S. for all that dominates in semiconductor design. And Intel even so dominates in microprocessors, and Micron is nevertheless a major player in memory. However in logic manufacturing, Asia dominates. TSMC and UMC are major providers of the logic devices, which is a much more custom-based manufacturing service-oriented business, which has catered so then to economies of scale and low-cost manufacturing. In memory, Korea dominates yet is closely tied to its U.S. customer base. Samsung, to illustrate, is the largest supplier to Apple.

Mr. Heyler: The semiconductor industry is a very broad industry. Each sector is different and has different drivers. Memory is a standard commodity that moves on prices and has relative volatility on supply and demand. So that sector is prone to high volatility. Logic IC is in the extreme broad-based across wireline communications for infrastructure. Telecommunications equipment is rich in semiconductor content. The mobile markets are poised for 15% to 20% growth driven by two factors, an increased need for low-power processor power in mobile devices and huge wireless-connectivity growth as these devices need to communicate with each other. There's as well a slew of sensor- and location-based elements that will boom. At the time all across the various sectors, you see the foundries and the OSAT sector as the providers of most of these chips.

Mr. Heyler: Right now, we like the memory sector. In the memory area, we've seen significant cuts in capital spending. There is a greater capex discipline and very strong growth in NAND memory, which is as a matter of fact the mass storage needed in the mobile devices that are connected to the Internet and downloading a lot of content that needs to be stored. And that information, it gets stored now in a NAND memory chip. As well, NAND is starting to be used more in data centers, which increases access times and lowers power consumption. The leaders there are Micron and Samsung in memory, and SanDisk.