EFTA01453087.pdf

Deutsche Bank Markets Research North America 'or indica, United States 2 March 2014 7 MT Signals to Noise Wireless Equipment (S2N) Industry Update Non nodal' MWC 2014: It is an LTE world Research Analyst S2N #491 - LTE proliferation and cheaper handsets push data demand Vijay E.IvieNowItit. t) The buzz returned this year to Mobile World Congress and we contributed as Research Analyst best we could, running between meetings, downing café con leches and (4 snacking on jamon sandwiches. What was different was the focus of the buzz, which if last year was centered on smartphone growth and LTE unit volumes, then this year it was infrastructure. Almost every network equipment vendor Kip Clifton, CFA we met with sounded optimistic about operator spending in the year ahead, especially with regard to LTE. Research Associate State of the Baseband number two still undecided As most of our readers know, we suggested a few months ago that Quakomm would see little competition in 2014. In short, Mobile World Congress only Key Changes reinforced this viewpoint. We met with most of the merchant baseband Company Target Price Rating players and a number of industry contacts across the handset foodchain, and FFIV.00 120.00 to what is increasingly clear to us, is that this year the fight will be for a foothold, I30.00IUSDI in hopes to make a play for meaningful volume, and the second spot, behind sowc• Dear** Sent Qualcomm in 2015. While we have argued that Mediatek was the clear number two behind Quakomm (they remain so in unit volumes and profits), this point has been muddied a bit by the mixed progress in LTE of a few others. Bottom line - all of QCOM's competitors have their challenges, which we detail inside. Smartphones high end struggles to differentiate. while Firefox redefines cheap It is strikingly obvious that differentiating on the high-end with hardware is limited. Every major handset OEM at the show had shiny new handsets (and tablets), as well as a wearable to go along with it. The good news for many across the globe is that smartphones are only getting cheaper. Firefox (Mozilla) took this one step further, introducing a $25 smartphone at the show. The front-end end uanx. Last year we suggested that there would be consolidation in the frontend space, engineered by the active players - a result of Qualcomm's then announcement of RF 360. Before the show, RFMD announced a bid for Triquint. We do not feel like this is the end of the match-making, possibly with Triquint, and certainly outside of this deal, with other players attempting to redefine their own positions. Bottom line, the front end active players are merging with the front-end passive players (and other active players) in an attempt to develop fully integrated FEM's to compete with Qualcomm. Infrastructure poised for growth: Almost every network equipment vendor we met with sounded optimistic about operator spending in the year ahead. With LTE rollouts continuing around the globe, and beginning in earnest in places like Europe, China, Africa and CALA, we believe this will be a solid year for infrastructure spend. Stock implications We left MWC feeling incrementally positive on OCOM (limited LTE competition), FFIV (tisk° wins raising price target to $130), COMM (LIT builds), and MVNR (VoLTE builds), constructive on LIEN (see our separate preview note). neutral but constructive on RKUS (cable traction), CAVM (small cells), PSMI (CMOS PA performance) ADNC (Motion 0), slightly more cautious on CSCO (SP execution) BBRY (increasing security competition) and XXiA (testing vinualization) Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SONY-0110501 CONFIDENTIAL SDNY_GM_00256685 EFTA01453087