DISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.13January2019Americas/UnitedStatesEquityResearchSemiconductorDevicesSemiconductorsResearchAnalystsJohnW.Pitzer2125384610john.pitzer@credit-suisse.comAdaMenaker2123253472ada.menaker@credit-suisse.comCharlesKazarian2125384160charles.kazarian@credit-suisse.comJeffPullen2123253837jeff.pullen@credit-suisse.comSECTORFORECAST2019Outlook:LikeaKidinaCandyStoreReset1H,Rebound2H...Weentered2018cyclicalcautious,hopefulseculardriverswouldre-assertin2H18.China/MacroandHandset/Cryptohavelengthened/deepenedthecorrection–albeitmodelsstillsupportamodestreset.With~3%GlobalGDP,CY19Semi(ex-Memory)growthwillbe0.5%vs.CY18of7.6%.TroughinC2Qat-2.0%y/y;reboundto+4.1%y/ybyC4Q.StocksDiscountingMuch...Afterincreasing7of9yrsandoutperforming4of5,theSOXdeclined~8%in2018,underperformingtheSPXby200bps.Peak-troughstocksdeclined~25%vs.prior12cyclesof~26%,relativeunderperformancewas1,480bpsvs.prior12cyclesof~1,150bps....butFTMEPSIsNot.SOXFTMEPSisstilltoohigh.SOXFTMEPSpeaked10/5/18at~$100buthasonlydeclinedby5%to-date–theaveragepeaktotroughrevisionsoverthelast12cycles(ex2009financialcrisis)hasbeen30%w/themildestcorrectionin2014at16%,andtheseverestin2002at65%.CycleMetricsMostlyBenign.TheCY18upturnwaswell-behaved,with8of10cyclicalmetricsbelowpriorpeakmedian.Theduration/magnitudeofSemisover-shippingend-demandhasbeen~86%/~23%ofnormal.InC4Q/C1QSemisareunder-shippingenddemandforthefirsttimesince1H16–anhistoricallybullishtacticalindicator.ValuationsCompellingIfResetIsModest.StocksarecurrentlytradingatEV/FCFof14x,a32%discounttoSPXwellbelow5-yraverageof24%.AssumingaveragereductioninFTMEPS,s...
