AI and chips

Enthusiasm

Tech Team | March 2024

MS Hwang, Jongwook Lee,
Hyungkeun Ryu

※ All material presented in this report, unless specifically indicated otherwise, is under copyright to Samsung Securities. None of the material, nor its
content, nor any copy of it, may be altered in any form or by any means, transmitted, copied, or distributed to any other party, without the prior express
written permission of Samsung Securities. This memorandum is based upon information available to the public. While we have taken all reasonable
care to ensure its reliability, we do not guarantee that it is accurate or complete. This memorandum is not intended to be an offer, or a solicitation of any
offer, to buy or sell the securities mentioned herein. Samsung Securities shall not be liable whatsoever for any loss, direct or consequential, arising from
any use of this memorandum or its contents. Statements, if any, relating to affiliates of Samsung Securities are also based upon information available to
the public and do not necessarily represent the views of the management of such affiliates. This report has been prepared without any undue external
influence or interference, and accurately reflects the personal views of the analyst(s) on the company(ies) herein.
HBM, who’s the winner?

HBM Capacity (Bull Case) HBM Capacity (Base Case) HBM Capacity (Bear Case)
('000 wafer per month) ('000 wafer per month) ('000 wafer per month)
600 450 400

400 350
500 y-y +51% y-y +47%
y-y +65% 350
300
400 300
250
250
300 y-y +199% 200 y-y +163%
200
y-y +233% 150
200 150
100
100
100
50 50

0 0 0
End-2023 End-2024 End-2025 End-2023 End-2024 End-2025 End-2023 End-2024 End-2025

Samsung SK Hynix Micron Tech Samsung SK Hynix Micron Tech Samsung SK Hynix Micron Tech

Source: Samsung Securities estimates Source: Samsung Securities estimates Source: Samsung Securities estimates

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HBM demand and supply

Samsung: HBM Capa forecasts SK Hynix: HBM Capa forecasts Micron: HBM Capa forecasts
('000 wafer per month) (% q-q) ('000 wafer per month) (% q-q) ('000 wafer per month) (% q-q)
Can revise up to 200+k/wpm
250 90 180 80 60 160
80 160 140
70
70 50
200 140 120
Capacity 60
60
increases
120 40 100
50 linearly 50
150
40 100 80
40 30
30 80 60
100 30
20
60 20 40
10 20
50 40 20
0 10
Capacity expansion 20 10 0
-10
in 2H24
0 -20 0 0 0 -20
1Q23 1Q24E 1Q25E 1Q23 1Q24E 1Q25E 1Q23 1Q24E 1Q25E

HBM Capa (LHS) HBM Capa (LHS) HBM Capa (LHS)

Growth rate (RHS) Growth rate (RHS) Growth rate (RHS)

Source: Samsung Securities estimates Source: Samsung Securities estimates Source: Samsung Securities estimates

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HBM: Yield and the future (2025~)

HBM: Technology change by generation (Front end)

Core Die HBM2e HBM3 HBM3e HBM4 HBM4e

Samsung Electronics DRAM 1y DRAM 1z DRAM 1a DRAM 1c DRAM 1c

SK Hynix DRAM 1y DRAM 1z DRAM 1b DRAM 1b DRAM 1c

Micron Technology DRAM 1z - DRAM 1b DRAM 1b DRAM 1c

Logic Die HBM2e HBM3 HBM3e HBM4 HBM4e
Samsung Samsung
Samsung Electronics DRAM 1y DRAM 1z DRAM 1a
Foundry 5nm Foundry 2nm

SK Hynix DRAM 1y DRAM 1z DRAM 1b TSMC 12nm TSMC 3/5nm

Micron Technology DRAM 1z - DRAM 1b DRAM 1b TSMC 3nm

⚫ Increase of bandwidth: Number of I/O will increase from 1,024 (HBM3e) to 2,048 (HBM4).

⚫ Adoption of Logic/Foundry technology (HBM base/logic die): When chipmakers use foundry technology to manufacture logic die of HBM, it is possible
to supply customized HBM by adding logic functions in addition to strengthening the memory controller function.

Source: Samsung Securities estimates

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Easing of specification (HBM4 thickness: 720um → 775um)

Specification of HBM3 (JEDEC)

Parameter Minimum Nominal Maximum Unit

Width 10.975 mm

Length 10.975 mm

Height

4-High 695 720 745 um

8-High 695 720 745 um

12-High 695 720 745 um

16-High TBD TBD TBD um

⚫ We believe JEDEC will reduce the package thickness of HBM4 down to 775um for both 12-high and 16-high HBM4 stacks, making it easier.

⚫ Given the eased terms on thickness, we expect the industry to continue its current practices (ie., TC-NCF, MR-MUF) for some time. Essentially, there is
no need to adopt hybrid bonding for now.

Source: JEDEC, Samsung Securities

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What is hybrid Bonding (Bumpless bonding)?

Hybrid Bonding process: Difficult to control dishing and particle

⚫ Hybrid bonding: High value-added tech of directly bonding between pads of copper wiring without bump, it improves electrical signal density and
substantially reduces the gap between chips.

⚫ The hybrid bonding process largely comprises: die surface preparation, die-to-wafer bonding, and annealing.

⚫ Risks to bonding yields are predominantly dishing- and particle-related.

Source: BE Semiconductor, Samsung Securities

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Will HBM makers use hybrid bonding in HBM4?

CoWoS: No muti-stacking process HBM: Multi-stacking technology is required

⚫ In CoWoS, hybrid Bonding is used to connect logic die and silicon ⚫ The reason why hybrid bonding may not be adopted in HBM4: Time,
interposer. It can minimize the gap between chips. Cost, Technology and eco-system

⚫ However, only one chip is being connected to silicon interposer in ⚫ In order to adopt hybrid bonding in HBM, it needs multi stacking
CoWoS (2.5D Packaging). It doesn’t need multi-stacking process. technology. More technological advancement is required.
Source: Google, Samsung Securities Source: Samsung Electronics, Samsung Securities

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Discipline and the “fear factor”

Samsung: CAPEX / Sales (Memory) SK hynix: CAPEX / Sales

(%) (%)
70 70

60 60

50 50
Average
40 40 Average

30 30

20 20

10 10

0 0
2003 2006 2009 2012 2015 2018 2021 2003 2006 2009 2012 2015 2018 2021

SEC Average of top 3 memory companies SK Hynix Average of top 3 memory companies

Source: Company data, Samsung Securities Source: Company data, Samsung Securities

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Positive scenario: It is the supply, Bro.
• High bandwidth is critical for AI. Bandwidth = speed of bus * width of bus (Nvidia wants 1024+ over 32)
• Balloon impact: Memory shortage discounts upside in demand. What If Samsung increases the supply?
• Chain reaction: Tight supply and demand of commodity memory is inevitable
• CAPEX: We are likely to see the significant upside in CAPEX sooner or later.

Nvidia: Durable moat * high margin * strong FCF Supply shortage inflates pricing and margin

Source: Google Image, Samsung Securities Source: AMD, Samsung Securities

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Lesson from the past (feat: Internet adoption)
• No problem until 2003 (1999) → 2027 (2024): 1st 300mm ASML order by TSMC on July 2000
• Intel Timna project announced in 1999 and cancelled on Sep 2000
• Consumer interest changes faster than technology
• Internet bubble burst in 1 year. What about AI?

IT demand in the most significant slowdown after internet burst

(USDb) (USDb)
LHS)
LHS)

Growth slowdown
after IT bubble

Source: WSTS, Samsung Securities

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Negative scenario: Somebody is telling me a lie
• Engineers promise to present everything for infinite time and money
• Software evolution everyday. Hardware takes at least 1~2 years, after # of patches
• AI has more data today than 90s. How much more data (and cost) is necessary to perform well enough?
• Customer always wants best products at the best price. Demo always looks fantastic

Something big is coming We needs cheaper pricing based on better manufacturing process
(Number of user)
Multiple
125mm 150mm 200mm 300mm EUV
patterning

7yrs 6yrs 8yrs 11yrs 10yrs ing

Inventory cycle

Source: Samsung Securities Source: Samsung Securities

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Demand recovery of China smartphone (Low basis vs recovery)

Smartphone sales in China, by week

(Mil unit) (% y-y)
9 2022 vs 2023 2023 vs 2024 40
Release of Single’s day 32
Release of Huawei
8 iPhone 15 26
Release of Xiaomi 14 30
NOVA
18 18 19 18
7 Huawei Mate 60 15
12 14 14 20
11 10 9
6 6 8 6 7
5 4 10
3
0 0 (1) (1)
5 (2)
(5) (4) 0
(9) (8)
4 (12) (11)
-10
3
-20
2 (28)
Reopening (34)
1 -30
(2022)
0 -40
30-Jul 27-Aug 24-Sep 22-Oct 19-Nov 17-Dec 14-Jan 11-Feb 10-Mar

23/24 Shipments (LHS) 22/23 Shipments (LHS) Growth rate (RHS))

⚫ A turnaround in Aug 2023 was caused by Huawe Mate 60 and Large restocking of Xiaomi. It lasted until Dec 2023. Apple still sluggish

⚫ Reverted to a decline in Dec 2023. Order also declined. The shipment trend began to differ from vendors

⚫ Another turnaround in Feb 2024. Maintaining 10+% growth y-y since Feb.

Source: Industry data, Samsung Securities

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iPhone shipments continued to decrease in February

Growth rate of China smartphone sales (y-y, %) Smartphone market share trend, by week
(%) (%)
60 iPhone 15
28 Xiaomi 14
50
26 Huawei Huawei Nova 12
40 2023 (vs 2022) 2024 (vs 2023)
24 Mate 60
30
iPhone discount
20 22
10 Sales trend 20
0 18
-10 16
-20
14
-30
Decrease of iPhone 12
-40
-50 10 Competition
1-Oct 29-Oct 26-Nov 24-Dec 21-Jan 18-Feb 8
27-Aug 24-Sep 22-Oct 19-Nov 17-Dec 14-Jan 11-Feb 10-Mar
Growth rate (Apple) Growth rate (Ex-Apple)
Huawei Apple Xiaomi Honor
⚫ Poor performance of iPhone in China (After 3rd week of Sep, 2023).

⚫ Growth rate turned negative after Nov 2023 (Nov: Low basis)
⚫ iPhone sales in China continued to remain sluggish even after its
⚫ Reverse growth rate widened to 38% y-y. Recently, reverse growth has release in the 3rd week of September.
eased to within 20%.
Source: Industry data, Samsung Securities Source: Industry data, Samsung Securities

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Scenario analysis of iPhone market share in China market

Scenario Analysis (Samsung, Xiaomi case) iPhone portion: 87% to 60%

(Mil unit)
(%)
70
25
60
Scenario 1. Samsung 50
Samsung Electronics (2010~) case: M/S decreased by 36.6
20 60% in two years 40 39.0
44.9
Apple (2019~) 30 48.3

20
15
10

0
10 2022 2023 2024 2025
Xiaomi (2012~)
Foldable +Huawei Other highend iPhone

Scenario 2. Xiaomi case: M/S Foldable + Other

decreased by 30%. After that, Foldable Huawei iPhone TAM
5 Huawei high-end
M/S stabilized (10-15%)
2022 3.3 2.2 4.2 3.1 48.3 55.6
2023 7.0 6.0 10.2 2.5 44.9 57.5
2024 10.0 12.0 18.0 4.6 39.0 61.6
0
1 2 3 4 5 6 7 8 2025 12.0 15.0 22.2 4.0 36.6 62.8
Source: TechInsights, Samsung Securities Assumption: Portion of high-end smartphone (>$500) in China – 20% in 2022,
22% after 2023
Source: Techinsights, Samsung Securities
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Penetration rate of On device AI: 60% for PC and 30% for mobile in 2026

• 390 million units of smartphones and 180 million units of PCs should adopt more NPU in 2026 for language models
• ASP of processors will increase by $30-$40 due to increase in NPU adoption
• 25.8 trillion won of added value in system semiconductor market will be attainable

AI smartphone shipments AI PC shipments

(Mil units) (%) (Mil units) (%)
450 35 200 70
32 60
27 30 60
160
25 50
300
120 40
20
15 80 28 30
12
150 20
10
40
7 10
5
0 0
0 0
2023E 2024E 2025E 2026E
2023E 2024E 2025E 2026E
Samsung Electronics Apple Intel AMD
Google China Qualcomm Apple
Penetration (RHS) NVIDIA Penetration (RHS)

Source: Samsung Securities estimates Source: Samsung Securities estimates

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2024 timeline: Rising interest in AI device in June

Mar Apr May Jun Jul Aug Sep

18 Mar 2 Apr 14 May 4 Jun Huawei Samsung

iPhone16
GTC Intel webinar Tri-fold Foldable
Google I/O Computex 24

20 Mar 4 Apr Mid May Early Jun Jul

Micron Earnings Google Cloud Next H200 Launch Apple WWDC
LaMMA

26 Mar 2Q 21 May June 3Q

Windows11
MEMCON HBM3E Qcom SD-X
MS Build 2024 The last update

Apr 20 Mar Jul

Nvidia Earnings
1Q Earnings 2Q Earnings
A turning point

AI Server AI device Mixed

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Apple Roadmap: Vision Pro and Foldable devices are the milestones
2023 2024 2025 2026 2027~

Foldable iPhone
Periscope zoom Vision Pro iPhoneSE gen4 AR glasses (27-28)
Low-end VR
OLED iPad Triple 48MP cam Foldable iPad (28)
OLED Macbook

⚫ 8GB DRAM ⚫ 12GB DRAM

⚫ Periscope zoom for ⚫ 8GB DRAM ⚫ Triple 48MP camera ⚫ LLW DRAM
iPhone Pro Max ⚫ Periscope zoom for ⚫ 48MP OIS front cam ⚫ 6”, 8” foldable
⚫ Dynamic island Pro / Pro Max ⚫ Pol-less display ⚫ Under panel IR
⚫ LTPO display ⚫ Larger display (Pro) ⚫ iPhone SE sensor
⚫ Titanium case ⚫ (6.1” OLED, 48MP)

⚫ 8.4”, 10.9” OLED

⚫ 11” 13” tandem OLED ⚫ 20” Foldable iPad
for iPad Air and Mini

⚫ M2 + R1 processor
⚫ 1.4” MicroOLED
⚫ 14”, 16”, OLED ⚫ 1.4” RGB MicroOLED
(3386ppi 4k)
for Mackbook (Or MicroLED)
⚫ 8x 5MP Camera
2x TOF, 2x eye-tracking
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Investment idea: Increasing yield (SKH) + Large-scale investment (SEC)

1) Key Idea: Limited fab space → Increasing yield + More outsourcing of backend
SK Hynix
process (Legacy DRAM/NAND)
Value Chain
2) Investment idea: Nextin, Intekplus, Hana Micron

1) Key Idea: Uncertain whether to use MR-MUF or not. One sure thing is that SEC
SEC
will invest largely on HBM capacity to increase M/S.
Value Chain
2) Investment idea: PSK Holdings, Koh Young

Semiconductor 1) Key Idea: CMP step increases in HBM (Frontend + Backend)

materials 2) Investment idea: Soulbrain

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Process control equipment: Korea companies are trading cheaper

Global equipment maker (process control): 12m Fwd P/E Korea equipment maker (process control): 12m Fwd P/E
(x) (x)
Koh Young 30x, Nextin 16x, Intekplus 30x, Park
60 60 Systems 25x, Auros Tech 31x, Tech Wing 17x
Camtek 31배, Onto Innovation 38배, KLA 27배,
50 Advantest 51배, Teradyne 33배 50

40 40

30 30

20 20

10 10

0 0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Camtek Onto Inno KLA Koh Young Nextin Intekplus

Advantest Teradyne Park Systems Auros Tech Tech wing

Source: Bloomberg, Samsung Securities Source: Quantiwise, Samsung Securities

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Compliance notice
• - As of 3/20 2024, Samsung Securities shared group affiliation with Samsung Electronics.
• - As of 3/20 2024, the covering analyst(s) did not own any shares, or debt instruments convertible into shares, of any
company covered in this report.
• - As of 3/20 2024, Samsung Securities' holdings of shares and debt instruments convertible into shares of each company
covered in this report would not, if such debt instruments were converted, exceed 1% of each company's outstanding
shares.
• - This report has been prepared without any undue external influence or interference, and accurately reflects the views of
the analyst(s) covering the company or companies herein.
• - All material presented in this report, unless specifically indicated otherwise, is under copyright to Samsung Securities.
• - Neither the material nor its content (including copies) may be altered in any form, or by any means transmitted, copied, or
distributed to another party, without prior express written permission from Samsung Securities.
• - This memorandum is based upon information available to the public. While we have taken all reasonable care to ensure its
reliability, we do not guarantee its accuracy or completeness. This memorandum is not intended to be an offer, or a
solicitation of any offer, to buy or sell the securities mentioned herein. Samsung Securities shall not be liable whatsoever for
any loss, direct or consequential, arising from the use of this memorandum or its contents. Statements made regarding
affiliates of Samsung Securities are also based upon publicly available information and do not necessarily represent the
views of management at such affiliates.
• - This material has not been distributed to institutional investors or other third parties prior to its publication

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