BCD Semiconductor (BCDS)

Transcription

1 COMPANY NOTE USA Technology Semiconductors BCD Semiconductor (BCDS) Moore Stress Beneficiary Taking Share - Buy Key Takeaway Q3 EPS beat highlights another quarter of consistent execution and share gains in Smartphone chargers. We view BCDS as a structural beneficiary of Moore Stress, and expect YoY revenue growth acceleration in 4Q12 to represent a positive catalyst for the stock. At EV/S of 0.3x (1.6x Cash), BCDS is trading at a 90% discount to the group avg. EV/S of 2.9x. Reit Buy with $8 PT. Q3 EPS Beat. Q3 revenues of $38m were below the Street's $39m estimate, but non-gaap gross margins of 29.2% were ~100 bps above the Street estimate, leading to non-gaap EPS beat ($0.22 vs. Street $0.16). Guidance for Q4 revenues of $34 to $38m was in line with the Street's $36m. Our CY13 EPS increased by $0.01 to $0.50. Moore Stress Beneficiary Taking Share in Smartphone Chargers. We believe BCD is taking share in analog ICs for Smartphone chargers from competitors such as iwatt, Fairchild, and Power Integrations, with design wins ramping at large Smartphone OEMs including Samsung, LG, and Apple (through Flextronics). BCD's model is to deliver high quality low-cost feature integration using trailing edge manufacturing equipment. Revenue Acceleration. We expect YoY revenue growth to accelerate in 4Q12, and drive stock outperformance. We model BCD to outgrow the average semiconductor company under our coverage by 400 bps in CY12 and 1,300 bps in CY13. Related Reports. Semis: Moore Stress = Structural Industry Shift Financial Summary BUY Price target $8.00 Price $4.15 Book Value/Share: $6.94 Net Debt (MM): ($48.9) Cash & ST Invest. (MM): $64.1 Market Data 52 Week Range: $ $3.27 Total Entprs. Value (MM): $27.5 Market Cap. (MM): $76.4 Insider Ownership: 19.8% Institutional Ownership: 47.5% Shares Out. (MM): 18.4 Float (MM): NA Avg. Daily Vol.: 50,117 EQUITY RESEARCH AMERICAS Valuation/Risks Our $8 PT represents EV/S of 0.7x (80% discount to group avg. of 2.9x) off TTM revenues of $137m. Cash on BCDS' balance sheet represents ~60% of its market cap. Our field trip to BCD's headquarters in Shanghai, China, gives us confidence in BCD's assets and business. As the company scales its design and manufacturing operations over the next months, we think the biggest risk is misexecution. The company's cost structure can also be negatively impacted by unexpected appreciation of the Chinese Yuan (RMB). Sundeep Bajikar * Equity Analyst (415) sbajikar@jefferies.com Mark Lipacis * Equity Analyst (415) mlipacis@jefferies.com Jonnathan Lee * Equity Associate (415) jlee@jefferies.com * Jefferies & Company, Inc. USD Prev. 2010A Prev. 2011A Prev. 2012E Prev. 2013E Rev. (MM) Consensus EPS Diluted Mar A Jun A Sep A Dec FY Dec FY P/E 2.9x 4.8x 8.3x 8.3x Price Performance NOV-11 MAR-12 JUL-12 NOV-12 Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies 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. Please see analyst certifications, important disclosure information, and information regarding the status of non-us analysts on pages 9 to 13 of this report.

2 BCD Semiconductor (BCDS) BUY: $8 Price Target Scenarios Target Investment Thesis Revenue growth of 1% YoY in 2012 and 17% YoY in Gross margins impacted by ~200bps in 4Q12 as Fab 2 ramps, and recover in Expansion of product portfolio, design wins, and share gains EPS: $0.50; EV/S: 0.7x, P/E: 16x; Target Price $8.00 Upside Scenario Revenue growth of 25%+ YoY in Fab 2 ramps faster than expected, and drives gross margins above 30% in EPS: $0.76; EV/S: 1.1x, P/E: 15x; Target Price: $11.00 Downside Scenario Revenue growth of less than 5% YoY in Mis-execution in product delivery, and/or Fab 2 ramp EPS: $0.31; EV/S: 0.1x, P/E (NTM): 11x Target Price: $3.50 THE LONG VIEW Long Term Analysis 1 Year Forward P/E Long Term Financial Model Drivers LT Earnings CAGR 15-20% Organic Revenue Growth 15-20% Acquisition Contribution 0-5% Operating Margin Expansion 0-5% Other Considerations Although based in China, BCD s principals have roots in the U.S. (see management bios in this note). The company s customer base is similar to other U.S. analog companies within its peer group. Source: Capital IQ, Jefferies estimates BCD s Legal Counsel: Wilson Soncini Goodrich & Rosati BCD s Auditors: Deloitte & Touche Peer Group: Group P/Es Revenue Growth vs P/E Recommendation / Price Target Ticker Rec. PT BCDS Buy $8 POWI NC NC Richtek NC NC DIOD NC NC ONNN Buy $8 TXN Buy $33 Source: Capital IQ, Jefferies estimates Source: Capital IQ, Jefferies estimates Catalysts Changes in Outlook on the Chinese economy, inflation, wages, and exchange rates. Share gains. End market business conditions PC, Tablet, Smartphone, Communications, and Consumer electronics. Company Description BCD Semiconductor Manufacturing Limited (BCD Semi) is a leading analog integrated device manufacturer, or IDM, based in Greater China, specializing in the design, manufacture and sale of power management integrated circuits, or ICs. The company's broad portfolio of power management ICs primarily targets rapidly growing, high volume markets such as mobile phones, portable media players, LCD televisions and monitors, personal computers, adapters and chargers and other electronics products. page 2 of 13

3 3Q12 Results and Guidance Q3 revenues of $38m were below the Street's $39m estimate, but non-gaap gross margins of 29.2% were ~100 bps above the Street estimate, leading to non-gaap EPS beat ($0.22 vs. Street $0.16). Chart 1: BCDS 3Q12 Earnings Summary 3Q12A JEFCO Actual Guidance Consensus Rev ($,m) GM (Non-GAAP) 28.5% 29.2% 27-30% 28.2% EPS (GAAP) $0.13 $0.19 $0.14 EPS ex-1x, ex-sbc $0.15 $0.22 $0.16 Source: Company reports, Capital IQ, and Jefferies estimates Inventories increased in anticipation of planned shipments in October. Chart 2: BCDS 3Q12 Balance Sheet items (US$ millions, except AR DSO and Inventory Days) 3Q11 2Q12 3Q12 DQQ DYY Revs COGS AR Inventory AR DSO Inventory Days Source: Company reports, Capital IQ, and Jefferies estimates Guidance for Q4 revenues of $34 to $38m was in line with the Street's $36m. Our CY13 EPS increased by $0.01 to $0.50. Chart 3: BCDS 4Q12 Outlook (US$ millions except per share data) 4Q12E 2012E JEFCO Guidance Consensus JEFCO Consensus Rev ($,m) GM 28.0% 27-29% 27.2% 27.7% 28.0% EPS ex-1x, ex-sbc $0.11 $0.11 $0.50 $0.45 CapEx($,m) D&A($,m) Source: Company reports, Capital IQ, and Jefferies estimates page 3 of 13

4 Revs YoY (%) (EX-INTC ) Revs YoY (%) (EX-INTC ) Mar-11 Dec-10 Jun-11 Mar-11 Sep-11 Jun-11 Dec-11 Sep-11 Mar-12 Dec-11 Jun-12 Mar-12 Sep-12 Jun-12 Dec-12 Sep-12 Stock Price ($) Dec-12 The Street is projecting BCDS YoY revenues to outgrow aggregate semiconductor revenues in 2H12. We expect the outperformance of BCDS YoY revenues in Q4 to drive outperformance of BCDS stock relative to the group. YoY Revenue Acceleration Chart 4: BCDS vs. Aggregate Semis YoY Revenue Growth 20% BCDS is projected to outgrow aggregate Semis Revenues YoY in 2H12 15% 10% 5% 0% 14% 8% 13% 1% -1% 0% 15% 0% -5% -4% -10% Semi Revs YoY BCDS Revs YoY Source: Company Reports, CapIQ, Jefferies Semi companies included in the estimates include ALTR, ADI, AMD, AMKR, BCDS, BRCM, CRUS, CY, ISIL, ISSI, LLTC, LSCC, LSI, MCRL, MIPS, MU, MXIM, PMCS, MRVL, RFMD, MCHP, SMSC, SNDK, SUPX, SIMG, STM, TQNT, TXN, VLTR, XLNX, SLAB, NVDA, QCOM, ONNN, AMCC, and IDTI. The chart shows BCDS stock price has tracked YoY revenue growth. We expect YoY revenue acceleration in Q4 to serve as a positive catalyst for BCDS. Chart 5: BCDS Revenues YoY (%) vs. Stock Price 20% 15% 15% % 8% 13% Stock Price 6.0 5% 0% Revs YoY 1% -1% 0% 0% % -4% % 2.0 Source: Jefferies Research, Capital IQ BCDS Revs YoY Stock Price ($) page 4 of 13

5 EV/S 2/2/2011 4/2/2011 6/2/2011 8/2/ /2/ /2/2011 2/2/2012 4/2/2012 6/2/2012 8/2/2012 Trading at a Deep Discount to the Group EV/S BCDS is trading at EV/S of ~0.3x, at a ~90% discount to the group average EV/S of 2.9x. We believe BCDS multiple compressed sharply in May 2011, after investors learnt of major accounting issues at a Chinese software company called Longtop Financial (IPO in 2007), and has not recovered fully. We are not aware of serious accounting issues at BCD. We view the company s execution on its $20m commitment to repurchase its own shares, and its ongoing CapEx to build Fab 2, as indications the cash on BCD s balance sheet is real. Our own field trip to BCD s facilities in Shanghai gives us confidence the company s assets and business are real. Chart 6: BCDS EV/Sales Source: Capital IQ, and Jefferies estimates page 5 of 13

6 Chart 7: BCD Semiconductor Income Statement (Non-GAAP) FY ENDS DECEMBER 2012E 2013E Q1 Q2 Q3E Q4E Q1E Q2E Q3E Q4E E 2013E TOTAL REVENUE ($m) $31.0 $36.8 $38.0 $36.00 $33.8 $40.61 $47.1 $ % Change Q/Q -1.0% 18.7% 3.2% -5.3% -6.0% 20.0% 16.0% -5.0% % Change Y/Y 0.2% -4.2% -2.8% 14.8% 9.1% 10.2% 23.9% 24.3% 5.3% 1.4% 17.2% TOTAL COGS GROSS PROFIT Gross Margin (Non GAAP) 23.8% 29.2% 29.2% 28.0% 26.0% 27.5% 29.0% 29.0% 28.4% 27.7% 28.0% R&D % Sales 8.1% 7.9% 6.8% 8.3% 9.2% 7.9% 7.0% 7.6% 6.9% 7.8% 7.8% SG&A % Sales 14.3% 13.0% 13.2% 13.3% 14.8% 14.3% 12.5% 13.4% 11.8% 13.4% 13.6% Other OpEx % Sales Opex % Sales 22% 21% 20% 22% 24% 22% 20% 21% 19% 21% 21% OPERATING PROFIT % Sales 1.4% 7.9% 9.1% 6.3% 2.1% 5.3% 9.5% 8.0% 9.7% 6.5% 6.6% NET INTEREST 0.3 (0.2) (0.1) (0.1) (0.1) (0.1) (0.1) (0.5) PRETAX PROFIT % Sales 2.4% 7.5% 11.7% 6.0% 1.7% 5.1% 9.2% 7.7% 12.5% 7.2% 6.3% TAXES Tax rate 3.9% 8.0% 10.1% 10.0% 10.0% 10.0% 10.0% 10.0% 6.2% 8.9% 10.0% NET INCOME (Non-GAAP) % Sales 2.3% 6.9% 10.5% 5.4% 1.6% 4.6% 8.3% 7.0% 11.7% 6.6% 5.7% SBC (0.3) (0.5) (0.2) (0.3) (0.3) (0.3) (0.3) (0.3) (2.0) (1.4) (1.3) NET INCOME (incl. SBC, ex-1x) EXRAORDINARY (1x) (0.1) 0.0 (0.2) (0.7) (0.2) 0.0 NET INCOME (GAAP) EPS ex-1x, ex-sbc $ 0.04 $ 0.13 $ 0.22 $ 0.11 $ 0.03 $ 0.10 $ 0.21 $ 0.17 $ 0.86 $ 0.50 $ 0.50 SBC $ (0.02) $ (0.03) $ (0.01) $ (0.02) $ (0.02) $ (0.02) $ (0.02) $ (0.02) ($0.10) ($0.07) ($0.07) EPS, ex-1x, Incl. SBC $ 0.02 $ 0.11 $ 0.20 $ 0.09 $ 0.01 $ 0.08 $ 0.19 $ 0.15 $0.74 $0.42 $0.43 EPS impact of 1x $ (0.01) $ 0.00 $ (0.01) $ - $ - $ - $ - $ - ($0.03) ($0.01) $0.00 EPS, GAAP $ 0.02 $ 0.11 $ 0.19 $ 0.09 $ 0.01 $ 0.08 $ 0.19 $ 0.15 $0.72 $0.41 $0.44 CFFO, PER SHARE $ (0.15) $ 0.20 $ 0.23 $ 0.40 $ 0.41 $ (0.05) $ 0.06 $ 0.53 $0.69 $0.67 $0.95 AVG. SHARES - Diluted Source: Jefferies and Company Report page 6 of 13

7 Chart 8: BCD Semiconductor Balance Sheet 2012E 2013E Q1 Q2 Q3 Q4-E Q1-E Q2-E Q3-E Q4-E ($000s) MAR JUN SEP DEC MAR JUN SEP DEC Cash and cash equivalents $ 52,972 $ 49,940 $ 38,944 $ 34,295 $ 38,686 $ 34,459 $ 32,415 $ 39,086 Restricted cash $ 6,762 $ 4,824 $ 9,935 $ 9,935 $ 9,935 $ 9,935 $ 9,935 $ 9,935 Short-term investments Accounts receivable 20,931 23,859 26,762 21,600 20,304 24,365 28,263 26,850 Inventory 26,235 27,516 31,344 30,600 28,764 34,517 40,039 38,038 Excess value-added tax paid ,539 4,381 Other current assets 5,516 5,428 4,676 4,427 4,162 4,994 5,793 5,503 Total current assets 115, , , , , , , ,412 Property, plant and equipment, net 71,220 76,860 84,193 93,543 92,393 92,393 91, ,747 Goodwill Intangible assets, net 1,965 1,831 1,684 1,684 1,684 1,684 1,684 1,684 Land use right, net 3,067 3,034 3,009 3,009 3,009 3,009 3,009 3,009 Long-term investment 2,705 2,692 2,685 2,685 2,685 2,685 2,685 2,685 Other assets 5,692 5,886 6,301 6,301 6,301 6,301 6,301 6,301 Total assets $ 200,073 $ 205,696 $ 214,207 $ 208,372 $ 208,215 $ 214,635 $ 222,214 $ 242,131 Accounts payable 16,382 21,949 23,563 20,160 19,477 22,898 26,013 24,712 Notes payable 14,402 11,779 14,509 Accrued expenses 2,990 3,622 5,012 4,745 4,461 5,353 6,209 5,899 Income taxes payable Deferred revenue Current portion of debt Other liabilities 21,700 22,484 23,117 23,866 22,969 22,191 26,089 29,637 Total current liabilities 55,474 59,834 66,201 48,771 46,906 50,442 58,311 60,248 Long-term debt Performance obligation 3,907 3,888 3,878 3,878 3,878 3,878 3,878 3,878 Other long-term liabilities Total liabilities 60,040 64,391 70,637 53,207 51,342 54,878 62,747 64,684 Convertible preferred stock Stockholders' equity: Common stock Additional paid-in capital 160, , , , , , , ,012 Stockholder notes receivable Deferred stock-based compensation Treasury Stock (2) (3) (2) Accumulated other comprehensive income 12,766 12,175 11,969 11,969 11,969 11,969 11,969 11,969 Retained earnings (33,178) (31,106) (27,518) (25,887) (25,679) (24,149) (20,555) (17,756) Other Total stockholders' equity 140, , , , , , , ,447 Total liabilities and stockholders' equity $ 200,073 $ 205,696 $ 214,207 $ 208,372 $ 208,215 $ 214,635 $ 222,214 $ 242,131 Source: Jefferies and Company Report page 7 of 13

8 Chart 9: BCD Semiconductor Cash Flow 1Q12 2Q12 3Q12 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E ($000s) MAR JUN SEP DEC-E MAR-E JUN-E SEP-E DEC-E E 2013E Net Income (loss) $ 292 $ 2,072 $ 3,588 $ 1,631 $ 208 $ 1,530 $ 3,594 $ 2,799 $ 13,469 $ 7,583 $ 8,131 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 2,409 2,504 2,647 2,650 4,400 4,400 4,400 4,400 5,802 10,210 17,600 Stock compensation expense ,997 1,368 1,272 Tax benefit of stock comp Other 1,364 3,879 1,364 - Changes in operating assets and liabilities: - Accounts receivable (487) (2,928) (2,903) 5,162 1,296 (4,061) (3,898) 1,413 (5,227) (1,156) (5,250) Inventory 1,731 (1,281) (3,828) 744 1,836 (5,753) (5,523) 2,002 (5,915) (2,634) (7,438) Other current assets 4, (832) (799) 290 3,616 5,980 (1,076) Accounts payable (622) 5,567 1,614 (3,403) (683) 3,422 3,114 (1,301) (1,931) 3,156 4,552 Accrued expenses (1,369) - - Defered revenue Income taxes Other operating assets and liabilities (12,837) (2,731) 2,089 (988) (13,479) - Cash provided by (used in) operating activities $ (2,941) $ 3,786 $ 4,196 $ 7,351 $ 7,640 $ (976) $ 1,206 $ 9,921 $ 13,333 $ 12,392 $ 17,791 Cash flow from investing activities: Purchase of property and equipment (10,106) (7,932) (8,867) (12,000) (3,250) (3,250) (3,250) (3,250) (28,281) (38,905) (13,000) Proceeds from sale of property, equipment and software Purchases of other assets (944) - - Acquisition of businesses, net of cash (4,582) - - Purchases of short-term investments (1,587) (1,025) (1,587) - Sales and maturities of short-term investments Other 1,736 1,477 (4,925) (3,921) (1,712) - Cash provided by (used in) investing activities $ (9,957) $ (6,455) $ (13,792) $ (12,000) $ (3,250) $ (3,250) $ (3,250) $ (3,250) $ (38,318) $ (42,204) $ (13,000) Cash flow from financing activities: Proceeds from stock option exercises and ESPP Excess income tax benefit from stock awards Issuance of stock 46, Repurchases of common stock (279) (732) (1,406) (1,497) (2,417) - Proceeds from debt 2, ,300 2,500 - Repayment on debt (12,040) - - Repayment on capital leases Dividends paid Other , Cash provided by (used in) financing activities $ 1,757 $ (223) $ (1,386) $ - $ - $ - $ - $ - $ 43,346 $ 148 $ - Effects of exchange rate changes $ (24) $ (140) $ (14) Net change in cash and cash equivalents $ (11,165) $ (3,032) $ (10,996) $ (4,649) $ 4,390 $ (4,226) $ (2,044) $ 6,671 $ 18,361 $ (29,664) $ 4,791 Source: Jefferies and Company Report page 8 of 13

9 Company Description BCD Semiconductor Manufacturing Limited engages in the design, manufacturing, and sale of power management analog integrated circuits (ICs) and other semiconductor devices in the People's Republic of China. Its portfolio of power management ICs primarily serves markets, such as mobile phones, portable media players, LCD televisions and monitors, personal computers, adapters and chargers, and other electronics products. Analyst Certification I, Sundeep Bajikar, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Mark Lipacis, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Jonnathan Lee, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. Jefferies Group, Inc. makes a market in the securities or ADRs of BCD Semiconductor Manufacturing Ltd.. Jefferies Group, Inc. makes a market in the securities or ADRs of ON Semiconductor Corporation. Jefferies Group, Inc. makes a market in the securities or ADRs of Texas Instruments Incorporated. Meanings of Jefferies Ratings Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12- month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Conviction List Methodology 1. The aim of the conviction list is to publicise the best individual stock ideas from Jefferies Global Research 2. Only stocks with a Buy rating are allowed to be included in the recommended list. 3. Stocks are screened for minimum market capitalisation and adequate daily turnover. Furthermore, a valuation, correlation and style screen is used to ensure a well-diversified portfolio. 4. Stocks are sorted to a maximum of 30 stocks with the maximum country exposure at around 50%. Limits are also imposed on a sector basis. 5. Once a month, analysts are invited to recommend their best ideas. Analysts stock selection can be based on one or more of the following: non-consensus investment view, difference in earnings relative to Consensus, valuation methodology, target upside/downside % relative page 9 of 13

10 to the current stock price. These are then assessed against existing holdings to ensure consistency. Stocks that have either reached their target price, been downgraded over the course of the month or where a more suitable candidate has been found are removed. 6. All stocks are inserted at the last closing price and removed at the last closing price. There are no changes to the conviction list during the month. 7. Performance is calculated in US dollars on an equally weighted basis and is compared to MSCI World AC US$. 8. The conviction list is published once a month whilst global equity markets are closed. 9. Transaction fees are not included. 10. All corporate actions are taken into account. Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. Other Companies Mentioned in This Report ON Semiconductor Corporation (ONNN: $6.17, BUY) Texas Instruments Incorporated (TXN: $29.14, BUY) page 10 of 13

11 Distribution of Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY % % HOLD % % UNDERPERFORM % % Other Important Disclosures Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group, Inc. ( Jefferies ) group companies: United States: Jefferies & Company, Inc., which is an SEC registered firm and a member of FINRA. page 11 of 13

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