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MasterLink Securities Company Update

Global Unichip Corp. (3443 TT) HOLD


IC Design Wiz Stuck in Macroeconomic Whirl
MasterLink Research
Struck by an economic slowdown. Despite sales contribution from
Analyst Patrick Lin CMMB (China Mobile Multimedia Broadcasting) in China, Global Unichip
Patrick0819@masterlink.com.tw Corp. (GUC) did not escape unscathed from slowing economies, with its
ASIC sales at the risk of declining. We estimate 4Q sales at NT$2.29bn,
Contact Information down 9.4% QoQ and up 12.4% YoY, net profit of NT$193mn, with EPS at
Lucy Tsai NT$1.57.
lucytsai@masterlink.com.tw Likely FY09 sales growth. 90/65nm advanced technology node
accounts for nearly 20% of total sales, far ahead of peers. NRE business
Recommendation is an indicator for turnkey projects with a lead time of six to eighteen
Date: 2008/12/4 months. As in terms of sales recognition, NRE sales remains on the
Share Price (NT $): 87.5 uptrend, we accordingly forecast that the company’s FY09 sales should
Target Price (NT $): 90 continue to grow.
52-wk Range (NT $): 82.2-281 HOLD. We estimate FY08 sales of NT$9.27bn, up 32.7% YoY, net profit
4518.43
of NT$777mn, up 6.1% YoY, with EPS at NT$6.31. Given the likely sales
TWSE:
growth in 2009 derived from NRE sales recognition, we estimate FY09
sales at NT$10.27bn, up 10.4% YoY, gross margin sliding to 19.8%, net
Company Data
profit at NT$800mn, up 3.4% YoY, with EPS at NT$6.53. Our rating is
Capital Size (US$/mn): 36.95
downgraded to HOLD for the following three reasons: 1) the Industry
Market Cap (US$/mn): 350.45
should sustain long-term growth trend, but GUC still faces an economic
20d Avg Vol (lots): 2205 slowdown and thus a decline in sales. 2) The demand for TSMC’s
PER (’ 08): 15.7 advanced technology is to slow down due to the economic downturn. 3)
PBR (’ 08): 13.7 GUC’s current P/E is not relatively lower than its peers.
Foreign Ownership: 7.56
TCRI 4 Exhibit 1. P/E BAND

370
Price Performance 1-m 3-m 6-m 320
Absolute (%) -30.8 -53.2 -57.5 270
40.00X
-7.2 -33.7 -47.6 220
Relative to TAIEX 30.00X
170 25.00X
20.00X
120 15.00X

Key Changes Current Previous 70 10.00X


20
Recommendation HOLD BUY 2006/11/03 2007/06/22 2008/01/18 2008/08/29
Target Price (NT$) 90 270 Source: MasterLink
Revenue (NT$/mn) 9,276 9,839
Gross Margin (%) 20.4 20.2 Exhibit 2. Revenue and Revenue YoY
Operating Margin (%) 8.3 9 (K NTD) Revenue(NT/K) YoY
EPS (NT$) 6.3 7.07 3500000 250%
BVPS (NT$) 22.9 23.1
3000000 200%
Y9999 加權指數 3443 創意 2500000
150%
9900 480 2000000
430 100%
8900 1500000
380
50%
7900 330 1000000
280 0%
6900 500000
230
5900 180 0 -50%
130 2006/03 2007/03 2008/03 2009/03
4900
80 Source: MasterLink
3900 30
2006/11/03 2007/03/28 2007/08/13 2007/12/27 2008/05/22 2008/10/06

2008/12/4 Page 1 of 4
MasterLink Securities GUC (3443 TT)

We project a rosy outlook for the IC The IC design service industry is the intermediary between wafer makers and IC
designers, mainly supported by wafer makers. If the supporting wafer companies
design service industry. have advanced technology, IC design service providers under them would possess
better niche market. We project a rosy outlook for the industry for reasons as
follows. 1) As technologies advance, small- and medium-sized companies will face
new challenges regarding SoC (system-on-a-chip), DFM (design for manufacturing)
and SiP (system in package). 2) Due to fab-lite strategy, investment in advanced
technology will decrease, while increasing the likelihood of outsourcing. 3)
Consumer products are being rolled out on the market for less and less time
duration, implying vendors need better IP to shorten R&D time. IC design service
providers mainly offer NRE services, ASIC (application-specific integrated circuit)
products, wafer and IP (intellectual property) service.

Exhibit 3: Global IC Design Service vs. Wafer OEM


Wafer OEM IC Design Service Niche Market

Manufacturing, Packaging, Mixed Signal Bus


TSMC (2330 TT) GUC Interface, Memory Element Multimedia, Physical
Library, Processor

Cell Library Memory Compiler, Arm-compliant


UMC (2303 TT) Faraday (3035 TT) CPUs, DDR-2, MPEG-4, H264, YSB2.0, 10/100
Ethernet, Serial ATA and PCI Express
Chartered
Gateway Silicon, Design Service, Turnkey, Digital & Analog IP,
Semiconductor
Socle Platform SoC-ImP Platform
Manufacturing
V.Library Libraries, V.Blox IP Libraries, ZSP
IBM, etc* VeriSilicon Licensable Cores, ARM Cores, Application
Platform, ZSP Reference Silicon
* No specific partnership.
Source: MasterLink

GUC’s 4Q sales will likely decline due GUC was established ten years ago, and is currently having 461 employees (296 in
to disappointing ASIC sales. the R&D division). It is IC design service provider supported and 36% owned by
TSMC. GUC’s customers come from system houses (sales weight 60%) and
medium-sized IC design companies. As the industry is migrating into SoC and
DFM, the company with advanced technology is the major beneficiary. Its top eight
customers represent together 80% of total sales, while FY08E sales mix by product
is NRE service (16%), turnkey projects (31%) and IP (2%). Thanks to higher sales
weight of NRE (recognition of four 65nm projects), the company posted 3Q sales of
NT$2.52bn, up 10.4% QoQ and 38.4% YoY, with gross margin rising slightly to
20.3% (from 20% in the 2Q), net profit at NT$200mn, up 6.5% QoQ and 11.1% YoY,
and EPS at NT$1.66. Despite sales contribution from CMMB (a Mobile TV standard
used in China), GUC did not escape unscathed from slowing economies, with its
ASIC sales at the risk of declining. We estimate 4Q sales at NT$2.29bn, down 9.4%
QoQ and up 12.4% YoY, net profit of NT$193mn, with EPS at NT$1.57; FY08 sales
at NT$9.27bn, up 32.7% YoY, with net profit of NT$777mn, 6.1% YoY and EPS at
NT$6.31.

Exhibit
Product 4: GUC - Sales
2007 Sales% Mix
2008 Estimate
Sales% by Product
2009Sales% 07 YOY% 08 YOY%(F) 09 YOY%(F) Margin%
NRE 14% 16% 19% 17% 38% 28% 35~40
TurnKey 84% 82% 79% 44% 31% 7% 10~15
IP & Other 2% 2% 2% 47% 58% 11% 100

Source: MasterLink

2008/12/4 Page 2 of 4
MasterLink Securities GUC (3443 TT)

GUC’s 90/65nm technologies GUC’s 90/65nm advanced tech node reaches practically 20% of total service, far
ahead of its peers. The company has a centralized customer portfolio, with its top
account nearly 20% of total sales,
eight and five customers occupying 80% and 60% of total sales, respectively. Its top
far ahead of peers. five customers are two internet communications companies, one mobile TV
company, GPS maker and camcorder vendor. In the future GUC may acquire orders
from international companies and further extend its product applications. In 1Q-3Q of
2008, GUC’s sales mix by application is communication (60%), computer (3%),
consumer (35%) and others (2%). In view of the above, the company has strong
advantage in communications, with sales from this application in the U.S. market
during 1Q-3Q alone accounting for 75% of total sales. We believe as IDM companies
will continue to cut investment in technology and as various IC products become
more complex, GUC is likely to acquire orders from international vendors and further
broaden its product applications, thanks to the aid of TSMC’s advanced technology.

Exhibit 5: GUC – Sales Mix by Tech Node


2004 2005 2006 07H1 2007 08H1 08Q3
0.18um Above 86.00% 67.00% 40% 31% 30% 20% 20%
0.13um 14.00% 30% 55% 60% 61% 64% 62%
90nm 5% 5% 6% 12% 12%
65nm 4% 3% 4% 6%
Source: MasterLink

Exhibit 6: GUC – Sales Mix by Product


2004 2005 2006 07H1 2007 08H1 1Q~3Q'08
Communication 16.0% 24.0% 42.0% 55.0% 55% 62% 60%
Computer 12.0% 15.0% 7.0% 4.0% 3% 3% 3%
Consumer 62.0% 52.0% 44.0% 37.0% 38% 33% 35%
Others 10% 9% 7% 4% 4% 3% 2%

Source: MasterLink

NRE remains on the uptrend this NRE revenue is an indicator for turnkey projects with a lead time of six-eighteen
year, implying sales to grow in 2009. months. In 2008 there have been about 120 NRE tape-outs. While NRE revenue
may slow down due to an economic downturn, it still remains on the uptrend this
year if in terms of sales recognition, implying the company’s FY09 sales may
continue to grow. However, if customers experience a slowdown in the customer
end or reduce their investment in advanced technology, GUC’s sales momentum
will be accordingly affected.

As its sales declines in the short The industry has experienced a slowdown, holding companies from investing in
advanced technology. However, in terms of NRE sales recognition, NRE sales may
term due mainly to slowing
grow in 2009. We estimate FY09 sales at NT$10.27bn, up 10.4% YoY, with gross
economies, we downgrade our margin dropping slightly to 19.8%, net profit of NT$800mn, up 3.4% YoY, with EPS at
rating to HOLD from BUY for GUC. NT$6.53. Our rating is downgraded to HOLD for the following three reasons: 1) the
Industry should sustain a long-term growth trend, but GUC still faces an economic
slowdown and thus a decline in sales. 2) The market for advanced technology is to
slow down due to the economic downturn. 3) GUC’s current P/E is not relatively
lower than its peers.

2008/12/4 Page 3 of 4
MasterLink Securities GUC (3443 TT)

Unconsolidated Income Statement NT$m Unconsolidated Balance Sheet NT$m


Year-end Dec. 31 FY06 FY07 FY08F FY09F Year-end Dec. 31 FY06 FY07 FY08F FY09F
Net sales 3,359 6,989 9,276 10,237 Cash 511 1,006 836 1,240
COGS 2,579 5,509 7,387 8,205 Marketable securities 180 0 0 0
Gross profit 780 1,480 1,889 2,031 A/R & N/R 773 816 1,325 1,280
Operating expense 560 746 1,121 1,202 Inventory 632 836 1,159 1,280
Operating profit 220 735 768 829 Others 53 165 170 178
Net interest inc/(exp) 7 14 18 18 Total current asset 2,150 2,824 3,491 3,978
Investment income 2 2 3 3 Long-term invest. 9 11 11 11
Total non-operate. Inc. 21 6 67 39 Total fixed assets 379 448 552 661
Pre-tax profit 241 741 835 869 Total other assets 252 347 358 375
Net profit 237 733 777 803 Total assets 2,790 3,631 4,412 5,025
EPS (NT$) 2.44 6.41 6.31 6.53
Y/Y % FY06 FY07 FY08F FY09F Short-term Borrow 0 0 0 0
Sales 111.1 108.1 32.7 10.4 A/P &N/P 763 877 972 1,026
Gross profit 63.1 89.9 27.6 7.5 Other current liab. 270 429 764 985
Operating profit 243.0 233.7 4.5 8.0 Total current liab. 1,034 1,306 1,736 2,011
Pre-tax profit 168.0 207.2 12.7 4.0 L-T borrows 37 14 (51) (116)
Net profit 122.3 208.7 6.1 3.4 Other L-T liab. 10 8 8 8
EPS 98.7 162.2 (1.5) 3.4 Total liability. 1,081 1,328 1,694 1,904
Margins % FY06 FY07 FY08F FY09F Common stocks 1,089 1,149 1,231 1,231
Gross 23.2 21.2 20.4 19.8 Reserves 382 405 324 324
Operating 6.6 10.5 8.3 8.1 Retain earnings 238 748 1,163 1,567
EBITDA 14.0 15.2 12.7 12.1 Total Equity 1,709 2,303 2,718 3,121
Pre-tax 7.2 10.6 9.0 8.5 Total Liab. & Equity 2,790 3,631 4,412 5,025
Net 7.1 10.5 8.4 7.8

Unconsolidated Quarterly Income Statement NT$m Unconsolidated Statement of Cash flow


1Q08 2Q08 3Q08 4Q08F Year-end Dec. 31 FY06 FY07 FY08F FY09F
Net sales 2,184 2,285 2,522 2,285 Net income 237 733 777 803
Gross profit 451 457 513 468 Dep & Amort 237 335 360 384
Operating profit 190 192 191 195 Investment income (2) (2) (3) (3)
Investment income 1 1 1 0 Changes in W/C (335) (134) (737) (21)
Total non-ope inc. 10 16 27 14 Other adjustment 42 28 29 30
Pre-tax profit 200 207 218 210 Cash flow – ope. 179 959 425 1,193
Net profit 187 192 204 193
EPS 1.52 1.56 1.66 1.57 Capex (80) (101) (104) (109)
Y/Y % 1Q08 2Q08 3Q08 4Q08F Change in L-T inv. 0 0 0 0
Net sales 46.2 39.5 38.3 12.4 Other adjustment (268) (84) (275) (289)
Gross profit 32.7 34.6 42.8 6.0 Cash flow –inve. (348) (184) (379) (397)
Operating profit 5.9 23.7 10.1 (13.9) Free cash flow 99 859 322 1,084
Net profit 0.1 32.4 11.1 (10.6)
Q/Q % 1Q08 2Q08 3Q08 4Q08F Inc. (Dec.) debt (11) 0 0 0
Net sales 7.4 4.6 10.4 (9.4) Cash dividend (32) (139) (362) (400)
Gross profit 2.0 1.4 12.2 (8.6) Bond issue 0 0 0 0
Operating profit (16.4) 1.0 (0.1) 2.1 Right issue 459 0 0 0
Net profit (13.5) 2.5 6.5 (5.4) Other adjustment 31 (3) 8 8
Margins % 1Q08 2Q08 3Q08 4Q08F Cash flow-Fin. 447 (143) (354) (392)
Gross 20.6 20.0 20.3 20.5
Operating 8.7 8.4 7.6 8.6 Exchange influence 0 0 0 0
Net 8.6 8.4 8.1 8.5 Change in Cash 278 632 (307) 404

MasterLink Securities – Stock Rating System


STRONG BUY: Total return expected to appreciate 20% or more over a 3-month period.
BUY: Total return expected to appreciate more than 10% and less than 20% over a 3-month period.
HOLD: Total return expected to be between 10% to –10% over a 3-month period.
SELL: Total return expected to depreciate 10% or more over a 3-month period.
Additional Information Available on Request
©2008 MasterLink Securities. All rights reserved.

This information has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. It is not an offer to
sell or solicitation of an offer to buy any securities. MasterLink and its affiliates and their officers and employees may or may not have a position in or with respect to the
securities mentioned herein. This firm (or one of its affiliates) may from time to time perform investment banking or other services or solicit investment banking or other
business from, any company mentioned in this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change
without notice. MasterLink has produced this report for private circulation to professional and institutional clients only. All information and advice is given in good faith but
without any warranty.

2008/12/4 Page 4 of 4