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In this note, published in January 2007, I correctly predicted months in advance that Nokia would soon stop designing its own chips and switch to merchant silicon solutions... A revolution for the......

In this note, published in January 2007, I correctly predicted months in advance that Nokia would soon stop designing its own chips and switch to merchant silicon solutions... A revolution for the wireless IC industry at the time....

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  • 1. Produced by: ABN AMRO Bank NV Tuesday 23 January 2007 Flashnote Semiconductors Neutral Sector relative to market Big bang ahead? Key recommendations & forecasts Reuters Year end Recom Price Target EPS PE price 1fcst 1fcst ARM ARM.L Dec 2006 Hold £1.19 £1.20 0.05 24.5 ASML ASML.AS Dec 2007 Buy €19.25 €25.00 1.48 13.0 CSR CSR.L Dec 2006 Buy £6.75 £7.60 0.80 16.6 Infineon IFXGn.DE Sep 2007 Buy €10.74 €12.00 0.41 26.1 Europe ST STM.N Dec 2006 Hold US$18.26 US$16.50 0.83 22.0 Wolfson WLF.L Dec 2006 Buy £3.10 £3.55 0.32 19.4 Source: Company data, ABN AMRO forecasts Quick summary Texas Instruments (TI) announced yesterday that it would stop developing leading-edge process technology beyond 45nm. Instead, the company will rely on foundry partners to manufacture its advanced logic/SoC chips. We believe this is a major change in strategy for TI and has significant implications for the industry, the most important one being that Nokia may choose to use standard chipsets instead of its own proprietary solution in the next two to three years. As software, IP and mixed-signal integration become the main differentiation Sector performance (1M) (3M) (12M) factors, companies with substantial IP and software such as Infineon, CSR and Absolute -3.3 8.1 17.5 Wolfson look most likely to benefit, while STM looks most likely to suffer from Absolute % -2.1 5.6 12.9 this trend. In addition, TI's change of manufacturing strategy could mean ARM's Rel market % -4.8 0.9 -4.2 Physical IP business will never take off as it uses in-house IP until 45nm before Source: Bloomberg moving to foundries at 32nm. We maintain our Buy rating on Infineon, ASML, CSR and Wolfson and Hold on STM and ARM. FTSE Eurotop 300 Index: 1513.52 Why the change? Europe IT Hardware: 152.73 We believe TI has decided to abandon its leading-edge process development for several reasons: ■ Process development is too costly: for leading-edge logic IDMs such as TI or STM, about 1/3 of R&D is spent on process development. The other 2/3 is spent on system-software development and application-specific designs. This means TI spent about US$724m on process development last year. TI indicated it would start working on 45nm this year and would stop after that, which should result in some significant cost savings over the next 24 months. This is also a good way for TI to expand its operating margins, in out view. ■ Foundries have caught up: While TI (and other IDMs like STM) has claimed that in-house manufacturing for logic was a competitive advantage vs Qualcomm and fabless companies, the company indicated that foundries Analyst are now capable of delivering the most advanced manufacturing processes in Didier Scemama United Kingdom line with TI. Currently about 50% of TI’s digital chips are outsourced. This +44 20 7678 0772 will increase to 100% over time. didier.scemama@uk.abnamro.com ■ Nokia potentially changing its strategy: The key question is: ‘Why did TI Marketing analyst change its mind?’. We believe that it has to be motivated by discussions the Harvey Robinson +44 20 7678 1708 Important disclosures and analyst certifications regarding companies can be found in the Disclosures Appendix. www.abnamroresearch.com 250 Bishopsgate, London, EC2M 4AA, United Kingdom
  • 2. SEM I CO ND U C TORS company had with its most important customer, Nokia. TI, just like STM, has always stressed that some of its major OEM customers (read Nokia and Ericsson) wanted to develop their own chips for cell phones (ASIC) using TI’s DSP and advanced lithography process. The fact that TI has decided to stop process development suggests Nokia may have changed its mind. In addition, TI has recently lost Ericsson as an ASIC customer to STM, which may also have contributed to the decision. ■ ODMs’ role increasingly important: Although Taiwanese ODMs have increased their role in handset design and manufacturing at the low-end, primarily servicing the likes of Motorola and Sony Ericsson, major OEMs have so far kept in-house the manufacturing and/or design for mid-range and high-end models. This is particularly true for Nokia. TI’s move on the process front may be an indication that ODMs are likely to gain more business from Nokia and Sony Ericsson in the mid range/high end. ODMs like to use off-the-shelf solutions ie a standard chipset and software in order to focus on industrial design and reduce time to market. As such, they are more likely to use a standard product from TI, manufactured by TSMC, than a custom design chip running the OEM software. What are the implications of this change? ■ Nokia may choose to use ‘customised’ standard products: With this announcement we believe it is becoming increasingly clear that Nokia is about to change its chipset design strategy. So far Nokia has always used its own chipset, designed in house, for cellular communications (ie digital baseband, power management and RF transceiver) as it was ahead of competitors that had to rely on standard chipsets coming from semiconductor vendors. Nokia’s proprietary/custom chipsets are currently manufactured by TI (100% share in baseband), STM (100% share in EDGE and UMTS RF transceivers and power management) and Infineon (100% share in GSM/GPRS RF transceivers). We believe Nokia could now decide to use standard chips from semiconductor vendors that would run Nokia’s proprietary software. This would help Nokia use two semiconductor vendors for each chip used in their phones as opposed to the current single-sourcing strategy. In a nutshell, this means Nokia could very well use a TI-designed UMTS chip on some models and an Infineon-designed UMTS baseband chip on others. However, both of them would use Nokia’s proprietary software, which would reduce its suppliers’ lock-in. Note that Nokia has already implemented this strategy with Bluetooth using CSR and TI chips and WiFi using STM chips running their own software. The same changes could also happen for RF and power management, opening the door to the likes of Silicon Labs, Infineon, RFMD and Skyworks. RF chips from these vendors are already ahead of those designed by Nokia and manufactured by STM. ■ IP, software and mixed-signal integration becoming increasingly important: while historically TI has lagged the likes of Qualcomm in terms of IP and software (TI relied on its OEM partners, Nokia and Ericsson), it has always had an advantage in terms manufacturing scale and process technology. However, this advantage has gone, according to TI itself. Differentiation for TI will have to come from IP and software, ie coming up first with the latest baseband technology supporting the latest cellular standards. This implies substantial R&D investment for TI in communication systems. TI can, however, differentiate via the integration of mixed-signal ICs (RF for instance) in next- generation baseband chips thanks to its leading analog/mixed signal design teams. In any case, the ‘old’ model of IC manufacturing custom chips for big OEMs seems to have run its course. ■ M&A may accelerate: As software and IP becomes increasingly important, large companies such as TI may have to acquire fabless companies that have a specific IP or software in a niche market they don’t have. SEM I CO ND U C TORS 2 3 J A N U A R Y 2 0 0 7 2
  • 3. SEM I CO ND U C TORS Implications for the Euro chip vendors ■ STM may need to acquire a baseband and/or RF chipset vendor: Most of STM’s wireless business is based on custom business with Nokia. Although it has grown its standard chip business with bluetooth and WiFi, we believe STM does not offer the software package that goes with the chip, essentially reducing the opportunity to sell this chip to large OEMs like Nokia or Ericsson. STM will need to acquire or develop its own Bluetooth, WiFi and cellular software to address Nokia’s potential future needs and, importantly, the ODM market, whether or not Nokia and others decide to outsource further. In addition, STM may have to increase R&D in the medium term to improve its weak software and system IP offering. Finally, as NXP and, potentially, Freescale (after the announcement of their R&D partnership with IBM) leave the Crolles 2 alliance (a JV formed to develop leading-edge manufacturing process) STM may be left alone. As such the company may have to increase its capital and R&D spending in the short term to continue funding Crolles 2 as its IP-poor product portfolio does not allow for a more fablite model. While the company may benefit from the gain of EMP in the short term, we believe the company’s business model is increasingly under pressure if not outdated, which makes us cautious about its long-term margin outlook. ■ Infineon, CSR and Wolfson seem to be in an ideal position to capitalise on this trend: while Infineon has had limited business with Nokia (GSM RF only) and Sony Ericsson due to their strategies of using proprietary design, we believe Infineon’s technical leadership in GPRS/EDGE system solutions, single-chip HSDPA/EDGE CMOS RF, single-chip GSM/GPRS solution and HSDPA/EDGE baseband and as well as software, puts the company in an ideal position to capitalise on this trend. Infineon could address not only Nokia’s internal design platforms (through an Infineon baseband running Nokia software, for instance) but also outsourced models to ODMs. Similarly, CSR’s bluetooth and WiFi SoCs are based on proprietary design and software. They offer a complete off-the- shelf solution for OEMs and ODMs that do not have internal chip design or software development teams. As Nokia and other OEMs such as Sony Ericsson decide potentially to use more standard solutions and/or outsource more models to ODMs, it opens up substantial opportunities for them. Wolfson also stands to benefit very substantially. So far Wolfson has had no business with Nokia, Sony Ericsson and Motorola, all of which use proprietary audio solutions from STM, Dialog and TI. Should these handset OEMs use standard components as part of a new platform, it would substantially increase the addressable market for Wolfson. As we have consistently argued, such a decision is highly political and as such may take time. ■ ARM’s Physical IP business may never take off: While ARM has indicated it expected its physical IP business to take off with IDMs over the next five years, we believe TI’s decision to stop process development at 45nm and move to foundries from 32nm essentially implies TI may never buy a physical IP licence from ARM. The in-house process development until 45nm means TI will have its own standard cell IP library. However, as it moves to TSMC, for instance, for 32nm it will not have to license ARM’s physical IP as all foundries are already ARM customers. It does potentially bode well for physical IP royalties, as significantly higher volumes may channel through foundries over the next five years. With NXP and Infineon essentially stepping out of leading-edge manufacturing, LSI and Agere going fabless and Freescale evaluating its options, only a handful of companies (STM, Renesas, Toshiba, Sony?) remain committed to in-house leading-edge process development, which may reduce further the potential opportunity for ARM’s physical IP. SEM I CO ND U C TORS 2 3 J A N U A R Y 2 0 0 7 3
  • 4. SEM I CO ND U C TORS Conclusion: a major change ahead for the chip industry? TI’s decision to stop leading-edge process manufacturing beyond 45nm is a step change for the industry. It puts additional pressure on fellow IDMs such as STM whose product portfolio lacks IP and system software, particularly in wireless. In order to adapt, STM may have to make substantial R&D investments and/or substantial acquisitions. Simply put, STM’s business model is not adapted to this new environment, which makes us cautious about its medium-term prospects. We maintain our Hold rating and target price of US$16.50. As we have explained, we believe TI’s strategic evolution on the manufacturing side may have negative implications for ARM’s Physical IP business. While royalties may over time become substantial, we believe ARM may not be able to sell its physical IP to IDMs, which was the basic rationale behind the US$1bn acquisition. We maintain our Hold rating and price target of 120p. On the other hand, we believe the trend towards asset-light, IP-rich business models is favourable to Infineon, CSR and Wolfson. We believe TI’s decision could indicate that Nokia may decide to open up to standard products for the digital baseband and RF, which may benefit Infineon. We maintain our Buy rating and price target of €12 on Infineon. At the same time, the introduction of new platforms may open up opportunities for Wolfson at Nokia, Sony Ericsson and Motorola, either via OEM manufactured models or ODM-outsourced models. Wolfson currently does not supply any of these OEMs and any indications that it may do so would be a positive for the stock. It supports too our view that Wolfson remains a prime takeover candidate. We maintain our Buy rating and price target of 355p. CSR stands to gain from more outsourcing of handset models to ODMs from the likes of Nokia, Sony Ericsson and Motorola, in our view. While CSR’s bluetooth chips are widely used already by Nokia, the company could benefit from Sony Ericsson and Motorola outsourcing more models to ODMs. It could also help them sell more WiFi chips and kick start their GPS technology thanks to their off-the-shelf approach, which is particularly appreciated by ODMs. Other companies such as STM cannot supply ODMs today with their current portfolio and would be unable to supply ODM- designed Nokia models, for instance. Besides CSR’s solid long-term position confirms our view that it could be a take-over candidate. We maintain our Buy rating and price target of 760p. SEM I CO ND U C TORS 2 3 J A N U A R Y 2 0 0 7 4
  • 5. DISCLOSURES APPENDIX Recommendation structure Absolute performance, short term (trading) recommendation: A Trading Buy recommendation implies upside of 5% or more and a Trading Sell indicates downside of 5% or more. The trading recommendation time horizon is 0-60 days. For Australian coverage, a Trading Buy recommendation implies upside of 5% or more from the suggested entry price range, and a Trading Sell recommendation implies downside of 5% or more from the suggested entry price range. The trading recommendation time horizon is 0-60 days. Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. For listed property trusts (LPT) or real estate investment trusts (REIT) the recommendation is based upon the target price plus the dividend yield, ie total return. A Buy implies a total return of 10% or more, a Hold 5-10% and a Sell less than 5%. This structure applies to research on Asian and European stocks published from 1 November 2005; on Australian stocks from 7 November 2006 and on continental European small and mid cap stocks from 23 November 2006. For UK small caps a Buy/Sell implies upside/downside of 10% or more, an Add/Reduce 5- 10% and a Hold less than 5%. Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months. Sector relative to market: The sector view relative to the market is the responsibility of the strategy team. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside. Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from 'fair' value. Asset allocation: The asset allocation is the responsibility of the economics team. The recommended weight (Over, Neutral and Under) for equities, cash and bonds is based on a number of metrics and does not relate to a particular size change in one variable. Stock borrowing rating: The stock borrowing rating is the subjective view and responsibility of the ABN AMRO equity finance team: Easy implies ready availability. Moderate implies some availability. Hard implies availability is tight. Impossible implies no availability. Distribution of recommendations The tables below show the distribution of ABN AMRO's recommendations (both long term and trading). The first column displays the distribution of recommendations globally and the second column shows the distribution for the region. Numbers in brackets show the percentage for each category where ABN AMRO has an investment banking relationship. Long Term recommendations (as at 23 Jan 2007) Trading recommendations (as at 23 Jan 2007) Global total (IB%) Europe total (IB%) Global total (IB%) Europe total (IB%) Buy 595 (22) 251 (49) Trading Buy 6 (17) 3 (33) Add 19 (47) 17 (53) Hold 517 (17) 229 (34) Reduce 1 (0) 0 (0) Sell 141 (6) 48 (17) Trading Sell 2 (100) 2 (100) Total (IB%) 1273 (19) 545 (40) Total (IB%) 8 (38) 5 (60) Valuation and risks to target price ARM (RIC: ARM.L, Rec: Hold, CP: £1.19, TP: £1.20): Main upside risks to our DCF-based target price are significant market share gains, better-than-expected demand for 3G phone and smartphones and a lower-than-expected GBP/USD exchange rate. Main downside risks are a larger-than-expected inventory correction and a growing proportion of low-end phones. CSR (RIC: CSR.L, Rec: Buy, CP: £6.75, TP: £7.60): Our target price is based on CY07F PE ex cash of 20x, which reflects CSR's mono-product nature but also its growth potential. Our target price is backed by a DCF-based valuation. Risks to our target price include: 1) loss of market share in bluetooth to competitors Broadcom, TI and others, 2) inventory build in headsets, 3) increased pricing pressure in the cell phone space due to lower-than-expected attach rate and increased competition, and 4) delay in the ramp-up of new products such as BC5-FM or UniFi. Infineon (RIC: IFXGn.DE, Rec: Buy, CP: €10.74, TP: €12.00): Downside risks to our DCF-based target include (1) market share loss in cellular baseband, (2) inventory build in cell phones, (3) increased price pressure in automotive and smart cards, and (4) lower demand for DRAM chips driving down the value of its stake in Qimonda. Upside risks are (1) new customer wins and (2) better pricing. STMicroelectronics (RIC: STM.N, Rec: Hold, CP: US$18.26, TP: US$16.50): The main upside risks to our rating and DCF-based price target are: (1) announcement of a JV for the memory group, (2) a lower EUR/USD rate, and (3) new design wins. The main downside risks are: (1) more severe than expected inventory correction, (2) lower demand for 3G and higher-end handsets in 2007, and (3) market share losses in the company's target markets. Wolfson Microelectronics (RIC: WLF.L, Rec: Buy, CP: £3.10, TP: £3.55): Risks to our DCF-based target price and recommendation on Wolfson include: 1) loss of market share in stereo audio DAC to competitors TI, Cirrus and AKM in the portable audio segment, 2) inventory build in handsets, 3) increased pricing pressure in the cell phone space due to lower than expected demand for multimedia models and 4) delay in the ramp up of new products such as ISP. ARM Stock performance, recommendations and coverage (as at 22 Jan 2007) Trading recommendation history (as at 23 Jan 2007) Date Rec Analyst n/a Didier Scemama started covering this stock on 18 Aug 04 Moved to new recommendation structure between 1 November 2005 and 31 January 2006 SEM I CO ND U C TORS 2 3 J A N U A R Y 2 0 0 7 5
  • 6. DISCLOSURES APPENDIX CSR Stock performance, recommendations and coverage (as at 22 Jan 2007) Trading recommendation history (as at 23 Jan 2007) Date Rec Analyst 17 Aug 2006 n/a CA 12 Jul 2006 Trading Buy CA 03 May 2006 n/a CA 27 Jan 2006 Trading Buy CA Didier Scemama started covering this stock on 8 Jun 04 Moved to new recommendation structure between 1 November 2005 and 31 January 2006 Infineon Stock performance, recommendations and coverage (as at 22 Jan 2007) Trading recommendation history (as at 23 Jan 2007) Date Rec Analyst 11 Jan 2007 n/a CA 22 Nov 2006 Trading Buy CA 18 Nov 2006 n/a CA 18 Sep 2006 Trading Buy CA Didier Scemama started covering this stock on 18 Aug 04 Moved to new recommendation structure between 1 November 2005 and 31 January 2006 STMicroelectronics Stock performance, recommendations and coverage (as at 22 Jan 2007) Trading recommendation history (as at 23 Jan 2007) Date Rec Analyst 25 Oct 2006 n/a CA 18 Sep 2006 Trading Buy CA 26 Apr 2006 Trading Buy CA 26 Apr 2006 n/a CA 25 Mar 2006 n/a CA 23 Jan 2006 Trading Buy CA Didier Scemama started covering this stock on 3 Dec 97 Moved to new recommendation structure between 1 November 2005 and 31 January 2006 SEM I CO ND U C TORS 2 3 J A N U A R Y 2 0 0 7 6
  • 7. DISCLOSURES APPENDIX Wolfson Microelectronics Stock performance, recommendations and coverage (as at 22 Jan 2007) Trading recommendation history (as at 23 Jan 2007) Date Rec Analyst 08 Aug 2006 n/a PA 12 Jul 2006 Trading Buy PA Didier Scemama started covering this stock on 24 Oct 06 Moved to new recommendation structure between 1 November 2005 and 31 January 2006 Regulatory disclosures Subject companies: ARM.L, CSR.L, IFXGn.DE, STM.N, WLF.L In the ordinary course of their business, ABN AMRO and its affiliates may effect transactions for their own account or for the account of their customers and hold long or short positions in the securities of this company or related derivatives. In addition, ABN AMRO and any of its affiliates may engage in market-making activities in relation to the securities of this company or related derivatives and may enter into transactions in the securities of the company or related derivatives which may affect the market price, liquidity or value of the securities of this company.: CSR.L ABN AMRO has received compensation for investment banking services from this company, its subsidiaries or affiliates during the previous 12 months: ARM.L, IFXGn.DE ABN AMRO ROTHSCHILD is appointed by Infineon as Co-Lead Manager of Qimonda AG's IPO offering.: IFXGn.DE ABN AMRO expects to receive, or intends to seek, compensation during the next three months for investment banking services from this company, its subsidiaries or affiliates: ARM.L, IFXGn.DE ABN AMRO currently maintains a market in the security of this company and otherwise purchases and sells securities of this company as principal: ARM.L ABN AMRO Rothschild was appointed as Joint Lead Manager for the GDR offering of Inotera Memories Inc.: IFXGn.DE SEM I CO ND U C TORS 2 3 J A N U A R Y 2 0 0 7 7
  • 8. DISCLOSURES APPENDIX Global disclaimer  Copyright 2007 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO"). All rights reserved. This material was prepared by the ABN AMRO affiliate named on the cover or inside cover page. It is provided for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. While based on information believed to be reliable, no guarantee is given that it is accurate or complete. While we endeavour to update on a reasonable basis the information and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) contained in this material are as of the date indicated and are subject to change at any time without prior notice. The investments referred to may not be suitable for the specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent judgement. The stated price of any securities mentioned herein is as of the date indicated and is not a representation that any transaction can be effected at this price. Neither ABN AMRO nor other persons shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. This material is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without ABN AMRO's prior express consent. In any jurisdiction in which distribution to private/retail customers would require registration or licensing of the distributor which the distributor does not currently have, this document is intended solely for distribution to professional and institutional investors. Australia: Any report referring to equity securities is distributed in Australia by ABN AMRO Equities Australia Ltd (ABN 84 002 768 701, AFS Licence 240530), a participant of the ASX Group. Any report referring to fixed income securities is distributed in Australia by ABN AMRO Bank NV (Australia Branch) (ABN 84 079 478 612, AFS Licence 238266). Australian investors should note that this document was prepared for wholesale investors only. Canada: The securities mentioned in this material are available only in accordance with applicable securities laws and may not be eligible for sale in all jurisdictions. Persons in Canada requiring further information should contact ABN AMRO Incorporated. Denmark: ABN AMRO Bank N.V. is authorised and regulated in the Netherlands by De Nederlandsche Bank. In addition, ABN AMRO Bank N.V., Copenhagen Branch is subject to local supervision by Finanstilsynet, the Danish Financial Supervisory Authority. ABN AMRO has adopted rules to ensure the integrity and independence of research analysts and the research function, as well as to identify, manage, avoid or make public actual or potential conflicts of interest relating to analysts or ABN AMRO. All analysts located in Denmark follow the recommendations from the Danish Securities Dealers Association. Finland: ABN AMRO Bank N.V. is authorised and regulated in the Netherlands by De Nederlandsche Bank. In addition, ABN AMRO Bank N.V., Helsinki Branch is subject to local supervision by Rahoitustarkastus, the Finnish Financial Supervision Authority. ABN AMRO has adopted rules to ensure the integrity and independence of research analysts and the research function, as well as to identify, manage, avoid or make public actual or potential conflicts of interest relating to analysts or ABN AMRO. Hong Kong: This document is being distributed in Hong Kong by, and is attributable to, ABN AMRO Asia Limited which is regulated by the Securities and Futures Commission of Hong Kong. India: Shares traded on stock exchanges within the Republic of India may only be purchased by different categories of resident Indian investors, Foreign Institutional Investors registered with The Securities and Exchange Board of India ("SEBI") or individuals of Indian national origin resident outside India called Non Resident Indians ("NRIs") and Overseas Corporate Bodies ("OCBs"), predominantly owned by such persons or Persons of Indian Origin (PIO). Any recipient of this document wanting additional information or to effect any transaction in Indian securities or financial instrument mentioned herein must do so by contacting a representative of ABN AMRO Asia Equities (India) Limited. Italy: Persons in Italy requiring further information should contact ABN AMRO Bank N.V. Milan Branch. Japan: This report is being distributed in Japan by ABN AMRO Securities Japan Ltd to institutional investors only. Malaysia: ABN AMRO research, except for economics and FX research, is not for distribution or transmission into Malaysia. New Zealand: This document is distributed in New Zealand by ABN AMRO Securities NZ Limited an accredited NZX Firm. Russia: The Russian securities market is associated with several substantial risks, legal, economic and political, and high volatility. There is a relatively high measure of legal uncertainty concerning rights, duties and legal remedies in the Russian Federation. 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Any report referring to non-equity securities is distributed in Singapore by ABN AMRO Bank NV (Singapore Branch) Limited to clients who fall within the description of persons in Regulations 34 and 35 of the Financial Advisers Regulations. Investors should note that this material was prepared for accredited investors only. Recipients who do not fall within the description of persons under Regulation 49 of the Securities and Futures (Licensing and Conduct of Business) Regulations or Regulations 34 and 35 of the Financial Advisers Regulations should seek the advice of their independent financial advisor prior to taking any investment decision based on this document or for any necessary explanation of its contents. Sweden: ABN AMRO Bank N.V. is authorised and regulated in the Netherlands by De Nederlandsche Bank. In addition, ABN AMRO Bank N.V., Stockholm Branch is subject to local supervision by the Swedish Financial Supervisory Authority. ABN AMRO has adopted rules to ensure the integrity and independence of research analysts and the research function, as well as to identify, manage, avoid or make public actual or potential conflict of interests relating to analysts or ABN AMRO. Thailand: Pursuant to an agreement with Asia Plus Securities Public Company Limited (APS), reports on Thai securities published out of Thailand are prepared by APS but distributed outside Thailand by ABN AMRO Bank NV and affiliated companies. Responsibility for the views and accuracy expressed in such documents belongs to APS. United Kingdom: All research is distributed by ABN AMRO Bank NV, London Branch, which is authorised by De Nederlandsche Bank and by the Financial Services Authority; and regulated by the Financial Services Authority for the conduct of UK business. The investments and services contained herein are not available to private customers in the United Kingdom. United States: Except for any documents relating to foreign exchange, FX or global FX, distribution of this document in the United States or to US persons is intended to be solely to major institutional investors as defined in Rule 15a-6(a)(2) under the US Securities Act of 1934. All US persons that receive this document by their acceptance thereof represent and agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any US recipient of this document wanting additional information or to effect any transaction in any security or financial instrument mentioned herein, must do so by contacting a registered representative of ABN AMRO Incorporated, Park Avenue Plaza, 55 East 52nd Street, New York, N.Y. 10055, US, tel + 1 212 409 1000, fax +1 212 409 5222. - Material means all research information contained in any form including but not limited to hard copy, electronic form, presentations, e-mail, SMS or WAP. _________________________________________________________________________________________________________________________________ The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts. _________________________________________________________________________________________________________________________________ For a discussion of the valuation methodologies used to derive our price targets and the risks that could impede their achievement, please refer to our latest published research on those stocks at www.abnamroresearch.com. Disclosures regarding companies covered by ABN AMRO group can be found on ABN AMRO's research website at www.abnamroresearch.com. ABN AMRO's policy on managing research conflicts of interest can be found at https://www.abnamroresearch.com/Disclosure/Disclosure.AspX?MI=5. Should you require additional information please contact the relevant ABN AMRO research team or the author(s) of this report. SEM I CO ND U C TORS 2 3 J A N U A R Y 2 0 0 7 8