Global Technology| July 22, 2015 UUSS SSeemmiiccoonndduuccttoorrss Industry View: In-Line Summary: Cloud weakness should represent a headwind in 2h to infrastructure names already facing weakness in wireless infrastructure and weaker enterprise spending. We reiterate our below consensus views on Intel (where we expect data center growth of 10-12% vs. company forecast 15%) and server memory, and trim our estimates for Avago's cloud related business (offset by wireless increases), Broadcom, Cavium, and Marvell; we note that the absolute earnings impact is relatively small, but that this adds to overall headwinds and higher risk of disappointment. Details: Within semiconductors, data center infrastructure has been a growth segment in a sector struggling with growth concerns in verticals such as PCs, smartphones/tablets (ex Apple), and wireless infrastructure. This has happened despite headwinds in service provider spending on wireline, and more recently enterprise growth concerns. EExxhhiibbiitt 1133 shows our estimate of total semiconductor exposure to cloud, which overall remains relatively small. Still, deceleration in this segment could prove problematic to 2nd half numbers, as there simply aren't enough other growth drivers to compensate, in some cases. Intel - Cloud about 6% of revenues - maintaining below consensus server #s. Total Data Center Group (DCG) is about 29% of revenues, Intel has indicated in several public reports that cloud represents about 20% of DCG, with the balance being enteprise IT (45% of revenues), telco/service provider (10% of revenues), and government/academia/science. We have already budgeted for further deceleration in DCG, which is part of the reason that we are below consensus. We like Intel's virtual monopoly position in DCG, and see average selling prices rising over time, but have generally thought that Intel is a bit too optimistic in calling for a 15% organic growth rate. We note that the company has only achieved this growth rate once in the last three years, in 2014, in a year that was enhanced by very strong cloud buildout. Growth was 6% in 2012, and 7% in 2013, in a strong economic environment with a heavy cloud buildout and penetration of telecom/service provider. The company also acknowledged seeing some strength from replacing Win2003 servers last year, as Microsoft's support expires in July of this year. In particular, we had highlighted after 4Q14 that the 25% y/y growth rate that the company reported was likely not sustainable. While Intel has been qualitatively positive on DCG YTD, we note that 1Q14 was the worst sequential comparison for the segment in four years (-10%), and that Y/Y growth has already decelerated to 10% in 2q. We estimate only 5% q/q growth in 3q, and 4% in 4q, bringing full year growth to 10% vs. company guidance of >15%; further, we estimate 2016 revenues at 12%. We note that long term, the growth in cloud is a net negative for Intel's DCG business, as cloud vendors will manage much higher utilization rates than enterprise data centers. Broadcom: Cloud exposure 7% of revenues, trimming estimates slightly to 4% Infrastructure and networking growth this year. The Infrastructure and Networking segment is 31% of Broadcom; within that, the company has described roughly 3 equal subsegments - carrier networks, data center networks, and campus networks - and within data center networks, we estimate that roughly 2/3 of the business is public cloud. We note that our numbers already take into account substantial deceleration in the business, due to the slower carrier spending that we have seen in the last three quarters. Before this cut, we projected infrastructure and networking growth this year of 7%, after 17% growth last year. Assuming a slower cloud spending year in line with this report, we take our 3Q sequential revenue growth for I&N from 5% to 1%, and assume a flat quarter in 4q. This takes total full year N&I revenue growth down to 4%. We continue to look for 11% growth next year; we see a significant tailwind to the BRCM #s from better long 12