DECEMBER 16, 2020 CORPORATES

RATING Semiconductor Methodology

METHODOLOGY
Table of Contents:
This rating methodology replaces the Semiconductor Industry methodology published in
INTRODUCTION 1
July 2018. While this methodology reflects many of the same core principles as the 2018
SCOPE OF THIS METHODOLOGY 2
SCORECARD FRAMEWORK 2
methodology, we updated the Business Profile factor to enhance transparency and
DISCUSSION OF THE SCORECARD simplified the Scale facw1tor by eliminating the separate thresholds for analog-focused
FACTORS 3 companies and by focusing on one metric, revenues. We also added a profitability metric
OTHER CONSIDERATIONS 10 to the scorecard and changed some sub-factor thresholds and weights. In addition, this
ASSIGNING ISSUER-LEVEL AND updated methodology provides more detail regarding other considerations that may be
INSTRUMENT-LEVEL RATINGS 15
KEY RATING ASSUMPTIONS 15
important for companies in this sector. We have also made editorial changes to enhance
LIMITATIONS 16 readability.
APPENDIX A: USING THE SCORECARD
TO ARRIVE AT A SCORECARD-
INDICATED OUTCOME 17 Introduction
APPENDIX B: SEMICONDUCTOR
INDUSTRY SCORECARD 20
In this rating methodology, we explain our general approach to assessing credit risk for issuers
MOODY’S RELATED PUBLICATIONS 22
in the semiconductor industry globally, including the qualitative and quantitative factors that
are likely to affect rating outcomes in this sector.
Analyst Contacts:

NEW YORK +1.212.553.1653 We discuss the scorecard used for this sector. The scorecard 1 is a relatively simple reference
Terry Dennehy +1.212.553.1015 tool that can be used in most cases to approximate credit profiles in this sector and to
Vice President - Senior Credit Officer explain, in summary form, many of the factors that are generally most important in assigning
[email protected] ratings to companies in this sector. The scorecard factors may be evaluated using historical or
Richard Lane +1.212.553.7863 forward-looking data or both.
Senior Vice President
[email protected]
We also discuss other considerations, which are factors that are assessed outside the
Stephen Sohn +1.212.553.2965
Associate Managing Director scorecard, usually because the factor’s credit importance varies widely among the issuers in
[email protected] the sector or because the factor may be important only under certain circumstances or for a
Lenny Ajzenman +1.212.553.7735 subset of issuers. In addition, some of the methodological considerations described in one or
Associate Managing Director more cross-sector rating methodologies may be relevant to ratings in this sector. 2
[email protected] Furthermore, since ratings are forward-looking, we often incorporate directional views of risks
FRANKFURT +49.69.70730.700 and mitigants in a qualitative way.
Dirk Goedde +49.69.70730.702
Assistant Vice President - Analyst As a result, the scorecard-indicated outcome is not expected to match the actual rating for
[email protected] each company.
HONG KONG +852.3758.1300
Our presentation of this rating methodology proceeds with (i) the scope of this methodology;
Gloria Tsuen +852.3758.1583
Vice President - Senior Credit Officer
[email protected]
Chenyi Lu +852.3758.1353 1 In our methodologies and research, the terms “scorecard” and “grid” are used interchangeably.
Vice President - Senior Credit Officer 2 A link to a list of our sector and cross-sector methodologies can be found in the “Moody’s Related Publications”
[email protected] section.
» contacts continued on the last page
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(ii) the scorecard framework; (iii) a discussion of the scorecard factors; (iv) other considerations not
reflected in the scorecard; (v) the assignment of issuer-level and instrument-level ratings; (vi)
methodology assumptions; and (vii) limitations. In Appendix A, we describe how we use the scorecard
to arrive at a scorecard-indicated outcome. Appendix B shows the full view of the scorecard factors,
sub-factors, weights and thresholds.

Scope of This Methodology

This methodology applies to companies globally that are primarily 3 engaged in providing
semiconductor products or services for platforms including computers, mobile phones,
telecommunications equipment, data center infrastructure, digital consumer electronics, industrial
technology and automotive technology. This methodology also applies to semiconductor companies
that manufacture and sell equipment used by other semiconductor companies.

Companies that are primarily engaged in the design, manufacture and distribution of technology
hardware and communications equipment products are rated under our methodology for diversified
technology. 4 Technology companies that sell and support software and related services to consumer or
enterprise end-markets are rated under our software industry methodology. 5

Scorecard Framework

The scorecard in this rating methodology is composed of five factors. Some of the five factors comprise
a number of sub-factors.

EXHIBIT 1
Semiconductor Industry Scorecard Overview
Factor Factor Weighting Sub-factor Sub-factor Weighting
Scale 20% Revenue 20%
Business Profile 25% --* 25%
Profitability 10% EBITDA Margin 5%
(EBITDA – Capex) / Revenue 5%
Leverage and Coverage 25% Debt / EBITDA 10%
FCF / Debt 10%
This publication does not announce EBIT / Interest Expense 5%
a credit rating action. For any
credit ratings referenced in this Financial Policy 20% --* 20%
publication, please see the ratings
Total 100% 100%
tab on the issuer/entity page on
www.moodys.com for the most *This factor has no sub-factors.
updated credit rating action
information and rating history. Source: Moody’s Investors Service

Please see Appendix A for general information about how we use the scorecard and for a discussion of
scorecard mechanics. The scorecard does not include or address every factor that a rating committee

3 The determination of a company’s primary business is generally based on the preponderance of the company’s business risks, which are usually proportionate to the
company’s revenues, earnings and cash flows.
4 A link to a list of our sector and cross-sector methodologies can be found in the “Moody’s Related Publications” section.
5 A link to a list of our sector and cross-sector methodologies can be found in the “Moody’s Related Publications” section.

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may consider in assigning ratings in this sector. Please see the “Other Considerations” and
“Limitations” sections.

Discussion of the Scorecard Factors

In this section, we explain our general approach for scoring each scorecard factor or sub-factor, and we
describe why they are meaningful as credit indicators.

Factor: Scale (20% Weight)

Why It Matters
Scale is an important indicator of the overall breadth and depth of a company’s business, its pricing
power and its success in attracting a variety of customers, as well as its resilience to shocks, such as
sudden shifts in demand or rapid cost increases. Scale also can be an indicator of a semiconductor
company’s research and development capabilities and its negotiating leverage with customers and
suppliers.

How We Assess It for the Scorecard

REVENUE:
Scale is measured (or estimated in the case of forward-looking expectations) using total reported
revenue in billions of US dollars.

FACTOR
Scale (20%)
Sub-factor
Sub-factor Weight Aaa Aa A Baa Ba B Caa Ca
Revenue (USD Billion)*1 20% ≥ $50 $30 - $50 $15 - $30 $5 - $15 $2 - $5 $0.75 - $2 $0.25 - $0.75 < $0.25
*1 For the linear scoring scale, the Aaa endpoint value is $100 billion. A value of $100 billion or better equates to a numeric score of 0.5. The Ca endpoint value is zero. A value of zero equates
to a numeric score of 20.5.
Source: Moody’s Investors Service

Factor: Business Profile (25% Weight)

Why It Matters
The business profile of a semiconductor company is important because it greatly influences its ability
to generate sustainable earnings and operating cash flows. Key aspects of a semiconductor company’s
business profile include its revenue stability and its visibility, or insight into demand; the diversity or
concentration of its end markets, customers and products; its market position; and barriers to entry
into a market or a business segment..

A semiconductor company’s exposure to a variety of end markets and its ability to provide a breadth
of products typically lends it revenue stability across business cycles. Semiconductors are used in many
different types of products, such as mobile phones, computers, data center infrastructure, industrial
equipment and automobiles. The different customer bases for these products generally have different
demand patterns and trends. For example, industrial market demand has tended to follow business
capital spending patterns and the level of general economic activity, typically resulting in cyclicality for
semiconductor companies selling in the industrial market. Demand for mobile phones, on the other

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hand, has typically followed technology upgrade cycles. Additionally, end-market customer concerns of
a potential shortage of semiconductor product supply can result in periods of excess demand and
inventory accumulation, which are typically followed by periods of weak demand as inventories are
liquidated.

Certain capital-intensive segments of the semiconductor market, in which supply tends to arrive in
large, discrete additions to capacity, have typically been characterized by cycles of limited supply,
resulting in high prices and high revenue followed by excess supply, typically leading to declines in
prices and industry revenue as the new supply reaches the market.

The diversity of products and services as well as visibility into end-market demand are important
because they limit a company’s vulnerability to the potential loss of any one customer or set of
customers. Semiconductor companies with greater visibility into end-market demand, which may
result from direct relationships with customers, typically benefit from lower revenue volatility and are
better able to manage production capacity than companies with limited visibility.

Market position provides important indications of the extent to which a company’s investments in
research and development are translated into competitive advantages, and how meaningfully its
products and services are differentiated from those of competitors. A strong market position may
indicate high customer switching costs, providing resilience through economic cycles and periods of
intensifying competition. If a company’s semiconductors are critical to the functioning of a customer’s
product, it may make it difficult for the customer to switch to a competing supplier. Often, these
semiconductor companies provide customers with products that incorporate highly valuable
intellectual property and thus have strong negotiating leverage, which translates into greater pricing
power and higher gross margins.

Companies that sell semiconductors that do not undergo rapid technological obsolescence are
typically more likely to benefit from sustained revenue over time. Such semiconductor chips typically
represent only a small portion of the end product’s overall bill of materials or are incorporated into end
products that undergo only gradual innovation over time, such as semiconductors sold into industrial
and military equipment end markets. In contrast, companies that sell products with shorter life cycles
are more likely to have greater revenue volatility. These products are typically high-value
semiconductor chips that drive required performance improvements in rapidly innovating end markets,
such as radiofrequency filtering chips used in smartphones.

Barriers to entry often provide stability to the market by reducing the threat of significant competition
from new entrants into the segment. High barriers to entry help maintain the segment’s pricing power,
and companies that operate in segments with high barriers are thus more likely to have greater
revenue stability. Long or expensive development cycles, characteristics of some product segments,
generally provide a high barrier to entry. In addition, some new products also require the development
of new manufacturing processes or expertise with specialized materials, which may be difficult for a
potential new entrant to replicate. On the other hand, products that are manufactured using standard
processes and more common materials are typically subject to more intense competition and
experience price cycles typical of commodity products.

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How We Assess It for the Scorecard

Scoring for this factor is based on a qualitative assessment of a semiconductor company’s revenue
stability and visibility into demand; its diversity or concentration of end markets, customers and
products; its market position; and barriers to entry.

In assessing revenue stability, we consider a semiconductor company’s historical and expected revenue
trends. We consider the stability and diversity of its end markets, which are the industries or sectors of
its customer base. Examples of end markets include automotive, industrial, mobile phones,
telecommunications and data center infrastructure, and consumer electronics. A company with a
significant concentration of sales to a single, volatile sector would typically score lower on this factor
than a company selling across multiple industries that are influenced by different business or economic
trends. A portfolio of products with high switching costs for end customers also typically provides
revenue stability.

To assess visibility into demand, we may consider the portion of revenue a company derives from
direct sales to customers relative to its reliance on distribution channels, because companies with a
greater proportion of direct sales to customers typically have greater visibility into end-market
demand. In assessing visibility into demand, we may also consider a company’s backlog of orders. A
high ratio of backlog to revenue typically indicates good visibility into demand. However, backlog is
not always a relevant indicator, and is not always consistently reported.

We also consider a semiconductor company’s breadth of products and services and its customer
diversity, because a concentration of revenue to a few customers or from a few products tends to
increase revenue volatility. We may assess the extent to which increasing sales of some individual
products that comprise a company’s portfolio tend to compensate for sales declines in other products.
All else being equal, companies with a greater product diversity in their portfolio are likely to receive
higher scores on this factor.

In assessing a semiconductor company’s market position, we rely on a qualitative assessment and

third-party information (e.g., market share) where available and consider a company’s position across
its business segments. We typically consider a company’s gross margin, because companies with highly
valuable intellectual property generally have higher gross margins than companies that sell
commoditized products and services. We also consider barriers to entry. For example, products that
require significant investment in research and development or manufacturing equipment may raise
entry barriers for companies that are unable to invest in such product development.

We also assess the life cycle of a company’s key products. All else being equal, companies with longer
product life cycles generally receive higher scores on this factor. We typically consider a long product
life cycle to be one in which a product sells for at least five years, a moderate life cycle to be three to
five years, and a short one to be one or two years.

Generally, we do not expect a given company’s business profile to exactly match each of the attributes
listed for a given rating category. We typically assign the factor score to the alpha category for which
the company has the greatest number of characteristics. However, there may be cases in which one
characteristic is sufficiently important to a particular company’s credit profile that it has a large
influence on the factor score.

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FACTOR
Business Profile (25%)
Sub-
Factor
Sub-factor Weight Aaa Aa A Baa Ba B Caa Ca
Business 25% Extremely high Very high revenue High revenue Moderate revenue Somewhat high Highly volatile Extremely volatile Near-term revenue is
Profile revenue stability; stability; very stable stability; stable and stability; moderately revenue volatility; revenue; revenue; difficult to predict
extremely stable and and diverse end diverse end markets; stable and diverse somewhat concentrated sales to concentrated sales to with any degree of
diverse end markets; markets; very high high visibility into end markets; concentrated sales to cyclical end markets; one cyclical end confidence;
extremely high visibility into end- end-market demand; moderate visibility cyclical end markets; limited visibility into market; essentially extremely high
visibility into end- market demand; very limited customer or into end-market some visibility into end-market demand; no visibility into end- customer or product
market demand; limited customer or product demand; somewhat end-market demand; high customer or market demand;. concentration;
essentially no product concentration; limited customer or moderate customer product very high customer extremely weak
customer or product concentration; sole among leading product or product concentration; or product market position with
concentration; sole provider or among providers, with concentration; solid concentration; somewhat weak concentration; weak essentially no
provider or top two; broad, leadership in at least market position with established market market position and market position with barriers to entry;
commanding market valuable intellectual one market segment; leadership in at least position, but low low barriers to entry; essentially no barriers products are
position across property portfolio; broad intellectual one market niche; barriers to entry; products are largely to entry; products are undifferentiated with
several segments; very high barriers to property portfolio; moderate barriers to some product undifferentiated; undifferentiated with intense competition;
exceptional entry in some high barriers to entry entry in some differentiation; short primarily short strong competition; or very short product
intellectual property segments; long in some segments; segments; moderate to moderate product product life cycles. short product life life cycles.
portfolio; very high product life cycles for long product life product life cycles. cycles.
barriers to entry in most products. cycles for a large differentiation; long
most segments; long portion of products. product life cycles for
product life cycles for some products.
essentially all
products.
Source: Moody’s Investors Service

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Factor: Profitability (10% Weight)

Why It Matters
Profits matter because they are needed to generate sustainable cash flow and maintain a competitive
position, which includes making sufficient investment in research and development and in capital
expenditures to maintain market position through ongoing technological shifts. A semiconductor
company’s level of profitability, and the sustainability of those profits, may also provide important
indications about the value of its products.

This factor comprises two quantitative sub-factors:

EBITDA Margin
The ratio of earnings before interest, taxes depreciation and amortization (EBITDA) to revenue provides
important indications of the value of a semiconductor company’s products to customers as well as its
success in managing costs and its supply chain.

EBITDA Minus Capital Expenditures / Revenue

The ratio of EBITDA minus capital expenditures to revenue (EBITDA – Capex)/Revenue is an important
indicator of profitability adjusted for capital intensity. This ratio is typically a key differentiator among
semiconductor companies.

How We Assess It for the Scorecard

Scoring for this factor is based on two sub-factors: EBITDA Margin and (EBITDA – Capex) / Revenue.

EBITDA MARGIN:
The numerator is EBITDA, and the denominator is revenue.

(EBITDA – CAPEX) / REVENUE:

The numerator is EBITDA minus capital expenditures, and the denominator is revenue.

FACTOR
Profitability (10%)
Sub-factor Sub-factor Weight Aaa Aa A Baa Ba B Caa Ca
EBITDA Margin *2
5% ≥ 50% 35 - 50% 30 - 35% 25 - 30% 20 - 25% 15 - 20% 10 - 15% < 10%
(EBITDA – Capex) / Revenue *3
5% ≥ 35% 30 - 35% 25 - 30% 20 - 25% 15 - 20% 10 - 15% 5 - 10% < 5%
*2 For the linear scoring scale, the Aaa endpoint value is 90%. A value of 90% or better equates to a numeric score of 0.5. The Ca endpoint value is 5%. A value of 5% or worse equates to a
numeric score of 20.5.
*3 For the linear scoring scale, the Aaa endpoint value is 80%. A value of 80% or better equates to a numeric score of 0.5. The Ca endpoint value is (5)%. A value of (5)% or worse equates to a
numeric score of 20.5.
Source: Moody’s Investors Service

Factor: Leverage and Coverage (25% Weight)

Why It Matters
Leverage and cash flow coverage measures provide important indications of financial flexibility and long-
term viability, including a semiconductor company’s ability to adapt to changes in the economic and
business environment.

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The factor comprises three quantitative sub-factors:.

Debt / EBITDA
The ratio of total debt to EBITDA (Debt/EBITDA) is an indicator of debt serviceability and leverage. The
ratio is commonly used in this sector as a proxy for comparative financial strength.

FCF / Debt
The ratio of free cash flow to total debt (FCF/Debt) is an important indicator of a company’s ability to
generate sufficient cash flow to reinvest in its business and service debt, and also provides important
information about its cash flow sustainability. This metric compares cash flow generation after working
capital movements, capital expenditures and dividends to total debt and thus provides a view of a
company’s ability to repay its debt that is in addition to the Debt/EBITDA and EBIT/Interest Expense
ratios.

EBIT / Interest Expense

The ratio of earnings before interest and taxes (EBIT) to interest expense (EBIT/Interest Expense) is an
indicator of a company’s ability to pay interest. Weak interest coverage may indicate a heightened
default risk.

How We Assess It for the Scorecard

Scoring for this factor is based on three sub-factors: Debt/EBITDA, FCF/Debt and EBIT/Interest Expense.

DEBT / EBITDA:
The numerator is total debt, and the denominator is EBITDA.

FCF / DEBT:
The numerator is free cash flow, and the denominator is total debt.

EBIT / INTEREST EXPENSE:

The numerator is EBIT, and the denominator is interest expense.

FACTOR
Leverage and Coverage (25%)
Sub-
factor
Sub-factor Weight Aaa Aa A Baa Ba B Caa Ca
Debt / EBITDA*4 10% ≤ 0.5x 0.5 - 1x 1 – 1.5x 1.5 – 2.5x 2.5 – 3.5x 3.5 - 5x 5 - 7x > 7x
FCF / Debt*5 10% ≥ 50% 40 - 50% 30 - 40% 20 - 30% 10 - 20% 5 – 10% 0 - 5% < 0%
EBIT / Interest 5% ≥ 30x 20 - 30x 10 - 20x 5 - 10x 3 - 5x 1.5 - 3x 0 – 1.5x < 0x
Expense*6
*4 For the linear scoring scale, the Aaa endpoint value is zero. A value of zero equates to a numeric score of 0.5. The Ca endpoint value is 12x. A value of 12x or worse equates to a numeric
score of 20.5, as does negative EBITDA.
*5 For the linear scoring scale, the Aaa endpoint value is 70%. A value of 70% or better equates to a numeric score of 0.5. The Ca endpoint value is (5)%. A value of (5)% or worse equates to a
numeric score of 20.5.
*6 For the linear scoring scale, the Aaa endpoint value is 60x. A value of 60x or better equates to a numeric score of 0.5. The Ca endpoint value is (2)x. A value of (2)x or worse equates to a
numeric score of 20.5.

Source: Moody’s Investors Service

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Factor: Financial Policy (20% Weight)

Why It Matters
Financial policy encompasses management and board tolerance for financial risk and commitment to a
strong credit profile. It is an important rating determinant, because it directly affects debt levels, credit
quality, the future direction for the company and the risk of adverse changes in financing and capital
structure.

Financial risk tolerance serves as a guidepost to investment and capital allocation. An expectation that
management will be committed to sustaining an improved credit profile is often necessary to support
an upgrade. For example, we may not upgrade the ratings of a company that has built flexibility within
its rating category if we believe the company will use that flexibility to fund a strategic acquisition,
cash distribution to shareholders, spin-off or other leveraging transaction. Conversely, a company’s
credit rating may be better able to withstand a moderate leveraging event if management places a
high priority on returning credit metrics to pre-transaction levels and has consistently demonstrated
the commitment to do so through prior actions. Liquidity management 6 is an important aspect of
overall risk management and can provide insight into risk tolerance. For example, consistently
maintaining a significant level of cash relative to debt may indicate a conservative financial policy.

Many semiconductor companies have historically used acquisitions to spur revenue growth, expand
business lines, consolidate market positions, advance cost synergies or seek access to new technology.

How We Assess It for the Scorecard

We assess the issuer’s desired capital structure or targeted credit profile, its history of prior actions,
including its track record of risk and liquidity management, and its adherence to its commitments.
Attention is paid to management’s operating performance and use of cash flow through different
phases of economic and industry cycles. For example, a company that consistently maintains cash in
excess of debt would likely score higher on this factor, all else being equal. Also of interest is the way in
which management responds to key events, such as changes in the credit markets and liquidity
environment, legal actions, competitive challenges or regulatory pressures. Considerations include a
company’s public commitments in this area, its track record for adhering to commitments and our
views on the ability of the company to achieve its targets.

When considering event risks in the context of scoring financial policy, we assess the likelihood and
potential negative impact of M&A or other types of balance-sheet-transforming events. Management’s
appetite for M&A activity is assessed, with a focus on the type of transactions (i.e., core competency or
new business) and funding decisions. Frequency and materiality of acquisitions and previous financing
choices are evaluated. A history of debt-financed or credit-transforming acquisitions will generally
result in a lower score for this factor. We may also consider negative repercussions caused by
shareholders’ willingness to sell the company.

We also consider a company’s and its owners’ past record of balancing shareholder returns and
debtholders’ interests. A track record of favoring shareholder returns at the expense of debtholders is
likely to be viewed negatively in scoring this factor.

6 Liquidity management is distinct from the level of liquidity, which is discussed in the “Other Considerations” section.

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FACTOR
Financial Policy (20%)
Factor
Factor Weight Aaa Aa A Baa Ba B Caa Ca
Financial 20% Expected to Expected to Expected to Expected to Expected to Expected to Expected to Expected to
Policy have have very have have financial have financial have financial have financial have financial
extremely conservative predictable policies policies policies policies policies
conservative financial financial (including risk (including risk (including risk (including risk (including risk
financial policies policies and liquidity and liquidity and liquidity and liquidity and liquidity
policies (including risk (including risk management) management) management) management) management)
(including risk and liquidity and liquidity that balance that tend to that favor that create that create
and liquidity management); management) the interests favor shareholders elevated risk elevated risk
management); stable metrics; that preserve of creditors shareholders over of debt of debt
very stable minimal event creditor and over creditors; restructuring restructuring
metrics; risk that interests; shareholders; creditors; high financial in varied even in
essentially no would cause a although some risk above- risk resulting economic healthy
event risk that rating modest event that debt- average from environments. economic
would cause a transition; and risk exists, the funded financial risk shareholder environments.
rating public effect on acquisitions resulting distributions,
transition; and commitment leverage is or from acquisitions
public to a strong likely to be shareholder shareholder or other
commitment credit profile small and distributions distributions, significant
to a very over the long temporary; could lead to acquisitions capital
strong credit term. strong a weaker or other structure
profile over commitment credit profile. significant changes.
the long term. to a solid capital
credit profile. structure
changes.
Source: Moody’s Investors Service

Other Considerations

Ratings may reflect consideration of additional factors that are not in the scorecard, usually because
the factor’s credit importance varies widely among the issuers in the sector or because the factor may
be important only under certain circumstances or for a subset of issuers. Such factors include financial
controls and the quality of financial reporting; corporate legal structure; the quality and experience of
management; assessments of corporate governance as well as environmental and social
considerations; exposure to uncertain licensing regimes; and possible government interference in some
countries. Regulatory, litigation, liquidity, technology and reputational risk as well as changes to
consumer and business spending patterns, competitor strategies and macroeconomic trends also affect
ratings.

Following are some examples of additional considerations that may be reflected in our ratings and that
may cause ratings to be different from scorecard-indicated outcomes.

Regulatory Considerations
Companies in the semiconductor sector are subject to varying degrees of regulatory oversight. Effects
of these regulations may entail limitations on operations, higher costs, and higher potential for
technology disruptions and demand substitution. Regional differences in regulation, implementation or
enforcement may advantage or disadvantage particular issuers.

Our view of future regulations plays an important role in our expectations of future financial metrics as
well as our confidence level in the ability of an issuer to generate sufficient cash flows relative to its
debt burden over the medium and longer term. Regulatory considerations may also play a role in our

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assessment of a semiconductor company’s business profile, to the extent that these considerations
affect its cost structure or competitive position. For example, changes in regulations or regulatory
oversight, such as government restrictions on selling products to certain countries, could place
additional cost burdens on companies or result in the erosion of market position for companies that
fail to maintain compliance with regulations. In some circumstances, regulatory considerations may
also be a rating factor outside the scorecard, for instance when regulatory change is swift.

Environmental, Social and Governance Considerations

Environmental, social and governance (ESG) considerations may affect the ratings of issuers in the
semiconductor sector. For information about our approach to assessing ESG issues, please see our
methodology that describes our general principles for assessing these risks. 7

Environmental risks may be a concern for companies that rely on production in areas that are prone to
natural disasters, such as earthquakes and typhoons. Semiconductor companies generally sell to other
businesses, not directly to consumers, but consumer preferences shaped by environmental or social
concerns may influence demand for certain types of products that contain semiconductors. For
example, certain types of automobiles may experience greater demand because they are perceived as
being more environmentally friendly or socially acceptable than others.

Financial Controls
We rely on the accuracy of audited financial statements to assign and monitor ratings in this sector.
The quality of financial statements may be influenced by internal controls, including the proper tone at
the top, centralized operations, and consistency in accounting policies and procedures. Auditors’
reports on the effectiveness of internal controls, auditors’ comments in financial reports and unusual
restatements of financial statements or delays in regulatory filings may indicate weaknesses in internal
controls.

Management Strategy
The quality of management is an important factor supporting a company’s credit strength. Assessing
the execution of business plans over time can be helpful in assessing management’s business
strategies, policies and philosophies and in evaluating management performance relative to
performance of competitors and our projections. Management’s track record of adhering to stated
plans, commitments and guidelines provides insight into management’s likely future performance,
including in stressed situations.

Excess Cash Balances

Some companies in this sector may maintain cash balances (meaning liquid short-term investments as
well as cash) that are far in excess of their operating needs. This excess cash can be an important credit
consideration; however, the underlying policy and motivations of the issuer in holding high cash
balances are often as or more important in our analysis than the level of cash held. We have observed
significant variation in company behavior based on differences in financial philosophy, investment
opportunities, availability of committed revolving credit facilities and shareholder pressures.

Most issuers need to retain some level of cash in their business for operational purposes. The level of
cash required to run a business can vary based on the region(s) of operation and the specific sub-
sectors in which the issuer operates. Some issuers have very predictable cash needs and others have

7 A link to a list of our sector and cross-sector methodologies can be found in the “Moody’s Related Publications” section.

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much broader intra-period swings, for instance related to mark-to-market collateral requirements
under hedging instruments. Some companies may hold large levels of cash at times because they
operate without committed, long-term bank borrowing facilities. Some companies may hold cash on
the balance sheet to meet long-term contractual liabilities, whereas other companies with the same
types of liabilities have deposited cash into trust accounts that are off balance sheet. The level of cash
that issuers are willing to hold can also vary over time based on the cost of borrowing and
macroeconomic conditions. The same issuer may place a high value on cash holdings in a major
recession or financial crisis but seek to pare cash when inflation is high. As a result, cash on the balance
sheet is most often considered qualitatively, by assessing the issuer’s track record and financial and
liquidity policies rather than by measuring how a point-in-time cash balance would affect a specific
metric.

Across all corporate sectors, an important shareholder-focused motivation for cash holdings,
sometimes over very long periods, is cash for acquisitions. In these cases, we do not typically consider
that netting cash against the issuer’s current level of debt is analytically meaningful; however, the cash
may be a material mitigant in our scenario analyses of potential acquisitions, share buybacks or special
dividends. Tax minimization strategies have at times been another primary motivation for holding large
cash balances. Given shareholder pressures to return excess cash holdings, when these motivations for
holding excess cash are eliminated, we generally expect that a large portion of excess cash will be used
for dividends and share repurchases.

By contrast, some companies maintain large cash holdings for long periods of time in excess of their
operating and liquidity needs solely due to conservative financial policies, which provides a stronger
indication of an enduring approach that will benefit creditors. For instance, some companies have a
policy to routinely pre-fund upcoming required debt payments well in advance of the stated maturity.
Such companies may also have clearly stated financial targets based on net debt metrics and a track
record of maintaining their financial profile within those targets.

While the scorecard in this methodology uses leverage and coverage ratios with total (or gross) debt
rather than net debt, we do consider excess cash holdings in our rating analysis, including in our
assessment of the financial and liquidity policy. For issuers where we have clarity into the extent to
which cash will remain on the balance sheet and/or be used for creditor-friendly purposes, excess cash
may be considered in a more quantitative manner. While we consider excess cash in our credit
assessment for ratings, we do not typically adjust the balance sheet debt for any specific amount
because this implies greater precision than we think is appropriate for the uncertain future uses of cash.
However, when cash holdings are unusually large relative to debt, we may refer to debt net of cash, or
net of a portion of cash, in our credit analysis and press releases in order to provide additional insight
into our qualitative assessment of the credit benefit. Alternatively, creditor-friendly use of cash may be
factored into our forward view of metrics, for instance when the cash is expected to be used for debt-
repayment. We may also cite rating threshold levels for certain issuers based on net debt ratios,
particularly when these issuers have publicly stated financial targets based on net debt metrics.

Even when the eventual use for excess cash is likely to be for purposes that do not benefit debtholders,
large holdings provide some beneficial cushion against credit deterioration, and cash balances are often
considered in our analysis of near-term liquidity sources and uses. Across all corporate sectors, such
downside protection is usually more important for low rated companies than for highly rated
companies due to differences in credit stability and the typically shorter distance from potential
default for issuers at the lower end of the ratings spectrum. For semiconductor companies, given the

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cyclicality of some end markets and periods of very high capital requirements for some companies,
significant excess cash may also be an important rating consideration for companies across all rating
categories. As a matter of financial policy, semiconductor companies often choose to hold high levels
of cash.

Liquidity
Liquidity is an important rating consideration for all semiconductor companies, although it may not
have a substantial impact in discriminating between two issuers with a similar credit profile. Liquidity
can be particularly important for companies in highly seasonal operating environments where working
capital needs must be considered, and ratings can be heavily affected by extremely weak liquidity. We
form an opinion on likely near-term liquidity requirements from the perspective of both sources and
uses of cash. For more details on our approach, please see our liquidity cross-sector methodology. 8

Additional Metrics
The metrics included in the scorecard are those that are generally most important in assigning ratings
to companies in this industry; however, we may use additional metrics to inform our analysis of
specific companies. These additional metrics may be important to our forward view of metrics that are
in the scorecard or other rating factors.

For example, the level of free cash flow is not always an important differentiator of credit profiles.
Strong companies with excellent investment opportunities may demonstrate multiyear periods of
negative free cash flow while retaining solid access to capital and credit, because these investments
will yield stable cash flows in future years. Weaker companies with limited access to credit may have
positive free cash flow for a period of time because they have curtailed the investments necessary to
maintain their assets and future cash-generating prospects. However, in some cases, free cash flow can
be an important driver of the future liquidity profile of an issuer, which, as noted above, can have a
meaningful impact on ratings.

As another example, the amount of cash relative to debt is not always a meaningful differentiator of
semiconductor companies’ credit profiles, because of the different financial policies companies pursue.
A company with an aggressive financial policy may use a large cash balance to fund acquisitions or
shareholder returns, whereas a company with a more conservative financial policy may hold significant
cash relative to debt to provide it flexibility to continue to invest during industry downturns. In some
cases, cash-to-debt may be an important indicator of a semiconductor’s company’s ability to maintain
or improve its competitive position during an industry downturn, which may have a meaningful impact
on ratings.

Non-Wholly Owned Subsidiaries

Some companies in the semiconductor sector choose to dilute their equity stake in certain material
subsidiaries, for example through an initial public offering, which may in some cases negatively impact
future financial flexibility. While improving cash holdings on a one-off basis, selling minority interests in
subsidiaries may have a negative impact on cash flows available to the parent company that may not
be fully reflected in consolidated financial statements. 9 The parent’s share of dividend flows from a
non-wholly owned subsidiary is reduced, and minority stakes can increase structural subordination,
since dividend flows to minority interest holders are made before the cash flows are available to service

8 A link to a list of our cross-sector methodologies can be found in the “Moody’s Related Publications” section of this report.
9 For example, in the case of an equity stake reduction in a subsidiary down to 75%, in the parent’s financial statements, all revenue and EBITDA of the subsidiary
would typically still be consolidated at the group level.

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debt at the parent company. While less frequent, sale of a minority stake may be accompanied by
policies protective of the subsidiary that further limit the parent’s financial flexibility, for instance
restrictions on cash pooling with other members of the corporate family, limitations on dividends and
distributions, or arms-length business requirements. Minority stakeholders may have seats on the
board of the subsidiary. In many cases, we consider the impact of non-wholly owned subsidiaries
qualitatively. However, in some cases we may find that an additional view of financial results, such as
analyzing cash flows on a proportional consolidation basis, may be very useful to augment our analysis
based on consolidated financial statements. When equity dilution or structural subordination arising
from non-wholly owned subsidiaries is material and negative, the credit impact is captured in ratings
but may not be fully reflected in scorecard-indicated outcomes.

For companies that hold material minority interest stakes, consolidated funds from operations typically
includes the dividends received from the minority subsidiary, while none of its debt is consolidated.
When such dividends are material to the company’s cash flows, these cash flows may be subject to
interruption if they are required for the minority subsidiary’s debt service, capital expenditures or other
cash needs. When minority interest dividends are material, we may also find that proportional
consolidation or another additional view of financial results is useful to augment our analysis of
consolidated financials. We would generally also consider structural subordination in these cases. 10
When these credit considerations are material, their impact is captured in ratings but may not be fully
reflected in scorecard-indicated outcomes.

Event Risk
We also recognize the possibility that an unexpected event could cause a sudden and sharp decline in
an issuer's fundamental creditworthiness, which may cause actual ratings to be lower than the
scorecard-indicated outcome. Event risks — which are varied and can range from leveraged
recapitalizations to sudden regulatory changes or liabilities from an accident — can overwhelm even a
stable, well-capitalized firm. Some other types of event risks include M&A, asset sales, spin-offs,
litigation, pandemics, significant cyber-crime events and shareholder distributions.

Parental Support
Ownership can provide ratings lift for a particular company in the semiconductor sector if it is owned
by a highly rated owner(s) and is viewed to be of strategic importance to those owners. In our analysis
of parental support, we consider whether the parent has the financial capacity and strategic incentives
to provide support to the issuer in times of stress or financial need (e.g., a major capital investment or
advantaged operating agreement), or has already done so in the past. Conversely, if the parent puts a
high dividend burden on the issuer, which in turn reduces its flexibility, the ratings would reflect this
risk.

Government-related issuers may receive ratings uplift due to expected government support. However,
for certain issuers, government ownership can have a negative impact on the underlying Baseline
Credit Assessment. For example, price controls, onerous taxation and high distributions can have a
negative effect on an issuer’s underlying credit profile.

Other Institutional Support

In some countries, large corporate issuers are likely to receive government or banking support in the
event of financial difficulties because of their overall importance to the functioning of the economy. In

10 Proportional consolidation brings a portion of the minority subsidiary’s debt onto the balance sheet, but this debt is structurally senior to debt at the parent
company, because it is closer to the assets and cash flows of the minority subsidiary.

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Japan, our corporate ratings consider the unique system of support that operates there for large and
systemically important organizations. Over the years, this has resulted in lower levels of default than
might otherwise have occurred. Our approach considers the presence of strong group and banking
system relationships that may provide support when companies encounter significant financial stress.

Seasonality
Seasonality is an important driver of customer demand and can cause swings in cash balances and
working capital positions for issuers. Higher volatility creates less room for errors in meeting customer
demand or operational execution.

Cyclical Sectors
Scorecard-indicated outcomes in cyclical sectors, such as semiconductors, may be higher than the
rating at the top of the economic or industry cycle and lower than the rating at the bottom of the
cycle. While using annual financials in the scorecard typically provides very useful insights into recent
or near-term results, ratings may also reflect our expectations for the progression of yearly results over
a longer period that may include a full economic cycle. However, cyclicality itself poses many different
types of risks to companies, and cycles do not reverse themselves with predictable regularity. A cyclical
sector may also be affected by a secular decline or expansion. These considerations may be
incorporated qualitatively in ratings.

Assigning Issuer-Level and Instrument-Level Ratings

After considering the scorecard-indicated outcome, other considerations and relevant cross-sector
methodologies, we typically assign a corporate family rating (CFR) to speculative-grade issuers or a
senior unsecured rating for investment-grade issuers. For issuers that benefit from rating uplift from
government ownership, we may assign a Baseline Credit Assessment. 11

Individual debt instrument ratings may be notched up or down from the CFR or the senior unsecured
rating to reflect our assessment of differences in expected loss related to an instrument’s seniority level
and collateral. The documents that provide broad guidance for such notching decisions are the rating
methodology on loss given default for speculative-grade non-financial companies, the methodology
for notching corporate instrument ratings based on differences in security and priority of claim, and the
methodology for assigning short-term ratings. 12

Key Rating Assumptions

For information about key rating assumptions that apply to methodologies generally, please see Rating
Symbols and Definitions. 13

11 For an explanation of the Baseline Credit Assessment, please refer to Rating Symbols and Definitions and to our cross-sector methodology for government-related
issuers. A link to a list of our sector and cross-sector methodologies and a link to Rating Symbols and Definitions can be found in the “Moody’s Related Publications”
section.
12 A link to a list of our sector and cross-sector rating methodologies can be found in the “Moody’s Related Publications” section.
13 A link to Rating Symbols and Definitions can be found in the “Moody’s Related Publications” section.

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Limitations

In the preceding sections, we have discussed the scorecard factors and many of the other
considerations that may be important in assigning ratings. In this section, we discuss limitations that
pertain to the scorecard and to the overall rating methodology.

Limitations of the Scorecard

There are various reasons why scorecard-indicated outcomes may not map closely to actual ratings.

The scorecard in this rating methodology is a relatively simple tool focused on indicators for relative
credit strength. Credit loss and recovery considerations, which are typically more important as an
issuer gets closer to default, may not be fully captured in the scorecard. The scorecard is also limited by
its upper and lower bounds, causing scorecard-indicated outcomes to be less likely to align with ratings
for issuers at the upper and lower ends of the rating scale.

The weights for each factor and sub-factor in the scorecard represent an approximation of their
importance for rating decisions across the sector, but the actual importance of a particular factor may
vary substantially based on an individual company’s circumstances.

Factors that are outside the scorecard, including those discussed above in the “Other Considerations”
section, may be important for ratings, and their relative importance may also vary from company to
company. In addition, certain broad methodological considerations described in one or more cross-
sector rating methodologies may be relevant to ratings in this sector. 14 Examples of such
considerations include the following: how sovereign credit quality affects non-sovereign issuers, the
assessment of credit support from other entities, the relative ranking of different classes of debt and
hybrid securities, and the assignment of short-term ratings.

We may use the scorecard over various historical or forward-looking time periods. Furthermore, in our
ratings we often incorporate directional views of risks and mitigants in a qualitative way.

General Limitations of the Methodology

This methodology document does not include an exhaustive description of all factors that we may
consider in assigning ratings in this sector. Companies in the sector may face new risks or new
combinations of risks, and they may develop new strategies to mitigate risk. We seek to incorporate all
material credit considerations in ratings and to take the most forward-looking perspective that
visibility into these risks and mitigants permits.

Ratings reflect our expectations for an issuer’s future performance; however, as the forward horizon
lengthens, uncertainty increases and the utility of precise estimates, as scorecard inputs or in other
considerations, typically diminishes. Our forward-looking opinions are based on assumptions that may
prove, in hindsight, to have been incorrect. Reasons for this could include unanticipated changes in any
of the following: the macroeconomic environment, general financial market conditions, industry
competition, disruptive technology, or regulatory and legal actions. In any case, predicting the future is
subject to substantial uncertainty.

14 A link to a list of our sector and cross-sector methodologies can be found in the “Moody’s Related Publications” section.

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Appendix A: Using the Scorecard to Arrive at a Scorecard-Indicated Outcome

1. Measurement or Estimation of Factors in the Scorecard

In the “Discussion of the Scorecard Factors” section, we explain our analytical approach for scoring
each scorecard factor or sub-factor, 15 and we describe why they are meaningful as credit indicators.

The information used in assessing the sub-factors is generally found in or calculated from information
in the company’s financial statements or regulatory filings, derived from other observations or
estimated by Moody’s analysts. We may also incorporate non-public information.

Our ratings are forward-looking and reflect our expectations for future financial and operating
performance. However, historical results are helpful in understanding patterns and trends of a
company’s performance as well as for peer comparisons. Financial ratios, 16 unless otherwise indicated,
are typically calculated based on an annual or 12-month period. However, the factors in the scorecard
can be assessed using various time periods. For example, rating committees may find it analytically
useful to examine both historical and expected future performance for periods of several years or more.

All of the quantitative credit metrics incorporate our standard adjustments 17 to income statement,
cash flow statement and balance sheet amounts for items such as underfunded pension obligations
and operating leases. We may also make other analytical adjustments that are specific to a particular
company.

2. Mapping Scorecard Factors to a Numeric Score

After estimating or calculating each factor or sub-factor, each outcome is mapped to a broad Moody’s
rating category (Aaa, Aa, A, Baa, Ba, B, Caa or Ca, also called alpha categories) and to a numeric score.

Qualitative factors are scored based on the description by broad rating category in the scorecard. The
numeric value of each alpha score is based on the scale below.

Aaa Aa A Baa Ba B Caa Ca

1 3 6 9 12 15 18 20
Source: Moody’s Investors Service

Quantitative factors are scored on a linear continuum. For each metric, the scorecard shows the range
by alpha category. We use the scale below and linear interpolation to convert the metric, based on its
placement within the scorecard range, to a numeric score, which may be a fraction. As a purely
theoretical example, if there were a ratio of revenue to interest for which the Baa range was 50x to
100x, then the numeric score for an issuer with revenue/interest of 99x, relatively strong within this
range, would score closer to 7.5, and an issuer with revenue/interest of 51x, relatively weak within this
range, would score closer to 10.5. In the text or table footnotes, we define the endpoints of the line
(i.e., the value of the metric that constitutes the lowest possible numeric score, and the value that
constitutes the highest possible numeric score).

15 When a factor comprises sub-factors, we score at the sub-factor level. Some factors do not have sub-factors, in which case we score at the factor level.
16 For definitions of our most common ratio terms, please see Moody’s Basic Definitions for Credit Statistics (User’s Guide). A link can be found in the “Moody’s Related
Publications” section.
17 For an explanation of our standard adjustments, please see the cross-sector methodology that describes our financial statement adjustments in the analysis of non-
financial corporations.

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Aaa Aa A Baa Ba B Caa Ca

0.5-1.5 1.5-4.5 4.5-7.5 7.5-10.5 10.5-13.5 13.5-16.5 16.5-19.5 19.5-20.5
Source: Moody’s Investors Service

3. Determining the Overall Scorecard-Indicated Outcome

The numeric score for each sub-factor (or each factor, when the factor has no sub-factors) is multiplied
by the weight for that sub-factor (or factor), with the results then summed to produce an aggregate
numeric score. The aggregate numeric score is then mapped back to a scorecard-indicated outcome
based on the ranges in the table below.

EXHIBIT 2
Scorecard-Indicated Outcome
Scorecard-Indicated Outcome Aggregate Numeric Score
Aaa x ≤ 1.5
Aa1 1.5 < x ≤ 2.5
Aa2 2.5 < x ≤ 3.5
Aa3 3.5 < x ≤ 4.5
A1 4.5 < x ≤ 5.5
A2 5.5 < x ≤ 6.5
A3 6.5 < x ≤ 7.5
Baa1 7.5 < x ≤ 8.5
Baa2 8.5 < x ≤ 9.5
Baa3 9.5 < x ≤ 10.5
Ba1 10.5 < x ≤ 11.5
Ba2 11.5 < x ≤ 12.5
Ba3 12.5 < x ≤ 13.5
B1 13.5 < x ≤ 14.5
B2 14.5 < x ≤ 15.5
B3 15.5 < x ≤ 16.5
Caa1 16.5 < x ≤ 17.5
Caa2 17.5 < x ≤ 18.5
Caa3 18.5 < x ≤ 19.5
Ca 19.5 < x ≤ 20.5
C x > 20.5
Source: Moody’s Investors Service

For example, an issuer with an aggregate numeric score of 11.7 would have a Ba2 scorecard-indicated
outcome.

In general, the scorecard-indicated outcome is oriented to the corporate family rating (CFR) for
speculative-grade issuers and to the senior unsecured rating for investment-grade issuers. For issuers
that benefit from rating uplift from parental support, government ownership or other institutional

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support, we consider the underlying credit strength or Baseline Credit Assessment for comparison to
the scorecard-indicated outcome. For an explanation of the Baseline Credit Assessment, please refer to
Rating Symbols and Definitions and to our cross-sector methodology for government-related issuers. 18

18 A link to a list of our sector and cross-sector methodologies and a link to Rating Symbols and Definitions can be found in the “Moody’s Related Publications” section.

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Appendix B: Semiconductor Industry Scorecard

Factor
or Sub-
Aaa Aa A Baa Ba B Caa Ca
factor
Weight

Factor: Scale (20%)

Revenue (USD
20% ≥ $50 $30 - $50 $15 - $30 $5 - $15 $2 - $5 $0.75 - $2 $0.25 - $0.75 < $0.25
Billion) *1

Factor: Business Profile (25%)

Extremely high Very high High revenue Moderate revenue Somewhat high Highly volatile Extremely volatile Near-term
revenue stability; revenue stability; stable stability; revenue revenue; revenue; concentrated revenue is
extremely stable and stability; very and diverse end moderately stable volatility; concentrated sales sales to one cyclical difficult to predict
diverse end markets; stable and markets; high and diverse end somewhat to cyclical end end market; with any degree
extremely high diverse end visibility into markets; concentrated markets; limited essentially no visibility of confidence;
visibility into end- markets; very end-market moderate visibility sales to cyclical visibility into end- into end-market extremely high
market demand; high visibility demand; limited into end-market end markets; market demand; demand;. very high customer or
essentially no into end- customer or demand; some visibility high customer or customer or product product
customer or product market product somewhat limited into end-market product concentration; weak concentration;
concentration; sole demand; very concentration; customer or demand; concentration; market position with extremely weak
provider or limited among leading product moderate somewhat weak essentially no barriers market position
commanding market customer or providers, with concentration; customer or market position and to entry; products are with essentially
position across product leadership in at solid market product low barriers to undifferentiated with no barriers to
Business Profile 25% several segments; concentration; least one market position with concentration; entry; products are strong competition; entry; products
exceptional sole provider or segment; broad leadership in at established largely short product life are
intellectual property among top intellectual least one market market position, undifferentiated; cycles. undifferentiated
portfolio; very high two; broad, property niche; moderate but low barriers primarily short with intense
barriers to entry in valuable portfolio; high barriers to entry in to entry; some product life cycles. competition; or
most segments; long intellectual barriers to entry some segments; product very short
product life cycles property in some moderate product differentiation; product life
for essentially all portfolio; very segments; long differentiation; short to cycles.
products. high barriers to product life long product life moderate
entry in some cycles for a large cycles for some product life
segments; long portion of products. cycles.
product life products.
cycles for most
products.

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Factor: Profitability (10%)

EBITDA Margin *2 5% ≥ 50% 35 - 50% 30 - 35% 25 - 30% 20 - 25% 15 - 20% 10 - 15% < 10%
(EBITDA – Capex) /
5% ≥ 35% 30 - 35% 25 - 30% 20 - 25% 15 - 20% 10 - 15% 5 - 10% < 5%
Revenue*3

Factor: Leverage and Coverage (25%)

Debt / EBITDA*4 10% ≤ 0.5x 0.5 - 1x 1 – 1.5x 1.5 – 2.5x 2.5 – 3.5x 3.5 - 5x 5 - 7x > 7x
FCF / Debt *5
10% ≥ 50% 40 - 50% 30 - 40% 20 - 30% 10 - 20% 5 – 10% 0 - 5% < 0%
EBIT / Interest
5% ≥ 30x 20 - 30x 10 - 20x 5 - 10x 3 - 5x 1.5 - 3x 0 – 1.5x < 0x
Expense*6

Factor: Financial Policy (20%)

Expected to have Expected to Expected to have Expected to have Expected to have Expected to have Expected to have Expected to have
extremely have very predictable financial policies financial policies financial policies financial policies financial policies
conservative financial conservative financial policies (including risk and (including risk and (including risk and (including risk and (including risk and
policies (including risk financial policies (including risk and liquidity liquidity liquidity liquidity management) liquidity
and liquidity (including risk liquidity management) that management) management) that that create elevated management) that
management); very and liquidity management) balance the that tend to favor favor shareholders risk of debt create elevated risk
stable metrics; management); that preserve interests of shareholders over over creditors; high restructuring in varied of debt
essentially no event stable metrics; creditor interests; creditors and creditors; above- financial risk economic restructuring even
Financial Policy 20% risk that would cause minimal event although modest shareholders; some average financial resulting from environments. in healthy
a rating transition; risk that would event risk exists, risk that debt- risk resulting from shareholder economic
and public cause a rating the effect on funded acquisitions shareholder distributions, environments.
commitment to a very transition; and leverage is likely or shareholder distributions, acquisitions or other
strong credit profile public to be small and distributions could acquisitions or significant capital
over the long term. commitment to temporary; strong lead to a weaker other significant structure changes.
a strong credit commitment to a credit profile. capital structure
profile over the solid credit changes.
long term. profile.
*1 For the linear scoring scale, the Aaa endpoint value is $100 billion. A value of $100 billion or better equates to a numeric score of 0.5. The Ca endpoint value is zero. A value of zero equates to a numeric score of 20.5.
*2 For the linear scoring scale, the Aaa endpoint value is 90%. A value of 90% or better equates to a numeric score of 0.5. The Ca endpoint value is 5%. A value of 5% or worse equates to a numeric score of 20.5.
*3 For the linear scoring scale, the Aaa endpoint value is 80%. A value of 80% or better equates to a numeric score of 0.5. The Ca endpoint value is (5)%. A value of (5)% or worse equates to a numeric score of 20.5.
*4 For the linear scoring scale, the Aaa endpoint value is zero. A value of zero equates to a numeric score of 0.5. The Ca endpoint value is 12x. A value of 12x or worse equates to a numeric score of 20.5, as does negative EBITDA.
*5 For the linear scoring scale, the Aaa endpoint value is 70%. A value of 70% or better equates to a numeric score of 0.5. The Ca endpoint value is (5)%. A value of (5)% or worse equates to a numeric score of 20.5.
*6 For the linear scoring scale, the Aaa endpoint value is 60x. A value of 60x or better equates to a numeric score of 0.5. The Ca endpoint value is (2)x. A value of (2)x or worse equates to a numeric score of 20.5.
Source: Moody’s Investors Service

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Moody’s Related Publications

Credit ratings are primarily determined through the application of sector credit rating methodologies.
Certain broad methodological considerations (described in one or more cross-sector rating
methodologies) may also be relevant to the determination of credit ratings of issuers and instruments.
A list of sector and cross-sector credit rating methodologies can be found here.

For data summarizing the historical robustness and predictive power of credit ratings, please click here.

For further information, please refer to Rating Symbols and Definitions, which is available here.

Moody’s Basic Definitions for Credit Statistics (User’s Guide) can be found here.

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HONG KONG +852.3758.1300

Report Number: 1248106
Seonuk Sean Hwang +852.3758.1587
Assistant Vice President - Analyst
[email protected]

Authors
Karen Berckmann
Terry Dennehy

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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23 DECEMBER 16, 2020 RATING METHODOLOGY: SEMICONDUCTOR