Reduced Memory Supply from 2023 Positive
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
Affected by reduced data center investment and lackluster demand for IT sets, SEC logged preliminary 3Q22 OP of W10.8tn (-23% q-q). The firm’s 4Q22 OP is projected at W9.5tn (-12% q-q). We expect the memory semiconductor downcycle to continue until 1H23. Adjustments to new capacity investment in 2023 and the start of production cuts at some memory semiconductor IDMS are positive for supply and demand.
3Q22 earnings slump led by memory semiconductor downcycle
We maintain a Buy rating on Samsung Electronics (SEC) but lower our TP from W70,000 to W67,000. Our TP adjustment reflects both a hike to our risk-free rate assumption in line with rising interest rates and trimmed earnings estimates for 2022E~2023F due to the deepening memory semiconductor downcycle. For DRAM, we cut our price forecasts for 2022 and 2023 from -9% y-y and -12% y-y to -11% and -18% y-y, respectively.
SEC reported provisional 3Q22 sales of W76.0tn (-2% q-q) and OP of W10.8tn (-23% q-q), with OP missing both consensus and our estimate. By division, OP likely divided as: DS (semicon) W6.0tn (-40% q-q), SDC (display) W1.4tn (+35% q-q), MX/NW W2.6tn (-1% q-q), VD/HA W0.6tn (+67% q-q), and Harman W0.1tn (+34% q-q).
The sluggish 3Q22 earnings were led by the semiconductor business. Impacted by reduced IT set demand and lightened data center investment at hyperscalers, DRAM shipments likely fell 7% q-q (ASP -19% q-q) and NAND shipments likely climbed 2% q-q (ASP -19% q-q).
Investment control and production cuts at some companies are positive for memory supply and demand
SEC’s earnings decline is expected to continue through 1Q23. For 4Q22, we expect sales of W76.3tn (flat q-q) and OP of W9.5tn (-12% q-q). Both DRAM and NAND ASP are to slide 17% q-q. Excessive inventory levels and sluggish IT set demand are likely to persist for the time being.
While sluggish earnings are set to sustain through 1Q23, SEC’s low valuations and reduced memory supply from 2023 are positive. Memory makers plan to cut capacity investment in 2023 in response to price decline. Some firms are also starting to scale back production. Decreased supply stemming from reductions in capacity investment should favorably impact supply and demand from 2Q23. Global DRAM shipment growth in 2022 and 2023, including inventory, is forecast at only 8% y-y and 18% y-y, respectively.