4Q22 Preview: NAND Division Likely in the Red
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
SEC’s 4Q22 OP is forecast at W5.89tn (-46% q-q), with the figure to miss consensus due to slowing memory semicon business. We expect the OP downtrend to continue through 2Q23. Supply-demand improvement stemming from supply reduction looks possible from 2H23.
4Q22 preview: NAND division likely in the red
We maintain a Buy rating and TP of W72,000 on Samsung Electronics (SEC). We estimate 4Q22 sales of W69.16tn (-10% q-q), OP of W5.89tn (-46% q-q), and NP of W3.16tn (-67% q-q), with OP likely to miss consensus. By division, OP should divide as: semicon W1.41tn (-72% q-q), display W1.83tn (-7% q-q), MX W1.85tn (-43% q-q), CE W0.52tn (+109% q-q), and Harman W0.30tn (-3% q-q).
In 4Q22, earnings decline has been led by semicon business, affected by sluggish IT demand, reduced data center investment, and excessive capacity investment in 1H22. Despite tepid demand, DRAM shipment is likely to climb 11% q-q (ASP -25%), with NAND shipment to also up 11% q-q (ASP -28%), thanks to the firm’s aggressive sales strategy to trim inventory. For 4Q22, the NAND division is likely to post a turn to operating loss of W1.07tn.
Supply-demand improvement expected from 3Q23, driven by investment adjustments and production cuts
SEC’s OP decline is forecast to continue through 2Q23. At the semicon division, a turn to operating loss looks inevitable in 2Q23, and such would mark the first quarterly deficit at the semicon business since the 2008 financial crisis. Fortunately, plans are in place throughout the industry to reduce investment and cut production in 2023 to overcome the current memory downcycle. Given the characteristics of memory semiconductors, which are standard, general-purpose, mass-produced products, price can rise if supply falls below demand, even if demand is sluggish.
Due to investment and production cuts, global DRAM and NAND shipment growth in 2023 is forecast at only 8% and 24% y-y, respectively. Excluding inventory sales, the figures for DRAM and NAND are projected at -9% and +5% y-y, respectively, on a production basis. Of note, a y-y decrease in DRAM shipment would be the first in history. Effects of reduced supply should concentrate in 2H23, when h-h inventory reduction is anticipated. Against this backdrop, earnings at memory semicon firms should pick up from 2H23. In 2024, when supply shortages are to be in full force, earnings rebound within the industry is highly likely to exceed expectations.