Inventories to Decline over Time
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Inventories to decline over time
We maintain BUY and TP of KRW80,000 on SEC. Inventories (excl. memory chips) for consumer electronics (incl. TVs) and smartphones have fallen to normal levels, significantly alleviating the inventory burden from last year. Memory inventories should shrink over time, with normalization for clients in 2Q23 and decreases for SEC from 3Q23. We see SEC beginning to scale back chip production this quarter amid reductions in client inventories, indicating supply-demand dynamics should improve starting in 3Q23. Thus, we see positive stock performance.
1Q23 forecast: Galaxy S23 sales at 10mn units (+25% YoY vs. 1Q22 S22 sales)
The Galaxy S23 (Feb 2 release) should drive growth in flagship smartphone shipments. We note that smartphone prices have been frozen at USD799-1,199 despite higher costs for key components, and there are basically no competing products (i.e., recent iPhone sales were lackluster on missed sales opportunities). We see 1Q23 S23 sales at 10mn units (+25% YoY vs. 1Q22 S22 sales of 8mn units), with full-year sales at 33mn (+10% YoY). The increase in flagship smartphone shipments (2020/2021/2022/2023 at +16%/+18%/ +20%/+22%) should raise market share.
Supply-demand dynamics should improve faster than expected
SEC DRAM shipments should fall 9% YoY on production cuts this year (-4% in global shipments). Improvements in indicators in 2Q23 should signal a bottom to the downcycle: (1) Client inventories should normalize and chipmaker inventories should fall. (2) Both DRAM/NAND should reach cash cost levels. (3) DRAM price declines should slow (4Q22/2Q23E/4Q23E at -32%/-11%/+15%). As global chipmakers lower output/investment in 1Q23, the effects of reduced shipments should be highlighted. Supply-demand dynamics should improve faster than expected.