Chipmakers Expected to Respond with Capacity Cutbacks
The authors are analysts of Shinhan Investment Corp. They can be reached at doyeon@shinhan.com and sungjun.na@shinhan.com, respectively. -- Ed.
Demand: Prolonged disruption in Chinese production to have negative impact
Semiconductor demand will likely be affected by disrupted production of IT products and components in China from the COVID-19 outbreak. Prolonged disruption should have negative impact on overall demand. If Chinese production normalizes within March, however, we believe demand will just be deferred from 1Q20 to 2Q20. In contrast, if the outbreak remains uncontained over the longer term, full-year semiconductor demand could fall short of our previous projections.
Supply: DRAM/NAND makers to actively respond with capacity cutbacks
Concerned over the possibility of a prolonged COVID-19 outbreak, DRAM makers are expected to reduce production capacity going forward. Samsung Electronics and SK Hynix could proceed on cutting back their DRAM capacity at 13L and M10, respectively, at a faster pace than initially expected. Even if IT demand plunges to bottom levels, capacity cutbacks should prevent a downturn of semiconductor market conditions.
Meanwhile, an earlier-than-expected resumption of production in China could even have positive impact on semiconductor market conditions in 2H20, with full-year demand to remain mostly intact amid reduced supply from chipmakers.
Investment strategy: Recommend buying during short-term fluctuation
We expect DRAM makers to flexibly adjust supply in an aim to reduce inventory levels, raise product prices, and improve earnings. In our view, the COVID-19 outbreak is unlikely to spark a downturn in semiconductor market conditions.