The authors are analysts of NH Investment & Securities. They can be reached at email@example.com, firstname.lastname@example.org and email@example.com, respectively. -- Ed.
Covid-19 is expected to negatively affect the display and handset sectors due to sluggish set consumption. However, the memory semicon sector should remain relatively solid amid supply shortages and increased server demand.
Covid-19 influence inevitable
The impact of Covid-19 will vary by IT hardware sector. The memory semicon sector, which is experiencing supply shortages and rising server demand, looks relatively solid. On the other hand, the display and handset sectors, which are being affected by slowing set consumption, require a conservative approach.
Semicon: Server investment continues to expand thanks to rising demand for telecommuting, online education, and OTT streaming. Memory prices are set to climb sharply in 2Q20. For full-year 2020, we believe that DRAM supply will increase only 14% y-y due to conservative capacity investment in 2019.
Display: LCD industry growth continues to slow. Despite an absence of new demand, Chinese LCD panel makers continue to expand capacity. OLED has room for improvement. Also, new Apple iPhones, Xiaomi OLED TVs, and Samsung Display QD displays should spur additional momentum.
Handset/IT parts: Conservative smartphone shipment estimates are needed. Covid-19 is likely to reduce global smartphone shipments to 1.15bn units (-22% y-y) in 2020. It is highly likely that the release of the new iPhone 5G model (scheduled for 2H20) will be postponed.
Cloud services: Demand for telecommuting has increased and demand for cloud services has skyrocketed, with traffic for Microsoft’s TEAMS in Italy leaping 775% m-m in March.
Top picks: SEC, LG Innotek, and Duksan Neolux
Among IT hardware players, we recommend Samsung Electronics (SEC) and SK Hynix as top picks thanks to their high semicon revenue portions. From a mid/long-term perspective, we also spotlight LG Innotek, as the firm should benefit from the improvement of camera parts specifications, including the adoption of optical zooms and ToF 3D sensing. We also suggest Duksan Neolux, believing that the company will grow its share of the OLED materials market.