Semiconductor Market Uptrend Remains Intact

The authors are analysts of Shinhan Investment Corp. They can be reached at doyeon@shinhan.com and sungjun.na@shinhan.com, respectively. -- Ed.

 

1Q20 OP reported at KRW6.45tr (-10.0% QoQ)

Samsung Electronics reported sales of KRW55.33tr (-7.6% QoQ) and operating profit of KRW6.45tr (-10.0% QoQ) for 1Q20. Semiconductors and IT & mobile communications (IM) registered a small increase in earnings. Display (DP) and consumer electronics (CE) saw declines, slightly weighed down by the COVID-19 pandemic at end-1Q.

By division, operating profit came in at KRW3.99tr (+15.7% QoQ) from semiconductors, KRW2.65tr (+5.2% QoQ) from IM, and KRW0.45tr (-44.4% QoQ) from CE. The DP division swung negative QoQ with an operating loss of KRW0.29tr.

2Q20OP forecast at KRW5.99tr (-7.0% QoQ)

We forecast 2Q sales at KRW55.16tr (-0.3% QoQ) and operating profit at KRW5.99tr (-7.0% QoQ). Semiconductor earnings should visibly improve QoQ on the increase in chip prices. A temporary slowdown looks likely in IM, DP, and CE earnings due to the decline in shipments caused by the pandemic and rise in marketing spend. The earnings weakness in 2Q had already been expected.

By division, operating profit is estimated at KRW5.28tr (+32.3% QoQ) from semiconductors, KRW1.16tr (-56.2% QoQ) from IM, and KRW0.21tr (-54.3% QoQ) from CE. DP operating loss should widen QoQ to KRW0.65tr.

Semiconductor market uptrend intact, adjusting pace temporarily

Our outlook on the earnings peak of the current DRAM cycle remains unchanged, although it may take longer than previously expected to reach that point due to the COVID-19 pandemic. DRAM earnings are now projected to peak in 2H21, which is a slight delay from our pre-pandemic forecast of 1H21.

Earnings momentum may weaken in 2Q due to the impact of COVID-19. Nevertheless, we recommend accumulating shares in Samsung Electronics on expectations for sharp earnings growth in 3Q and 2021.

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