Big-2 System Expected in Global Smartphone Market
The authors are analysts of NH Investment & Securities. They can be reached at kyuha.lee@nhqv.com, hwdoh@nhqv.com and j.ko@nhqv.com, respectively. – Ed.
Handset/IT Parts: Positive
Facing tougher US sanctions, Huawei will be hard-pressed to procure smartphone parts—starting to appear are worst case scenario predictions that the firm may have to close down its smartphone division. Huawei’s woes bode well for earnings at SEC’s smartphone division. Against this backdrop, we believe that global smartphone competition is set to switch from the existing Big-3 system (SEC, Huawei, and Apple) to a Big-2 system led by SEC and Apple. On the technical aspects side, the smartphone industry is expected to change into a new paradigm in line with the emergence of foldable form factors and 5G-capable smartphones.
Semicon: Positive
It has been reported as of late that the US government is reviewing potential sanctions against Chinese foundry SMIC. If such sanctions are put into place, Chinese semicon companies such as SMIC would face delays in securing technology, a development which in turn should benefit rival foundries such as TSMC and SEC. The fact that recently launched IT products, such as Nvidia’s graphic card, have received positive market responses also bodes well for future memory supply-demand environments and foundry industry conditions. Meanwhile, the recent jump in DRAM spot prices supports expectations that DRAM contract prices will rebound from 1Q21. Recently, demand has been rising for high-performance computing for computations that cannot be solved by conventional computing resources. To solve this issue, it is essential to increase bandwidth by connecting heterogeneous semiconductors in 3D packaging. This trend is to be more favorable for back-end process equipment makers than front-end players.
Display: Neutral
In the global LCD market, Chinese companies are expected to strengthen their positions, with penetration for China-made LCD panels expected to keep increasing across all applications. Looking at the OLED market, even in the face of competitive onslaught from LCD and Micro LED makers, demand for OLED should pick up amid growing needs for differentiated form factors in the downstream sectors. Among set makers with high M/Ss, SEC has rolled out foldable smartphones, LG Electronics (LGE) plans to launch rollable TVs, and Renova is expected to sell foldable laptops. Under the circumstances, OLED makers should benefit from an uptick in OLED demand. Of particular note, domestic companies with leading-edge technologies, including Samsung Display and LGD, should enjoy stronger growth prospects.
Top picks SEC, SEMCO, and LGD
- SEC: To enjoy sound smartphone demand in line with higher 5G penetration, and greater foundry orders
- SEMCO: To see MLCC business conditions normalize, and enjoy positive effects from its strategic client’s benefits from US sanctions against Huawei
- LGD: To display clearer earnings visibility, led by its OLED business