To Lead Global Semiconductor Stocks in 2022

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

 

4Q21 OP forecast at KRW15.2tr (-4.0% QoQ)

We expect Samsung Electronics to post operating profit of KRW15.2tr (-4.0% QoQ) on sales of KRW75tr (+1.4% QoQ) for 4Q21, meeting the current consensus estimate of KRW15tr. The impact of falling DRAM/NAND prices and smartphone shipments should be offset by improvement in non-memory earnings and favorable forex rates.

By division, operating profit should come in at KRW9.8tr (-2.6% QoQ) from semiconductors, KRW3.0tr (-9.3% QoQ) from IT & mobile communications (IM), KRW1.5tr from displays (+0.2% QoQ), and KRW0.8tr (+11.0% QoQ) from consumer electronics (CE).

Quarterly earnings to rebound after bottoming out in 1Q22

Quarterly earnings will likely recover after hitting bottom in 1Q22. We forecast sales at KRW68.2tr (-9.1% QoQ) and operating profit at KRW11tr (-27.4% QoQ) for 1Q22, reflecting DRAM/NAND price declines, lower OLED capacity utilization rates, and weak seasonality for TVs. Earnings, however, should improve gradually from 2Q22. For 2022, sales are projected to reach KRW302.4tr (+8.8% YoY) and operating profit KRW57.3tr (+8.2% YoY).

The upturn in quarterly earnings from 1Q22 is expected to be driven by semiconductors. We believe memory chip prices will rebound in 2Q22 on normalization of IT supply chains, release of new server platforms by Intel and Advanced Micro Devices, transition to DDR5, and the Joint Warfighter Cloud Capability (JWCC) project of the US Department of Defense. Non-memory earnings should continue on an uptrend, backed by new order intake and price hikes.

Samsung Electronics to lead global semiconductor stocks in 2022

Samsung Electronics shares lost 4.2% YTD, while the PHLX Semiconductor Sector Index gained 40.7% over the same period. Memory market conditions were hit by IT supply chain disruptions, and the company’s non-memory order intake has been lower than anticipated. However, the memory market is likely to turn around in 2Q22 and non-memory orders should continue to flow in going forward.

The stock has erased all gains that came with upbeat expectations for non-memory earnings growth at the start of the year. Once the memory market starts to turn around in 1H22, we expect Samsung Electronics to emerge as the global leader of semiconductor stocks.

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