AR Headset Market to Expand
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
Recently, SEMCO’s share price has been declining, affected by both tepid smartphone shipments at Chinese makers and fears over substrate business conditions. But, given both a likely recovery in smartphone shipments in China and the firm’s competitiveness in waveguide modules (key component for AR glasses), we view a recent drop in its share price as being excessive.
Chinese smartphone shipments to improve in 2H22; concerns over substrates remain overblown
At Chinese smartphone makers, which account for a sizeable portion of SEMCO’s sales, shipments have been sluggish as of late, weighed upon by lockdowns (amid the re-spreading of Covid-19 in China), chip shortages, and EM economic slowdowns. In line, inventory corrections are underway for MLCCs, and sales of camera modules are losing steam.
But, with China gradually easing its lockdown measures, Chinese smartphone makers are determined to expand their shipments by boosting promotions for the 618 festival. Given such, we anticipate shipment improvement in June. From end-August, overall orders are set to rise on a full-fledged recovery in shipments in line with both new product launches and the arrival of a shopping season.
We view the recent concerns over substrate business conditions as being overblown, noting that the supply-demand imbalance for FC-BGA substrates is unlikely to be resolved any time soon even if global IT firms reduce their server investments to a higher than currently expected degree. We also view worries towards substrate oversupply as being excessive, given that capacity expansion at substrate makers tends to take place gradually over the mid/long term.
Competitiveness in AR glasses to be highlighted over mid/long term
Over the mid/long term, SEMCO stands well-placed to benefit from the growth of the XR market. We note that: 1) demand for its existing main products, including MLCCs, camera modules, and substrates, are likely to expand; and 2) it is expected to produce waveguide modules, a key component for AR glasses.
We point out that although the XR market is currently being led by VR devices, the growth prospects for the AR market are primed to rise further once global IT players, including Apple, Google, SEC, and Microsoft, start to launch related headsets from around 2024. Anticipating that SEMCO will be the largest beneficiary of this development, we see it as offering ample mid/long-term growth potential and valuation merit.