Slowing Memory Supply Growth Positive
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
Demand for IT devices is slowing due to unfavorable macro factors. In particular, smartphones demand is sluggish. Supply limitations stemming from the rising difficulties in semiconductor process transition and insufficient equipment supply are positive for SEC
Preliminary 2Q22 results
We maintain a Buy rating and TP of W78,000 on Samsung Electronics (SEC). The firm announced its preliminary 2Q22 results, including sales of W77.0tn (-1% q-q) and OP of W14.0tn (-1% q-q), with OP missing consensus but meeting our estimate.
By division, we estimate OP at: DS (semicon) W10.1tn (+20% q-q), SDC (display) W0.7tn (-36% q-q), MX/NW (handset) W2.5tn (-35% q-q), VD/HA W0.6tn (-22% q-q), and Harman W0.1tn (+24% q-q). Semicon earnings improved on higher shipments and increased NAND prices. Display earnings decreased due to low seasonality. MX and CE earnings were affected by the recent economic slowdown caused by global interest rate hikes and the war in Europe. Of note, SEC’s 2Q22 smartphone shipments are estimated at 60mn units (-19% q-q).
Slowing memory supply growth positive
We forecast 3Q22 sales of W84.3tn (+9% q-q) and OP of W14.5tn (+4% q-q). By division, OP should come in at: DS W9.8tn (-4% q-q), SDC W1.1tn (+62% q-q), MX/NW W3.0tn (+20 q-q), and VD/HA W0.6tn (-8% q-q). DRAM and NAND ASP are likely to fall 10% q-q and 8% q-q, respectively, due to reduced demand for data centers and smartphones amid the economic slowdown.
However, we draw attention to the continued tight semicon supply conditions and SEC’s attractive valuations. The challenges in developing DRAM at 14nm or smaller nodes are rising, and controlling yield is proving difficult. The fact that memory makers are expected to conservatively execute new capex due to slowing demand should also help supply-demand dynamics. Global DRAM supply growth is projected to rise only 16% y-y in 2022 and 14% y-y in 2023. Meanwhile, we note that SEC is trading at a 2023F P/E of 7.9x and P/B of 1.1x.