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IT Hardware: Key Takeaways From Our Recent Visits To Taiwan/Japan
Dec. 19, 2017 10:25 AM ET
About: Samsung Electronics Co., Ltd. (SSNLF), Includes: AMD, AMZN, AUO, BABA, BIDU, CHA, CHL, CHU, GOOG, HIMX, HTHIY, HXSCL, INPRF, INTL, LGEAF, MRAAY, QCOM, SHCAY, TCEHY, TOSBF, TSM, TTDKY, TYOYY, UMC
Hyundai Motor Investment & Securities
Long/short equity, Deep Value, growth at reasonable price, Korea
Hyundai Motor Investment & Securities
Chinese chipmakers’ threat limited; iPhone X production volume 65mn units until 1Q18
- Chinese chipmakers’ threat limited; iPhone X production volume 65mn units until 1Q18.
- Chinese Android phone makers to introduce 3D sensing technologies in 2018.
- In order of preference: Samsung, SEMCO, Innotek, LGE, Hynix.
We visited major IT H/W companies in Taiwan and Japan from November 19 to 22 to examine key issues facing the industry. After our visits, we found that only YMTC has potential to pose a viable threat in the long term among Chinese chipmakers and its initial produce is 32-layer 3D NAND flash; other DRAM makers such as Innotron and JHICC did not look like they would pose any significant threat as Innotron has IP issues and JHICC’s products are mostly tailored to the niche market.
We also found that the production yield of the iPhone X has greatly improved, with the 4Q17 production volume amounting to 27mn units and 1Q18 volume 37mn units (65mn in total). Finally, we expect NAND prices to stabilize in 2H18 after corrections in 1H18 and DRAM to remain undersupplied.
Chinese Android phone makers to introduce 3D sensing technologies in 2018
Although major MLCC manufacturers move to expand their MLCC capacity, we believe MLCC prices will continue to rise until 2019 on the back of soaring demand for automotive electronics and high capacitance MLCCs. We also believe the use of 3D sensing modules, under development through a technological alliance between Qualcomm ( QCOM) and Himax ( HIMX), will increase considerably from 1H18 led by Chinese smartphone makers.
In the order of preference: Samsung ( OTC:SSNLF), SEMCO, Innotek, LGE ( OTC:LGEAF), Hynix ( OTC:HXSCL)
Despite KRW strength, we expect earnings momentum for IT H/W names to continue into 2018 thanks to ASP hikes and growing capacity per device. We especially expect 1Q18 to benefit from increasingly favorable investor sentiment stemming from the launch of the Galaxy S9 and improving yield of the iPhone X. We like Samsung Electronics best, followed by SEMCO, LG Innotek, LG Electronics, and SK Hynix.
Key takeaways from our visits to Taiwan/Japan
China’s threat limited; 65mn iPhone X to be manufactured until 1Q18
We visited major IT H/W companies in Taiwan and Japan, including Nanya Tech, AU Optronics Corp. ( AUO), United Microelectronics Corporation ( UMC), Yageo (YAGOD), Nanya PCB, Toshiba ( OTCPK:TOSBF), Sharp ( OTCPK:SHCAY), Hitachi ( OTCPK:HTHIY), and Tokyo Electron ( OTCPK:TOELY)) from November 19 to 22. We also visited big research firms like Trend Force, Stone Partners, and Cinno Research to examine industry key issues such as: 1) Chinese chipmakers’ possible foray into the market; 2) memory semiconductor price outlook for 2018; 3) the iPhone X shipment forecast and the new 2018 model; 4) MLCC demand-supply dynamics and capex; and 5) Android phones’ adoption of 3D sensing technology.
To make a long story short, we believe: 1) Chinese chipmakers will not be a formidable threat to Korean companies because the only company that could pose a threat long term is Tsinghua Unigroup’s YMTC (Yangtze Memory Tech) with increased 3D NAND investments (other players like Innotron and JHICC do not look like they would have meaningful impacts on the DRAM industry considering Innotron’s IP issues and JHICC’s focus on the niche market); 2) as for memory prices in 2018, we expect NAND prices to fall about 10% in 1H18 before stabilizing in 2H thanks to strong seasonality; DRAM prices are likely to remain stable throughout 2018 on tight supply; DRAM and NAND sales are projected to increase over 20% YoY; 3) uncertainties over the iPhone supply chain should disappear as the production volume of the iPhone X is expected to reach 27mn units in 4Q17 and 37mn units in 1Q18 (65mn total) on improving yields; of note, Apple is expected to roll out two POLED models and one LCD model; 4) as for MLCC makers, most of them will likely boost their capacity by about 10% but we believe the price of MLCC will be on an uptrend until end-2019 on growing demand for high-capacitance MLCCs and automotive electronics; and 5) in the Android realm, Qualcomm and Himax are collaborating over 3D sensing technology and Chinese smartphone makers will probably begin to adopt 3D sensing module from 1H18; China’s Face++ is also to partner with Huawei and Alibaba to gain ground in the biometrics market.
Despite the strong KRW, the Korean IT H/W sector should post robust earnings growth in 2018 thanks to price increases of major products and increased payload per device. In particular, earnings momentum for Samsung and Hynix should continue in 2018, as both DRAM and NAND sales are expected to grow more than 20% by value. Earnings momentum will also stay intact for SEMCO, which should see a turnaround in all business divisions, LG Innotek, which is expected to see earnings growth in optical solutions and auto parts, and LGE, which is slated to enjoy higher TV margin. For LG Display, we see profit declining due to falling LCD panel prices, but its potential supply of POLED for the new iPhone could act as a share price trigger.
The company that appears most attractive, in our view, is Samsung, followed by SEMCO, Innotek, LGE, and Hynix. Overseas companies that draw our attention include TEL, Yageo, STMicroelectronics and Himax. TEL is expected to gain more market share in the market for etching and deposition equipment; Yageo is set to enjoy stronger demand or chip resistor and MLCC price increases; STMicro and Himax are the beneficiaries of soaring 3D sensing demand.
continues at seekingalpha.com