The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. — Ed.
Affected by less data center investment and reduced demand for IT sets, 3Q22 DRAM ASP is likely to fall 17% q-q. We forecast SEC’s 3Q22 OP at W11.80tn (-16% q-q). Adjustments to planned 2023 new capacity investment and improved parts inventory situations are positive.
3Q22 preview: Semiconductor downcycle deepens
Although adhering to a Buy rating, we lower our TP for Samsung Electronics (SEC) from W75,000 to W70,000 on downward adjustments to our 2022~2023 earnings estimates. Considering the deepening memory semiconductor downcycle, we change our DRAM price forecasts for 2022 and 2023 from -7% and -8% y-y, respectively, to -9% and -12% y-y. Our TP is calculated by comparing the three-year estimated ROE of 12.6% (previously 13.3%) with a COE of 8.5%.
SEC is expected to post 3Q22 sales of W79.8tn (+3.3% q-q) and OP of W11.80tn (-16% q-q), with OP to miss the consensus of W13.3tn. We mainly attribute the expected earnings slowdown to the decline in memory semiconductor prices. For DRAM, shipments are expected to drop 3% and ASP 17% q-q due to sluggish IT set demand amid global economic slowdown. From 3Q22, hyperscalers’ reduction in data center investment has entered full swing, negatively affecting the industry overall.
At the MX division, earnings remain relatively sound compared to industry conditions. Galaxy S22 sales are strong compared to those of the Galaxy S21. At the display business, panel shipments and earnings should exceed consensus thanks to strong sales of the iPhone 14 series of a major customer.
Positives include memory makers’ investment control and improved parts inventory situations
Putting aside expectations for sluggish earnings for the time being, SEC’s low valuations and reduced memory semiconductor supply from 2H23 are favorable. Currently, memory semiconductor makers plan to reduce new capacity investment in 2023 to respond to price decline. Supply decrease stemming from the predicted chopping of new capacity investment should have a positive impact on supply and demand from 2Q23.
Supply cuts are also underway due to greater process development difficulties. For DRAM at the 14nm and below scale, the number of EUV-applied layers increases, making yield control difficult due to the challenges of stochastic defects and expanding line edge roughness (LER). For NAND, the HAR (aspect ratio) of the channel hole climbs when attempting 176 layers or more, which brings in the need for additional technologically demanding processes such as reducing the overhead between slits or limiting the filler spacing.