Samsung Electronics: Chip Demand to Top Supply

The author is an analyst of KB Securities. He can be reached at  jeff.kim@kbfg.com. — Ed.

DRAM demand to grow considerably in 2022       

We maintain BUY and TP of KRW100,000 for Samsung Electronics (SEC). Semiconductor industry conditions are likely to bottom out in 1H22 as, contrary to concerns, memory/non-memory chip demand should grow considerably in 2022. We see: (1) DRAM demand (mainly from four North America data center operators) growing 20-23% YoY, outpacing the 16% YoY increase in DRAM supply by SEC; and (2) foundry revenue growing 25% YoY on the back of increasing orders from Qualcomm, Nvidia, IBM and other such companies. 

DRAM inventories of North America data centers down 30%     

As of December 2021, North America data center operators continue to increase memory chip orders and maintain high volumes. The aggressive increase in orders amid a downtrend in prices may imply positive outlook on DRAM demand in 2022. Data center operators have been increasing chip orders since: (1) their DRAM inventories are down 30% QoQ (7w-8w in 4Q21 vs. 10w-12w in 3Q21); and (2) they are preemptively investing in servers for metaverse platforms. 

Foundry wins two years’ worth of orders 

System LSI should see record earnings in 2022, with revenue and OP growing 26% YoY and 102% YoY to KRW272tn and KRW3.6tn, respectively, on the back of increased foundry utilization rates and improved yield for the 5nm process. Foundry revenue from the company’s key clients (e.g., Qualcomm, Nividia, IBM) is expected to reach KRW10tn, while earnings for the business should see marked improvements from 2022 since the company has won enough orders to last throughout 2023. Shares in SEC, meanwhile, are up 12.8% from a recent low (vs. KRW68,800 on Oct 13) and down 6.5% YTD (vs. KRW83,000 on Jan 4) and should offer increasingly attractive valuations relative to peers (i.e., SK hynix, Micron).  


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