The author is an analyst with Shinhan Investment Corp. He can be contacted at – Ed.

Market concerns caused by stagnant stock prices in 1H21

Samsung Electronics and SK Hynix stocks underperformed the KOSPI in 1H21, fueling further concerns about semiconductor market conditions. Despite the temporary impact of global shortages of memoryless chips, market conditions for memory have generally remained on track. However, the impressive rate of profit growth reported by several other industries made the semiconductor industry pale in comparison.

Investor concerns remain elevated regarding semiconductor market conditions. However, we believe now is the time to focus on the positive factors that have been overlooked by the market and are expected to drive semiconductor stocks higher in 2H21.

Five positive points overlooked by the market

We find that the market has overlooked five short-term positives: 1) increased shipments of memoryless chips when Austin’s manufacturing operations resumed at Samsung Electronics; 2) migration to DDR5 in DRAM; 3) extension of equipment ordering times; 4) recovery of DRAM spot prices; and 5) SK Hynix’s acquisition of Intel’s NAND business.

Samsung Electronics resumed operations at its memoryless factory in Austin, US, at the end of April. As it takes approximately two months from the start of operations to the actual shipment, we expect the overall volume of shipments to return to normal levels from June. The Austin factory is mainly focused on the production of RFIC, DDI and SSD controllers for OLED use, that is, semiconductors without memory which has experienced a severe shortage. Supply shortages in non-memory chips should therefore ease from the end of 2Q21. A rebound in SSD controller shipments is likely to have a positive impact on NAND demand and prices going forward.

The industry’s transition from DRAM to DDR5 is expected to begin with the launch of Intel’s Alder Lake platform in 4Q21. The transition to DDR5 is likely to result in higher prices, supply constraints (due to larger chip sizes), and increased demand for replacement, informing the outlook for DRAM market conditions as a whole. .

At the same time, the strong growth in non-memory investments should expose memory chip manufacturers to an increasingly long lead time for equipment orders. As the resulting supply constraints are likely to have a positive effect on memory market conditions, we believe that concerns about a memory market spike are overblown, with the current bull cycle expected to outlast market conditions. initial projections.

Past data shows that we have yet to see an upward trend in DRAM spot prices continue uninterrupted throughout the bull cycle, with one or two short-term correction periods recorded in each cycle. this day. In view of the recent DRAM price correction, we believe it is premature to suspect that spot prices have in fact moved to a downtrend. Market concerns should quickly dissipate if spot prices rebound.

SK Hynix’s acquisition of Intel’s NAND business is underway. The deal will provide SK Hynix with the opportunity to increase earnings and equity valuations in 2022. Additionally, industry consolidation will further strengthen oligopolistic control over NAND providers in the future.

Thesis titles will return as market leaders in 2H21

The stock prices of memory chip makers are sensitive to annual changes in earnings. The baseline earnings effect is expected to be weaker for memory chipmakers than for their peers in 2Q21, but will likely strengthen around 3Q21 and 4Q21. We therefore expect memory earnings to rebound sharply in 3Q21 and 4Q21 after hitting bottom in 2Q21. SK Hynix, Hanmi Semiconductor, Eugene Technology, and Wonik QnC remain our top picks in the semiconductor industry.