Outlook 2022: Semiconductor: Invest in stocks, expect stock prices to rebound
The author is an analyst with NH Investment & Securities. He can be reached at [email protected] – Ed.
While a cycle of downturn in the memory market is expected to last from 4Q21 to 2022, such expectations have already been reflected in chipmaker stock prices, which have fallen in the past 10 months. Since stock prices tend to precede industry conditions by about six months, our advice is to implement equity investment strategies, expecting prices to rebound rather than additional fixes.
Recently, the demand for memory chips has been low. Having benefited from the Covid-19 crisis, demand for PCs weakened after peaking in 3Q21. While demand for data centers has been relatively healthy, investment in data centers is slowing due to declining data center utilization rates and government regulations.
However, we take a positive view that memory manufacturers such as SEC and SK Hynix plan to make cautious investments in DRAM in 2022, given the low demand. These movements should limit supply growth and improve DRAM supply and demand conditions in 2H22. We also draw attention to the likelihood that SEC’s foundry business and SK Hynix’s NAND business will benefit from fundamental improvements.
I. Unfavorable supply / demand conditions
Memory supply / demand conditions should become unfavorable from 4Q21, with DRAM contract prices likely decreasing by 4% qq in 4Q21 and 15% qq in 1Q22. Record-breaking investments in 2021 have finally started to wreak havoc on the market. On top of that, global PC demand has slowed, having peaked in 3Q21. The demand for DRAM in data centers has also declined, driven by tighter government regulations, improved iOS privacy, and lower peak usage rates in data centers. When it comes to mobile DRAM, global demand for smartphones remains lukewarm, with the exception of the iPhone 13 series and SEC foldable smartphones.
II. Improved supply / demand from 2H22
We expect memory supply / demand conditions to start improving from 4Q22. First, the effects of supply control efforts by major chipmakers including SEC and SK Hynix (2022 capital spending expected to be sharply reduced) are expected to materialize from 2Q22. Investment in data centers is also expected to pick up from 3Q22, in line with the rollout of Intel’s Sapphire Rapids processor in 1H22 and the anticipated increase in data center utilization rates. Strong sales of foldable phones and the deployment of high-performance virtual reality devices are expected to help drive demand for mobile DRAM.
III. Focus on new technologies such as 3D SoIC and high NA UVR
New technologies expected for 2022 include hybrid bonding, high NA EUVs, and SiC / GaN semiconductors. TSMC and AMD plan to deploy SoIC-based 3D processors in 2022. Meanwhile, ASML is expected to ship high NA EUV equipment in 2023. We also expect explosive growth in demand for SiC / GaN power semiconductors in line with the expansion of the global EV market. . Associated beneficiaries include ASML, Wolfspeed, TSMC, AMD, Park Systems and Hanmi Semiconductor.
IV. The best choice
We maintain a positive note on the semi-con sector. Although supply and demand conditions for memory chips started to deteriorate from 4Q21, the related concerns have already been reflected in stock prices over the past 10 months. Supported by chipmakers’ supply adjustment efforts and expected demand dynamics (DDR5, etc.) in 2022, supply and demand conditions are expected to improve from 2H22. We advise you to pay attention to the full-fledged growth of SEC’s foundry division and the growing competitiveness of SK Hynix’s NAND division.