Asia Memory-Bad memories fading

More documents

Recommendations

Info

TMT Memory Devices Technology 8 October 2010 abc 20-26% operating margins (higher if we consider just Samsung’s memory operations) during 2011-12, while managing capex/sales below their respective historical averages. It is worth stressing that the sharply higher proposed capex by vendors (which to a large extent, the market anticipated) is not excessive, in our view. For the industry, we forecast 2010-12 capex/sales of 26- 28% for DRAM and 48-51% for NAND. This is well below 2005-08 averages of 54% and 67% for DRAM and NAND respectively. Additional wafer capacity in 2010-12 is mostly earmarked for NAND (21-22%/year wafer growth for NAND, 3.7-7.9%/year for DRAM) without which severe capacity constraints could arise. Other than NAND wafer adds, capex is likely to be funnelled mostly into process migration. Supporting our thesis, Hynix sees longer-term capex/sales at c30% or lower, plus a normalised operating margin of 15-20% over the longer term (see Hynix – Raising target price: Confirming our thesis, 23 April 2010). Upside risk lurks Enterprise computing, storage Retail consumer demand remains uncertain, but corporate IT forges ahead. We think the enterprise server and storage market provide substantial upside risk for leading vendors that are positioned to cater to this high-end market. Continued corporate IT spend plus the ongoing growth of cloud computing drives strong demand for servers. DRAM beneficiaries include Samsung and Hynix. We forecast server unit growth of 10% y-o-y in 2011, and content/box growth of 38%. Servers account for about 10% of total global bit demand but blended ASP is far higher for vendors, at 2.5x for a 4GB module up to 6x for a 16GB module. The server storage market also benefits from disproportionately high revenues and margins. Key vendors include Samsung, IMFT and Hynix. Server storage could account for the equivalent of 12-17% of our 2012 forecast global NAND revenue, and the equivalent of 20-32% of our 2013 forecast NAND global revenue. Tablets We forecast tablet shipments to soar to 73m units next year, accounting for a quarter of our forecast tablets plus notebooks. We estimate that netbook and notebook sales cannibalisation will lower 2010-12e global DRAM demand by 1%, 5% and 5%. This will be partially offset for DRAM vendors such as Samsung and Elpida that supply low-voltage, low-power parts that could be integrated into tablets. We expect tablets to account for 13% of global NAND demand next year (2010: 5%), mostly driven by a massive 214% 2010/12e bit growth rate. We think Windows 7 could help drive tablet GB/system. Key beneficiaries from tablet-related memory growth are Toshiba and Samsung. Smartphones Mobile handsets have also emerged as the leading usage of NAND on proliferation of smartphones. Handsets account for 37% of our 2011 NAND bit demand forecast, growing to 42% of total NAND bit demand by 2012. We forecast smartphone unit shipments to rise 54%, 39% and 35% during 2010-12, accounting for 35% of total handsets shipped globally by 2012. Smartphones drive rapid mobile DRAM bit growth through unit shipment growth and content per box. Mobile DRAM prices tend to be higher on a bit basis, as memory vendors incorporate custom-made solutions for specific vendors. Samsung, Elpida and Hynix are leaders in mDRAM. For NAND, we forecast GB/system for smartphones to double each year during 2011-12, driven by 3
TMT Memory Devices Technology 8 October 2010 abc lower NAND prices, the availability of larger capacity mobile NAND, rapidly rising screen resolutions, higher resolution video, games content and cannibalisation of media players. Worth a look? When and what? Timing – over the next 1-2 quarters Despite lowering forecasts for our companies, valuations are close to trough levels for many stocks. Has the market priced in all industry-wide negativity? For commodity DRAM, it is close to doing so – a weak 4Q10 earnings outlook for industry participants, possibly extending out to 1Q11, is the consensus view now. We expect to see sentiment starting to turn more positive by end-4Q10 or early 1Q11 as potential easing of DRAM ASP declines by 2Q11 starts pricing in; the PC market would require a couple of quarters to absorb Taiwanese vendors’ bit growth during 4Q10/1Q11. By the end of this year we think price elasticity will restart stunted growth in DRAM content/system. This should become evident in PC OEM results and market data, boosting confidence that future DRAM ASP declines could be more muted. For NAND, key catalysts would include firmer-than-expected ASPs starting in 4Q10/1Q11e. This would reflect soaring demand especially from smartphones. Firmer ASPs could also arise from orders of larger density units towards 1Q-2Q11 as tablet releases accelerate in 2H11. By 3Q11 we could see prices softening more as Samsung and Toshiba start mass production at new fabs in earnest. Stock coverage and ratings summary Company Ticker Rating New TP (LC) CP (LC) Potential return (%) Previous TP Change (%) Previous rating Change Samsung Electronics 005930 KS OW 1,139,000 793,000 44% 1,139,000 0% OW - Hynix Semiconductor 000660 KS OW(V) 32,000 23,400 37% 36,000 -11% OW(V) - Elpida Memory 6665 JP OW(V) 1,500 928 62% 3000 -50% OW(V) - Nanya Technology 2408 TT N(V) 20 19.3 4% 25 -20% N(V) - Inotera Memories 3474 TT N(V) 17 16.2 5% 20 -15% N(V) - Winbond 2344 TT OW(V) 10.8 8.03 34% 12.8 -16% OW(V) - Source: HSBC Go for the leaders We expect memory vendor prospects and valuations to diverge as leaders accelerate process migration and improve product mix. Increasingly DRAM and NAND bit growth are driven by mobile, enterprise applications that demand high-performance parts fabricated on advanced processes. Our top sector pick is Samsung Electronics (OW, 44% upside potential to TP) based on its unparalleled overall memory positioning and compelling valuations. It remains the industry leader in cost efficiency and is highly leveraged into high-growth, high-margin sub-segments in both DRAM and NAND. Its diversified technology portfolio – especially its telecoms operations – provide portfolio defensiveness,. We think 1.3x 2011e PB (historic range: 1.1-2.5x) is compelling. Of the pure plays, we find Hynix (OW(V), 37% upside potential to TP) attractive. Valuations are undemanding at 1.3x 2011e PB (historic range: 0.5-2.5x) compared to its 20%-plus ROE, driven by strong positioning in high-end DRAM and rapid catch-up with NAND leaders Toshiba and Samsung with its 2xnm product (that is customer sampling at the moment). Legacy concerns over its balance sheet are 4
Page 1 and 2: TMT Memory Devices Technology Octob
Page 3: TMT Memory Devices Technology 8 Oct
Page 7 and 8: TMT Memory Devices Technology 8 Oct
Page 55 and 56:
TMT Memory Devices Technology 8 Oct
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Page 71 and 72:
Page 73 and 74:
Page 75 and 76:
Page 77 and 78:
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86:
Page 87 and 88:
Page 89 and 90:
Page 91 and 92:
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
show all

Asia Memory-Bad memories fading

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?