Informative Document for professional investors as defined by MIFID II.
by Gun Woo, Senior Analyst, JK Capital Management Ltd., a La Française group-member company
Lately the price of semiconductor chips has been rising due to the imbalance between the limited supply and robust demand. The trend started at the end of 2020 when the Power Management Integrated Circuits (PMIC) supply came under a huge shortage, so much so that even Apple was having trouble sourcing them. Afterwards, DDIC (Display Driver Integrated Circuits) prices started spiking as DDICs are produced in the same manufacturing facilities as PMICs. Some reports showed DDIC prices going up 100% QoQ in Q4 2020, Samsung raised its CMOS Image Sensor (CIS) price by 40% early 2021. DRAM (Dead Random Access Memory) prices also went up more than 20% in January. As for GPUs, they have become impossible to source, even for companies that had standing orders, as no supplier has any inventory. Stories like this can be found for many other types of chips, but why is the semi-conductor market suddenly facing such tight conditions?
It all stems from the tech sector trade-war between China and the US which started three years ago. The uncertainty of the fast-changing trade environment lead IT companies to delay their capacity expenditure schedules. It does not mean they made no spending but most of the investment during the last 3 years was either maintenance capex or technology investment such as the development of the 7nm or 5nm processes. Barely any investment was done to expand existing facilities, such as the ones doing the 50nm or 60nm processes – precisely the ones producing PMIC, DDIC and CIS.
Meanwhile, the demand is still robust. On the smartphone side, Xiaomi, Oppo and Vivo are making big orders to capture the biggest market share in the wake of Huawei’s expected market share loss in 2021 due to US ban. The Covid-19 situation also led to increased demand in the work-from-home segment for servers and PCs. On top of these, a new PlayStation and Xbox were launched last year after 7 years without new products. And all of these are without mentioning the demand for electric vehicles, internet of things, and 5G network upgrades which are growing.
Although capex for existing technology has increased lately, it is still shy and the capex trough period that preceded was quite long so we expect shortages will continue throughout the year. More and more equipment spending is nevertheless expected in this year by the semi-conductor producers. This trend could be structurally beneficial for equity holdings in the IT sector such as Koh Young and Chroma ATE, as they are the IT equipment suppliers for the semiconductor industry. Leeno Industrial and Hansol Chemical could also benefit from the increased IC production as they supply the consumables and materials to the producers.
Sources: DRAMeXchange, Digitimes
Informative Document for professional investors as defined by MIFID II. The information contained herein is issued by JK Capital Management Limited. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. The information and material provided herein do not in any case represent advice, an offer, a solicitation or a recommendation to invest in specific investments. To the best of its knowledge and belief, JK Capital Management Limited considers the information contained herein is accurate as at the date of publication. However, no warranty is given on the accuracy, adequacy or completeness of the information. Neither JK Capital Management Limited, nor its affiliates, directors and employees assumes any liabilities (including any third party liability) in respect of any errors or omissions on this report. Under no circumstances should this information or any part of it be copied, reproduced or redistributed.