Samsung Electronics’ first quarter results have been announced.

Samsung Electronics’ first quarter results have been announced.
The consensus was 5.2 trillion won and 6.6 trillion won, which exceeded the recent highest of 5.8 trillion won.

In detail, it is estimated that DS 1.9 trillion won, DX 4.0 trillion won (MX 3.7 trillion won, CE 0.3 trillion won), SDC 0.5 trillion won, and Harman 0.2 trillion won.

DS is estimated to be 2.7 trillion won in memory and -0.9 trillion won in foundry/LSI, while memory is estimated to be 2.2 trillion won in DRAM and 0.5 trillion won in NAND.

DRAM는 B/G -13%, ASP +16%
NAND는 B/G -4%, ASP +32%
The most distinctive part is NAND’s turnaround. It has advanced the turnaround by three quarters.

Until now, reports related to Samsung Electronics’ provisional performance have come from Meritz, Hantu, DB, DS, IBK, KB, and SK.

3 TP up – IBK 110,000 won, DS 109,000 won, and Han-two 120,000 won

With a three-month average consensus, the second quarter is 7.1 trillion won, which is expected to continue to rise by nearly 8 trillion won, and the 24-year annual consensus is 35 trillion won, which is expected to continue to rise to more than 40 trillion won.

Related stocks have been soaring since I shared the investment strategy for the semiconductor pre-process manager in the last feed. I think this trend will continue for the time being, and I think we need to focus more on our portfolio. I recommend you read it again at this point.

I will visit companies related to On-Device AI on the next semiconductor topic and go to the next step in advance. ● Semiconductor Pre-Process Investment Strategy

Samsung Electronics’ first-quarter operating profit consensus is formed at around KRW 4.8 trillion, but the recent trend has been rising to KRW 5.4 trillion. The reason for the upward trend of Samsung Electronics’ performance is that both DRAM/NAND shipments are increasing and selling prices are rising, and smartphone shipments are increasing. Until now, the sluggishness of Samsung Electronics’ stock price has been caused by delays in securing HBM customers and starting mass production while demand for memory is concentrated on AI servers, and delays in improving foundry performance. Contrary to market concerns, the profitability of legacy DRAM/NAND is rapidly rising and the utilization rate is recovering rapidly.

Currently, Samsung Electronics’ HBM3E is undergoing sampling of 12-layer products, and it is expected that large-scale mass production will be possible after the third quarter. Samsung Electronics’ HBM-related sales are expected to reach $5.6 billion in 2024 and $9.5 billion in 2025, from $1.9 billion in 2023, and the operating profit ratio is expected to reach 40%. The share of HBM in Samsung Electronics’ DRAM sales is expected to increase from 8% in 2023 to 22% in 2025. In the case of SK Hynix, which will start supplying HBM3E to Nvidia in the second quarter, the share of HBM in DRAM sales is expected to exceed 10% in 2023 to 20% in 2024, and in the end, there is a big difference between SK Hynix and Samsung Electronics in profitability.

Even if Samsung Electronics, SK Hynix, and Micron more than double their HBM production capacity in 2024, the shortage of HBM supply is expected to intensify due to the expansion of new investments in AI servers by U.S. cloud companies. AI server shipments are expected to grow by +40% in 2024, and the proportion of AI servers is expected to increase from 9% in 2023 to 12% in 2024. Nvidia’s H100 uses four to six HBM3s from one GPU, while the B100 uses six to eight HBM3Es from two GPUs, and the capacity of HBMs is expected to increase 2.4 times. Therefore, the growth of 40% of AI server shipments will more than quadruple the demand for HBM, so the supply will be insufficient by expanding production capacity by twice.

While demand for AI servers in the first half of last year was driven by big tech and Generative AI startups in the United States, demand for AI servers in the second half of last year was driven by an increase in demand for AI investment from corporate customers as AI applications from big techs were distributed. From this year, the demand for AI servers for inference is also expected to contribute, and AI server shipments are expected to continue to grow high in the future. Recently, the annual CAPEX of U.S. cloud companies has been on an upward trend compared to the end of last year.

[Memory Semiconductor Prospects and Investment Ideas]

DRAM and NAND prices are expected to rise by 20% in the first quarter, and an additional 10% increase each in the second quarter. As the sales momentum of legacy DRAM is becoming stronger than the original forecast, Samsung Electronics may have similar or higher margins for DRAM as a whole by the end of the year. Amid the shift in front-end processes such as HBM expansion and 1b process, the overall CAPA of DRAM will decrease and the utilization rate will increase. Samsung Electronics and Micron are also expected to enjoy high profitability in DRAM after SK Hynix amid limited supply in the market.

In early 2024, memory semiconductor companies’ inventory is expected to be around 9 to 10 weeks. Inventory is still high enough to be at the top of inventory in the memory semiconductor downcycle in the past, but inventory exhaustion is expected very quickly during the first half of 2024, and the overall inventory is expected to fall to a normal level of about six weeks in the second half of 2024. It is understood that the exhaustion of memory semiconductor stocks held by PC and smartphone companies has ended, and the demand for inventory accumulation is rising mainly by PC and smartphone companies. Memory semiconductor stocks of server OEMs, which still have a lot of inventory, will peak at 15 weeks at the end of 2023, and in particular, as semiconductor stocks in distribution channels quickly fall to within six weeks at the end of 2024, creating a tight supply-demand environment, which is expected to create a virtuous cycle between semiconductor prices in distribution channels and semiconductor order prices in server companies.

As the DRAM industry enters the upcycle, market expectations for facility investment may improve from the beginning of the year. In 2023, Samsung Electronics and SK Hynix’s equipment investment was extremely limited. In the case of DRAM, Samsung Electronics only made 45K additional investments, including 15K postponed in 2022, and SK Hynix only made 5K supplementary investments. In the case of NAND, there was no investment in 2023. In 2024, Samsung Electronics and SK Hynix are expected to expand their DRAM-centered semiconductor equipment investment by more than +20% compared to 2023. SK Hynix predicted an increase in CAPEX, while Samsung Electronics predicted a decrease in CAPEX. Moreover, the consensus was that the 2024 CAPEX strategy is to preemptively invest in terms of securing production capacity centered on HBM3E and DDR5, so legacy investments should not be made. It was expected to be a form of legacy-related investments in 2025, considering the recovery of business conditions in the future, but if the DRAM industry improves than expected, it can be revised to a plan to increase overall memory CAPEX in the second half of 2024. Since the 1b nano process of DRAM is a common part of expanding HBM3E and DDR5 investment, the related fleet process equipment is expected to benefit.

Unlike DRAM, NAND’s price increase is more likely to be due to a decrease in supply due to production cuts rather than a recovery in demand. Samsung Electronics’ utilization rate at its Xi’an NAND plant in China fell to the 10% level at one point in October and has now recovered to the 40%-50% level at the end of last year, and is now believed to have recovered to the 70% level. Now, I think the rate of increase in utilization rate will be modest, and the normal 85% level is expected to be around the end of the second quarter. Compared to Samsung Electronics’ NAND utilization rate, the rate of increase in material companies is expected to follow after one quarter. Therefore, performance is expected to recover in the first quarter compared to the fourth quarter, and from the second quarter. However, there will be material companies whose performance will recover rapidly from the first quarter, and I think such stocks are likely to be a leader in the market.

[Samsung Electronics HBM Value Chain]

• Stealth dicing, laser annealing: eotechnics
• Discom, Media Reflow: PSK Holdings
• Laser Reflow : Protec
• ALD : Eugene Tech
• Sejeong: Zeus
• Overlay Measurement: Oros Technology
• Packaging/Bump Exterior Inspection: Intec Plus
• CMP slurry: solbrain, dongjin semichem

With the possibility that Samsung Electronics can proceed with HBM3E supply to Nvidia, the flow to see Samsung Electronics’ HBM value chain could be strengthened. The most important etching equipment for TSV is monopolized by overseas company Ram Research, and the background grinding equipment is also monopolized by Disco. Bonding equipment is important, but Samsung Electronics is known to be testing several companies, Semes, Shinkawa, Toray, and ASM. According to a recent article, Samsung Electronics has adopted and developed dual NCF and MUF methods from HBM3E. The core of the MR-MUF process is in MUF materials, and there were reports that SK Hynix had an exclusive five-year supply contract with Japan’s Namix until 2027, and Samsung Electronics is in negotiations with Japan’s Nagase for supply.

The area that will benefit from Samsung Electronics’ entry into MUF is reflow equipment, and PSK Holdings can be seen as the biggest beneficiary. In the case of Protec, which develops laser reflow equipment, which is a next-generation reflow equipment, both NCF and MUF have the advantage of being able to respond. Eugene Tech of ALD equipment and Zeus of cleaning equipment are also companies that account for a high proportion of Samsung Electronics’ sales. On the inspection equipment side, Oros Technology of overlay measurement equipment and Intec Plus of packaging/bump appearance inspection equipment are also expected to benefit.

Iotechnics can be noted as a Samsung Electronics HBM equipment company. As the thickness of HBM becomes thinner, the adoption of Iotechnics’ stealth dicing and laser full-cut equipment as cutting equipment increases. The trend is that the thickness of HBM3 will be 65-70 microns, the thickness of HBM3E will be 45-50 microns, and the thickness of HBM4 will be 25-30 microns in the future. Stealth dicing is expected to be introduced until HBM3E, and laser full-cut equipment is expected to be introduced in HBM4. Sam