110315 Semicon weekly FINAL - file.myasset.comfile.myasset.com/.../2011/0315/16245808/110315_Semicon_weekly_… · As Elpida’s packaging plant in Akita cannot maintain normal capacity

Hyun-joon Shin [email protected] +822-3770-3562

KOREA Semiconductors

Semiconductor weekly

March 15, 2011

www.tys.co.kr/english Tong Yang Research

Sector Report

Impact of Japanese quake on semicon sector

NAND flash spot price up 17% in one day

NAND flash spot price jumped on expectations of a slowdown at Japanese NAND makers Toshiba and SanDisk, due to supply chain disruption and electricity shortages caused by the massive earthquake.

Demand will likely remain stable on the continued launch of new smartphone and tablet PC models.

Spot price w-w: 32Gb MLC up 17.93% (US$5.01→US$5.92), 16Gb MLC up 18.18% (US$3.95→US$4.78)

DRAM spot price edges up

DRAM spot price, which remained stable after surging at end-January, edged up, expanding the gap with DRAM contract price.

We expect DRAM contract price to rebound on expectations for the launch of the “SandyBridge” CPU.

Spot price w-w: DDR3 2Gb up 4.43% (US$2.03→US$2.12), DDR3 1Gb up 5.71% (US$1.05→US$1.11)

Major quake impacts

Although memory makers in Japan have not suffered massive damage fromthe quake, plant operations will inevitably slow due to the destruction of material and parts manufacturers’ plants, supply chain disruption, as well as electricity shortages (some nuclear power plants have been damaged).

We do not expect Korean memory chip manufacturers to suffer disruptions as they have sufficient wafer stocks and enough time to change wafer suppliers. However, there are worries over wafer supply disruption as Japanese wafermanufacturers, Shin-Etsu and SUMCO, have shut down some plants.

If Sony, hit particularly hard, with 10 plants and two research centers shut down, takes time to fully resume operations, we expect earnings at Samsung Electronics’ (SEC) LCD division to deteriorate sharply. SEC’s sales to Sony stood at US$5.3bn in 2010 and were expected to reach US$6bn in 2011.

As Elpida’s packaging plant in Akita cannot maintain normal capacity utilization, multi-chip package (MCP) supply will likely be disrupted, and if major smartphone makers diversify suppliers due to ongoing suspension of operations at Japanese NAND plants, Korean semicon makers will likely winthose contracts.

However, damage to set makers may reduce demand for components. Although Japan represents just 9% of global GDP, economic disruption in thecountry will likely have a large impact on the semicon sector, as new order and inventory of IT products remain sluggish.

Brian Shim [email protected] +822-3770-3574

Company Rating TP (W)

SEC BUY 1,400,000

Hynix BUY 38,000

Atto BUY 12,600

Hana Micron BUY 19,000

TCK BUY 20,500

DRAM spot, contract price

0.00.51.01.52.02.53.03.5

Mar-10Nov-10Jun-10Feb-10

($)

-50

-30

-10

10

30

50

(%)

Premium/Contract Price(LHS)DDR3 1Gb 1333 MHz Spot(RHS)DDR3 1Gb 1333 MHz Contract(RHS)

Source: DRAMeXchange, Tong Yang Securities

NAND flash spot, contract price

0.01.02.03.04.05.06.07.0

Mar-10Apr-10Apr-09

($)

-50

-30-10

1030

50

(%)

Premium/Contract Price(LHS)NAND 16Gb MLC Spot(RHS)NAND 16Gb MLC Contract(RHS)


2 Tong Yang Securities Inc.

Semicon weekly

Major news this week

Sony, Toshiba, and other electronics makers suspend operations

Sony ceased operations at 10 plants, including four in Miyagi Prefecture, two in Fukusima Prefecture, and two research centers, while Toshiba and SanDisk also temporarily suspended operations at some semicon plants. SanDisk announced that the earthquake had caused the company’s plants to shutdown and that some silicon wafers in the delicate manufacturing process had been spoiled, while Toshiba warned of delivery delays due to transportation disruptions. Toshiba and Sony closed their plants on March 14 to assess the quake impact, and there are worries that production of materials and parts for memory chips will be disrupted.

Comment: SEC supplied $5.3bn worth of parts to Sony in 2010 and was expected to supply around $6bn worth in 2011. Thus, if operations at Sony remain suspended for a long time, earnings at SEC’s LCD division will deteriorate sharply. Moreover, if IT set manufacturers, including Sony take time to fully resume operations, demand for components may decline. With new order and inventory of IT products still sluggish, supply contractions are very likely to weaken demand.

Since most Japanese memory makers’ fabs are not located in the quake-stricken northeast region, they are unlikely to have been hard hit. However, with Toshiba temporarily suspending operations at its fab in Yokkaichi, Mie Prefecture, the company’s NAND flash shipments will likely decline. This comes on top of the company losing 20% of two months worth of shipments, due to a power outage on December 8, 2010. Further, raw material and parts makers suffered massive direct damage and it will likely take significant time before the supply chain fully recovers. In addition, capacity utilization at these plants is expected to decline due to electricity supply disruptions. In particular, Toshiba, reeling from both quake damage and possible power outages may lose clients to rivals outside Japan. We believe Hynix is the most likely candidate, after winning qualification for its 26nm 64Gb NAND flash memory from a world-renowned smartphone maker on March 8, 2011.

Tong Yang Securities Inc. 3

Company Report

Sector Report

Major memory chip plants in Japan (company/type of fab/wafer starts per month)

Note: Flash Alliance and Flash Partners are NAND flash manufacturers, jointly owned by Toshiba (50.1% stake) and Sandisk (49.9% stake) Source: Gartner, Google Earth, Tong Yang Securities

With Toshiba-SanDisk’s Yokkaichi fab estimated to have suffered greater damage than Elpida’s Hiroshima fab, NAND price growth outpaced DRAM price growth. DRAM spot price edged up 6% d-d on March 14, while NAND flash spot price jumped 17% d-d. Reflecting the gap in NAND-DRAM prices, Toshiba’s share price fell more sharply than Elpida’s.

Moreover, with Elpida’s Akita fab ceasing operations after suffering direct damage from the quake, multi-chip package (MCP) supply will likely be disrupted, which should benefit Hynix.

Memory chip prices (US$)

DRAM spot Closing price on Mar 14 d-d 5-day m-m

DDR3 2Gb 1333MHz 2.12 +6.53% +4.43% -2.30%

DDR3 2Gb eTT 1.93 +6.04% +4.89% -2.03%

DDR3 1Gb 1333MHz 1.11 +6.73% +5.71% -2.63%

NAND flash spot Closing price on Mar 14 d-d 5-day m-m

NAND 32Gb 4Gx8 MLC 5.92 +17.69% +17.93% +4.59%

NAND 16Gb 2Gx8 MLC 4.68 +17.00% +18.18% +12.23%

NAND 16Gb 2Gx8 SLC 15.98 +1.65% +1.98% +1.46%



Semicon weekly

Pre- and post-quake performance of global memory makers and foundries

DRAM NAND Foundry

SEC Hynix Elpida Micron Nanya Powerchip ProMOS Toshiba SanDisk TSMC UMC

Mar 10 W866,000 W27,700 JPY1,107 $9.93 TW$15.65 TW$6.15 TW$1.92 JPY500 $44.93 TW$70.50 TW$14.70

Mar 14 W900,000 W30,100 JPY984 $10.24 TW$15.90 TW$6.45 TW$1.89 JPY411 $45.07 TW$70.30 TW$14.60

Change 3.93 % 8.66 % -11.11 % 3.17 % 1.60 % 4.88 % -1.56 % -17.80 % 0.31 % -0.28 % -0.68 %

Note: Micron and SanDisk’s share prices as of March 11. Source: Tong Yang Securities

Tight supply of silicon wafers expected over the coming month

Japanese silicon wafer manufacturers, especially Shin-Etsu and Sumco, which have a combined 60% global market share in silicon wafer sales, were hit hard by the earthquake. Shin-Etsu suspended operations of silicon wafer plants in Gunma, Ibaraki, and Fukushima, due to blackouts caused by the quake, and Sumco also suspended operations at its plant in Yamagata. Once operations at a silicon wafer plant are suspended, it usually takes 2~4 weeks before normal operations resume. Although Japanese wafer manufacturers suffered no plant damage, they will endure setbacks in rolling out silicon wafers over the coming two weeks due to lack of raw materials and logistics disruptions. In the aftermath of the quake, Korean players are keeping an eye on the damage sustained by Japanese rivals.

Comment: For the next four weeks silicon wafer supply in Japan should be tight. However, this should not have a material impact on the Korean market as domestic players have more than one-month of inventory. However, if another quake of 7 magnitude or higher occurs within the next few days (which is highly likely), this could cause Japanese silicon wafer manufacturers to suspend operations again, compounding the supply shortage problem. In particular, suspended operations will deal a blow to semiconductor manufacturers such as Toshiba and Elpida, which purchase 100% of their raw material silicon wafers from Shin-Etsu and Sumco,

Global silicon wafer market share Japanese domestic silicon wafer market share

Siltronic

13%

LG Siltron

9%

O thers

9%MEMC

8% Shin-Etsu

32%

Sumco

29%

MEMC

6%

Siltronic

15%

LG Siltron

32%

Shin-E tsu

25%

Sumco

21%

Note: Based on 2009 sales Source: Gartner, Tong Yang Securities

Note: Based on 2009 sales Source: Gartner, Tong Yang Securities


Company Report

Sector Report

Shin-Etsu and SumCo’s major silicon wafer plants

Shin-EtsuGunma Complex

Shin-EtsuTakefuplant

Sumco Kishimaplant

Sumco Asagoplant

Sumco Yonezawaplant

Sumco Chitose plant

Source: Shin-Etsu, SumCo, Google Earth, Tong Yang Securities


Semicon weekly

Key semicon industry indicators

Global semicon monthly sales Domestic semicon monthly exports, y-y export growth

0

2

4

6

8

10

Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10

(US$bn)

0

10

20

30

40(US$bn)

NA ND (LHS)DRA M (LHS)Total semiconduc tors (RHS)

0

1

2

3

4

5

6

7


(US$bn)

-200

-150

-100

-50

0

50

100

150

200

(%)

Semiconduc tor exports (LHS)Growth (% y-y, RHS)

Source: WSTS, Tong Yang Securities Source: Ministry of Knowledge Economy, Tong Yang Securities

Semicon equipment book-to-bill ratio IT-related retail sales in US

0.0

0.4

0.8

1.2

1.6

2.0


North A merican BB ratioJapanese BB ratio

7.5

8.0

8.5

9.0

9.5


(US$bn)

1.4

1.7

2.0

2.3(US$bn)

C onsumer elec tronics sales (LHS)PC and related device sales (RHS)

Source: Datastream, Tong Yang Securities Source: Datastream, Tong Yang Securities

US new orders and inventory/shipment Taiwan PC makers: monthly sales and y-y growth

20

22

24

26

28

30

32


(US$bn)

1.0

1.2

1.4

1.6

1.8

2.0(months)

US computer & elec tronicsinventory/shipment (RHS)

US computer & elec tronics neworders (LHS)

0

100

200

300

400

500

Mar-09 Sep-09 Mar-10 Sep-10

(TWDbn)

-60

-30

0

30

60

90

120

(%)

Q uanta (LHS) C ompal (LHS)Wis tron (LHS) A C ER (LHS)Inventec (LHS) A sus tek (LHS)Growth (% y-y, RHS)

Source: Datastream, Tong Yang Securities Source: Taiwan Stock Exchange, Tong Yang Securities


Company Report

Sector Report

Semicon maker earnings consensus

Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation DRAM

1Q11E 2Q11E 3Q11E 4Q11E 2011E 2012E 2011E 2012E

Samsung Sales 38,565,696 40,903,568 43,670,794 46,014,938 168,982,407 184,871,501 P/E 9.2 8.1

Market cap (Wbn) OP 3,352,791 4,050,953 5,002,496 4,780,649 17,160,423 19,547,016 P/B 1.5 1.3

132,569 NP 3,168,881 3,707,395 4,455,039 4,201,977 15,649,476 17,695,146 ROE 16.8 16.3

Hynix Sales 2,577,914 2,749,608 3,014,895 3,049,506 11,420,663 12,867,446 P/E 10.6 8.6

Market cap (Wbn) OP 232,146 403,852 625,542 593,981 1,845,751 2,299,456 P/B 1.8 1.5

17,767 NP 188,678 322,580 535,051 524,597 1,679,764 2,000,336 ROE 16.9 18.5

Elpida Sales 2,158,480 2,060,561 1,468,330 1,390,271 7,178,377 7,054,801 P/E 23.7 13.8

Market cap (Wbn) OP 540,369 368,503 -159,483 -123,286 501,479 522,542 P/B 0.7 0.7

2,882 NP 386,338 122,162 -220,021 -184,948 24,163 209,225 ROE 0.5 3.9

Micron Sales 2,714,862 2,316,469 2,487,814 2,689,431 9,961,472 11,336,942 P/E 20.2 8.2


11,493 NP 384,875 36,852 172,639 277,716 649,512 1,479,763 ROE 7.2 11.8

Nanya Sales 435,729 508,174 682,032 842,756 2,514,906 2,923,815 P/E N/A 22.4

Market cap (Wbn) OP -165,693 -156,245 -47,858 68,963 -187,694 -74,650 P/B 2.1 2.6

2,448 NP -275,841 -212,425 -70,886 33,986 -434,324 108,320 ROE -19.3 5.9

Powerchip Sales 498,689 570,006 658,935 701,482 2,429,112 2,841,606 P/E N/A 9.3

Market cap (Wbn) OP N/A N/A N/A N/A N/A N/A P/B 1.6 1.4

1,381 NP -181,874 -110,003 -45,636 10,400 -174,752 156,893 ROE -36.1 14.7

ProMOS Sales 145,652 150,044 156,001 N/A 600,442 N/A P/E N/A N/A

Market cap (Wbn) OP N/A N/A N/A N/A -328,996 15,314 P/B 1.0 N/A

184 NP -98,336 -59,995 -43,421 N/A -389,430 N/A ROE N/A N/A

Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation NAND

1Q11E 2Q11E 3Q11E 4Q11E 2011E 2012E 2011E 2012E

Toshiba Sales 21,543,941 24,414,161 23,034,690 27,039,869 89,392,800 93,993,732 P/E 18.7 12.1

Market cap (Wbn) OP 311,439 852,617 661,520 1,727,469 3,452,322 4,322,880 P/B 1.9 1.7

23,938 NP -36,356 284,825 204,838 840,676 1,272,947 1,968,101 ROE 10.8 15.7

SanDisk Sales 1,398,697 1,493,298 1,645,649 1,818,998 6,368,306 7,230,856 P/E 10.5 10.2


12,006 NP 3,274,718 272,293 299,440 325,929 1,166,784 1,263,334 ROE 15.1 13.3

Source: Datastream, Tong Yang Securities


Semicon weekly

Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation PC

1Q11E 2Q11E 3Q11E 4Q11E 2011E 2012E 2011E 2012E

HP Sales 36,934,562 35,580,057 35,910,502 39,091,170 146,983,073 153,485,855 P/E 8.0 7.4


102,123 NP 3,274,718 3,017,572 3,068,314 3,547,438 12,984,631 13,605,879 ROE 25.7 23.1

DELL Sales 16,836,343 17,840,272 17,939,082 17,682,427 69,073,652 72,370,067 P/E 10.7 9.2

Market cap (Wbn) OP 851,352 1,015,734 1,032,995 1,103,249 4,213,919 4,915,062 P/B 4.1 3.0

33,194 NP 590,676 693,680 724,877 794,069 3,132,304 3,581,927 ROE 42.5 37.3

Acer Sales 5,939,119 6,211,262 7,094,770 7,709,545 26,901,069 29,833,457 P/E 10.6 9.1

Market cap (Wbn) OP 172,881 186,897 233,346 264,101 843,307 979,320 P/B 1.8 1.6

7,205 NP 137,078 152,070 189,956 213,541 679,779 785,891 ROE 17.3 18.9

ASUS Sales 3,469,008 3,585,833 4,185,897 4,566,514 13,603,244 15,291,284 P/E 9.9 9.1


6,021 NP 153,953 159,587 201,925 198,220 598,191 658,884 ROE 13.1 14.4

Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation Non-memory

1Q11E 2Q11E 3Q11E 4Q11E 2011E 2012E 2011E 2012E

Intel Sales 13,099,975 13,364,804 14,269,501 15,073,504 55,876,273 59,613,616 P/E 10.1 9.3


128,897 NP 3,085,316 2,943,763 3,412,379 3,813,910 13,170,325 14,064,350 ROE 22.8 22.0

AMD Sales 1,804,017 1,775,444 1,912,753 2,031,469 7,499,364 7,940,158 P/E 17.2 12.4


6,671 NP 42,886 73,046 135,148 186,346 424,917 601,031 ROE 30.4 29.6

TI Sales 3,801,306 4,001,333 4,202,726 4,124,846 16,157,351 16,625,729 P/E 13.1 12.3


45,361 NP 777,463 846,536 927,154 895,139 3,482,811 3,638,300 ROE 28.2 25.8

Quarterly earnings (Wmn) Yearly earnings (Wmn) Valuation Foundry

1Q11E 2Q11E 3Q11E 4Q11E 2011E 2012E 2011E 2012E

TSMC Sales 4,032,064 4,430,643 4,822,535 4,638,855 17,930,798 19,670,154 P/E 11.2 10.8


69,539 NP 1,375,839 1,538,828 1,707,876 1,563,666 6,193,610 6,505,975 ROE 25.7 23.6

UMC Sales 1,126,337 1,197,014 1,337,245 1,342,854 5,112,270 5,795,477 P/E 7.7 N/A

Market cap (Wbn) OP 170,521 213,152 251,294 N/A 984,423 1,028,736 P/B N/A N/A

8,068 NP 175,570 200,811 247,929 N/A 938,988 997,325 ROE 9.9 11.0

Source: Datastream, Tong Yang Securities


Company Report

Sector Report

Semicon maker share performance

DRAM maker share performance NAND flash maker share performance

40

60

80

100

120

140

160

180

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11

Samsung HynixE lpida M ic ron

40

60

80

100

120

140

160

180

200

220

240


Samsung ToshibaHynix Sandisk


PC maker share performance Non-memory chip maker share performance

40

60

80

100

120

140

160


HP DellA cer A SUS

40

60

80

100

120

140

160

180

200


Samsung IntelA MD T I



Semicon weekly

Disclosures & disclaimers

This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of Tong Yang Securities Inc.

As of the publication date of this report, Tong Yang Securities Inc. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by Tong Yang Securities Inc. to any institutional investors or third parties prior to its publication. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report. Analyst certification

I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report.

Stock and sector ratings

Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low) that are based on the expected absolute return of a stock over the next 6 -12 months.

- Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more

- Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return between -20 and +20%

- Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more

Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting.

- Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting


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Documents

110315 Semicon weekly FINAL - file.myasset.comfile.myasset.com/.../2011/0315/16245808/110315_Semicon_weekly_… · As Elpida’s packaging plant in Akita cannot maintain normal capacity