Samsung Electronics

Samsung Electronics (005930 KS)

Pay attention to potential returns on invested capital

Investment points

I. Increased visibility on foundry capex to drive up valuation: For 2021, we forecast

Samsung Electronics’ (SEC) foundry capex at W9.2tr or higher, which we estimate will

translate into a roughly W40tr boost to the company’s value.

II. Lower DRAM investments to support structural earnings growth: We believe SEC’s

conservative DRAM investments will help keep DRAM prices steady, leading to

sequential earnings growth and the opening of a structural growth phase.

III. NAND market share expansion to boost earnings: We expect SEC’s NAND capex to

far exceed the market average. We believe SEC will continue to execute massive capex

and enjoy a dominant earnings share in the NAND market.

Earnings outlook

For 2Q20, we forecast SEC to post revenue of W48.1tr (-14.3% YoY, -13.1% QoQ) and

operating profit of W5.9tr (-10.4% YoY, -8.3% QoQ). By business division, we expect: 1)

operating profit of W5.2tr for semiconductor; 2) an operating loss of W0.6tr for display;

3) operating profit of W1.2tr for IT & mobile communications (IM); and 4) operating

profit of W0.3tr for consumer electronics (CE).

We estimate foundry capacity will expand 43,000 wpm in 2020 and 53,000 wpm in

2021. With a utilization rate at the 90% level, we expect such capacity expansion to lead

to revenue growth. For 2020, we forecast system LSI and foundry to see revenue of

W17.3tr (+17.3% YoY) and an OP margin of 10.4%. For 2021, we forecast the division to

deliver revenue of W21.3tr (+23.3% YoY) and an OP margin of 13.4%, as foundry

supplies to Qualcomm (QCOM US/CP: US$78.09) and Nvidia (NVDA US/CP: US$352.22)

should gather traction.

Initiate coverage with Buy rating and target price of W68,000

We initiate our coverage on SEC with a Buy rating and SOTP-based target price of

W68,000. In deriving our target price, we applied a 2020F EV/EBITDA of 5.3x for

semiconductors, 4.0x for display, 10.7x for IM, and 5.5x for CE. We believe the broader

multiple of roughly 6.0x is highly reasonable, as it represents a premium of just 10.3%

to the average 2020F EV/EBITDA of pure memory names Micron (MU US/CP: US$45.12)

and SK Hynix (000660 KS/Buy/TP: W110,000/CP: W82,700).

FY (12) 12/17 12/18 12/19 12/20F 12/21F 12/22F

Revenue (Wbn) 239,575 243,771 230,401 218,366 255,586 299,150

OP (Wbn) 53,645 58,887 27,769 30,807 45,409 53,642

OP Margin (%) 22.4 24.2 12.1 14.1 17.8 17.9

NP (Wbn) 41,345 43,891 21,505 23,903 34,545 40,186

EPS (W) 5,421 6,024 3,166 3,519 5,086 5,916

ROE (%) 21.0 19.6 8.7 9.1 12.2 13.1

P/E (x) 9.4 6.4 17.6 13.8 9.5 8.2

P/B (x) 1.8 1.1 1.5 1.2 1.1 1.0

Dividend Yield (%) 1.7 3.7 2.5 3.3 3.7 3.7

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, Mirae Asset Daewoo Research estimates

Technology

Initiation Report

May 13, 2020

(Initiate) Buy

Target Price(12M, W) 68,000

Share Price (05/13/20, W) 48,550

Expected Return 40%

OP (20F, Wbn) 30,807

Consensus OP (20F, Wbn) 32,813

EPS Growth (20F, %) 11.2

Market EPS Growth (20F, %) 28.5

P/E (20F, x) 13.8

Market P/E (20F, x) 13.0

KOSPI 1,940.42

Market Cap (Wbn) 289,833

Shares Outstanding (mn) 6,793

Free Float (%) 74.8

Foreign Ownership (%) 55.0

Beta (12M) 0.98

52-Week Low 41,200

52-Week High 62,400

(%) 1M 6M 12M

Absolute 0.5 -7.5 13.8

Relative -5.4 1.2 22.0

Mirae Asset Daewoo Co., Ltd.

[Semiconductors]

Young-gun Kim +822-3774-1448 [email protected]

Yumi Cha +822-3774-1770 [email protected]

60

80

100

120

140

160

5.19 9.19 1.20 5.20

Samsung Electronics KOSPI

Samsung Electronics

Mirae Asset Daewoo Research 2

May 13, 2020

C O N T E N T S

I. Investment points 4 Point I: Increased visibility on foundry capex to drive up valuation 4 Point II: Lower DRAM investments � Structural earnings growth 14 Point III: NAND market share expansion to boost earnings 19

II. Outlook and earnings forecasts by division 25 Key assumptions for IT product demand forecasts 25 [Semiconductors] NAND outlook 43 [Semiconductors] DRAM outlook 57 [Semiconductors] System LSI and foundry outlook 72 Display outlook 77 IM outlook 79

III. Valuation 80

IV. Shareholder returns 83

Samsung Electronics


May 13, 2020

Table 1. SEC: Quarterly and annual earnings (Wbn, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

US$/W 1,125 1,167 1,194 1,176 1,193 1,213 1,190 1,160 1,160 1,099 1,150

Revenue 52,386 56,127 62,003 59,885 55,330 48,098 55,955 58,982 230,401 218,366 255,586

YoY -13.5 -4.0 -5.3 1.0 5.6 -14.3 -9.8 -1.5 -5.5 -5.2 17.0

QoQ -11.6 7.1 10.5 -3.4 -7.6 -13.1 16.3 5.4

Semiconductors 14,472 16,088 17,587 16,792 17,640 18,556 19,422 20,742 64,939 76,361 98,026

Memory 11,469 12,300 13,263 13,184 13,140 14,591 15,103 16,251 50,216 59,085 76,731

System LSI and foundry 3,004 3,788 4,324 3,608 4,500 3,965 4,319 4,491 14,723 17,276 21,295

Display 6,124 7,622 9,262 8,046 6,590 5,902 7,402 7,578 31,054 27,472 29,765

Large-sized LCD 1,530 1,670 1,500 1,100 1,100 1,000 1,014 784 5,800 3,897 1,660

Small/mid-sized LCD 4,594 5,952 7,762 6,946 5,490 4,903 6,388 6,794 25,254 23,575 28,105

IM 27,200 25,860 29,254 24,951 26,000 19,424 24,151 25,170 107,266 94,745 100,617

MC 25,915 24,272 28,096 24,049 24,950 18,532 23,303 24,339 102,332 91,123 97,332

IT 1,285 1,588 1,159 902 1,050 893 848 831 4,934 3,621 3,285

CE 10,041 11,068 10,935 12,713 10,300 8,741 9,228 9,265 44,756 37,534 43,463

VD 5,836 5,998 6,257 8,088 5,650 4,567 5,179 5,338 26,178 20,734 27,011

Harman 2,195 2,518 2,631 2,733 2,100 2,310 2,541 2,795 10,077 9,746 10,843

Gross profit 19,639 20,182 22,010 21,330 20,520 19,239 22,942 24,773 83,161 87,474 115,014

YoY -31.5 -25.8 -27.3 -15.5 4.5 -4.7 4.2 16.1 -25.3 5.2 31.5

QoQ -22.2 2.8 9.1 -3.1 -3.8 -6.2 19.2 8.0

Gross margin 37.5 36.0 35.5 35.6 37.1 40.0 41.0 42.0 36.1 40.1 45.0

Operating profit 6,233 6,597 7,778 7,160 6,450 5,914 8,966 9,478 27,769 30,807 45,409

YoY -60.2 -55.6 -55.7 -33.7 3.5 -10.4 15.3 32.4 -52.8 10.9 47.4

QoQ -42.3 5.8 17.9 -7.9 -9.9 -8.3 51.6 5.7

Semiconductors 4,122 3,398 3,049 3,447 3,990 5,194 5,670 6,161 14,016 21,015 32,655

Memory 3,836 3,158 2,625 3,166 3,319 4,790 5,169 5,656 12,785 18,935 29,810

System LSI and foundry 287 240 424 281 389 403 501 505 1,232 1,798 2,845

Display -561 748 1,174 220 -290 -646 886 1,054 1,581 1,005 3,108

Large-sized LCD -375 -158 -316 -518 -356 -311 -142 -166 -1,366 -975 -823

Small/mid-sized LCD -186 906 1,490 738 66 -335 1,028 1,220 2,948 1,979 3,930

IM 2,274 1,561 2,917 2,520 2,650 1,174 2,106 2,069 9,273 8,000 9,585

MC 2,030 1,228 2,731 2,385 2,440 1,103 2,039 2,003 8,374 7,584 9,292

IT 244 334 185 135 210 71 68 66 898 416 292

CE 541 712 548 805 450 293 463 300 2,606 1,506 2,449

VD 428 433 394 652 362 85 341 182 1,907 970 1,955

Harman 8 92 99 123 -190 69 76 84 322 39 325

OP margin 11.9 11.8 12.5 12.0 11.7 12.3 16.0 16.1 12.1 14.1 17.8

Semiconductors 28.5 21.1 17.3 20.5 22.6 28.0 29.2 29.7 21.6 27.5 33.3

Memory 33.4 25.7 19.8 24.0 25.3 32.8 34.2 34.8 25.5 32.0 38.8

System LSI and foundry 9.5 6.3 9.8 7.8 8.6 10.2 11.6 11.2 8.4 10.4 13.4

Display -9.2 9.8 12.7 2.7 -4.4 -10.9 12.0 13.9 5.1 3.7 10.4

Large-sized LCD -24.5 -9.4 -21.1 -47.1 -32.3 -31.1 -14.0 -21.2 -23.6 -25.0 -49.6

Small/mid-sized LCD -4.1 15.2 19.2 10.6 1.2 -6.8 16.1 18.0 11.7 8.4 14.0

IM 8.4 6.0 10.0 10.1 10.2 6.0 8.7 8.2 8.6 8.4 9.5

CE 5.4 6.4 5.0 6.3 4.4 3.4 5.0 3.2 5.8 4.0 5.6

Harman 0.4 3.7 3.8 4.5 -9.0 3.0 3.0 3.0 3.2 0.4 3.0

Pretax profit 6,913 7,179 8,621 7,719 7,157 6,589 9,668 10,224 30,432 33,746 48,836

YoY -57.3 -53.4 -52.0 -33.5 3.5 -8.2 12.2 32.4 -50.2 10.5 44.2

QoQ -40.4 3.9 20.1 -10.5 -7.3 -7.9 46.7 5.7

Net profit 5,107 5,065 6,105 5,228 5,064 4,611 6,752 7,114 21,505 23,903 34,545

YoY -56.0 -53.9 -52.9 -37.2 -0.9 -8.9 10.6 36.1 -51.0 9.5 44.0

QoQ -38.7 -0.8 20.5 -14.4 -3.1 -8.9 46.4 5.4

Net margin 9.7 9.0 9.8 8.7 9.2 9.6 12.1 12.1 9.3 10.8 13.3

Source: Company data, Mirae Asset Daewoo Research

Samsung Electronics


May 13, 2020

I. Investment points

Point I: Increased visibility on foundry capex to drive up valuation

SEC’s 2021 foundry capex to reach at least W9.2tr (+77% YoY)

For 2021, we forecast SEC’s foundry capex at W9.2tr or higher, which we estimate will

translate into a roughly W40tr boost to the company’s value (based on TSMC’s [2330 TT/CP:

NT$291.50] average ROIC of 23.5% and P/E of 18x). We believe that capital recovery seems

very likely in the 7nm-or-below segment, in which the company enjoys a duopoly alongside

TSMC.

Technological and capital requirements form high barriers to entry

Amid massive capital investments by leading foundries and logic chipmakers, the threat of

new entrants has been easing significantly. During the most recent five years, pure memory

players invested an average of US$7.9bn annually, while foundry/logic firms executed

average capex of US$11.6bn. SMIC (0981 HK/CP: HK$19.30), the leading Chinese foundry,

spent a meager US$2bn annually.

Moreover, in 7nm-or-below processes, SEC and TSMC have held a duopoly since

GlobalFoundries ceased all 7nm development in 2018. For reference, there are five

foundries/integrated device manufacturers (IDMs) in the 20nm segment and around 10 in

40nm. We note that Intel (INTC US/CP: US$60.29) is scheduled to begin 10nm production

shortly, and could potentially pursue a node shrink to 7nm.

Another barrier to entry is the limited availability of lithography machines, which are

essential to fabrication at 7nm or below (excluding TSMC’s N7 process). ASML (ASML US/CP:

US$306.25) usually ships only around 10 EUV lithography machines quarterly, and in 2Q20,

only two units were shipped amid the COVID-19 outbreak. Demand for EUV lithography

systems is rising due to their adoption in memory chip production, and players that fail to

secure the machines will be unable to migrate to the 7nm process.

Figure 1. Annual capex trends and forecasts for global semiconductor companies

Source: Thomson Reuters, Mirae Asset Daewoo Research

0

5

10

15

20

2006 2008 2010 2012 2014 2016 2018 2020F

(US$bn)

Intel TSMC SK Hynix

Micron SMIC

Foundry/logic 5Yavg. capex:US$11.6bn

Pure memory 5Y avg. capex: US$7.9bn

Samsung Electronics


May 13, 2020

Figure 2. GlobalFoundries ceased 7nm development in August 2018

Source: GlobalFoundries, Mirae Asset Daewoo Research

Figure 3. Foundry players by process node

Source: WikiChip, Mirae Asset Daewoo Research

Figure 4. ASML: Lithography equipment shipments by technology

Source: ASML, Mirae Asset Daewoo Research

28 25 18 13 13 9 6 5 3 2(3) 2(3)

Silterra

X-FAB

DB하이텍

ADI ADI

Atmei Atmei

Rohm Rohm

Sanyo Sanyo

Mitsubishi Mitsubishi

ON Semiconductor ON Semiconductor

Hitachi Hitachi

Cypress Cypress Cypress

Sony Sony Sony

Infenion Infenion Infenion

Sharp Sharp Sharp

Freescale Freescale Freescale

Renesas Renesas Renesas Renesas Renesas

Toshiba Toshiba Toshiba Toshiba Toshiba

Fujitsu Fujitsu Fujitsu Fujitsu Fujitsu

Texas Instrument Texas Instrument Texas Instrument Texas Instrument Texas Instrument

Panasonic Panasonic Panasonic Panasonic Panasonic Panasonic

STMicro STMicro STMicro STMicro STMicro STMicro

UMC UMC UMC UMC UMC UMC

IBM IBM IBM IBM IBM IBM IBM

SMIC SMIC SMIC SMIC SMIC SMIC SMIC SMIC

GF(AMD) GF(AMD) GF(AMD) GlobalFoundries GlobalFoundries GlobalFoundries GlobalFoundries GlobalFoundries

Intel Intel Intel Intel Intel Intel Intel Intel Intel (Intel) (Intel)

Samsung Samsung Samsung Samsung Samsung Samsung Samsung Samsung Samsung Samsung Samsung

TSMC TSMC TSMC TSMC TSMC TSMC TSMC TSMC TSMC TSMC TSMC

180nm 130nm 90nm 65nm 45nm/40nm 32nm/28nm 22nm/20nm 16nm/14nm 10nm 7nm 5nm

4 7 7 8 2 0

20

40

60

80

4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 4Q19

(Units)

I-line KrF ArF dry ArF immersion EUV

Samsung Electronics


May 13, 2020

Demand for SEC’s 7nm-or-below products to expand

� Qualcomm: Mass production of 5nm modem chips to start in 2021

SEC’s foundry unit has won orders for Qualcomm’s Snapdragon X60, the world's first 5nm

5G baseband modem, with mass production scheduled to begin in 2021. We note that,

beginning with the Snapdragon 865 5G platform, Qualcomm has separated its modem and

application processor (AP) orders. While SEC will provide X60 modem chips built on its 5nm

low-power early (LPE) process, TSMC will supply APs built on its N5 process.

Order volumes should be dictated by 5G smartphone demand. Qualcomm is looking for

450mn smartphone sales in 2021 and 750mn units in 2022, and Strategy Analytics forecasts

Qualcomm’s 5G modem shipments at 150mn units. The exact die size of the X60 is not yet

known, but based on the Snapdragon 845’s relatively small die size (91mm2), the production

of 150mn chips annually will require capacity of 30,000 wpm (12”). If mass production

progresses smoothly in 2021, Qualcomm could decide to use SEC’s 4nm LPE process to

manufacture its 5G modems in 2022, in which case additional capex will be needed in 2021.

Figure 5. Snapdragon X60 modem chip to be produced on SEC’s 5nm process (2021)

Source: Qualcomm, Mirae Asset Daewoo Research

Figure 6. 5G smartphone shipment estimates

Source: Gartner, Mirae Asset Daewoo Research

70

190

400

600

950

0

20

40

60

80

0

250

500

750

1,000

2019 2020F 2021F 2022F 2023F

(%)(mn units)

5G smartphone shipments

5G smartphone penetration

Qualcommest.:450mn

Qualcommest.:750mn

Samsung Electronics


May 13, 2020

Figure 7. Qualcomm: 5G baseband shipment forecasts

Source: Strategy Analytics, Mirae Asset Daewoo Research

Figure 8. Snapdragon 845 die

Source: TechInsights, Mirae Asset Daewoo Research

Figure 9. Snapdragon 845 production: 540 dies per wafer (12”)

Source: Company materials, Mirae Asset Daewoo Research

9.5mm

632

113

180

248

16

27

63

110

0

100

200

300

400

2019 2020F 2021F 2022F 2023F

(mn units)

SEC

Qualcomm

140

243

Samsung Electronics


May 13, 2020

� Nvidia: Ampere architecture rollout in 2020

One of the key events for SEC’s foundry business this year will be the start of mass

production for Nvidia’s next-generation graphics processing units (GPUs) based on the new

Ampere microarchitecture. After lengthy negotiations, SEC is believed to have taken mass

production orders for the new GPUs, which Nvidia is set to showcase at the GPU Technology

Conference (GTC) scheduled for May 14th. While Ampere has been rumored to be designed

for the 7nm process, actual production is expected to take place on the 8nm node.

Nvidia’s GPU dies are larger than those of SEC’s existing chips. For instance, the die size of

Nvidia’s TU106 GPU (Turing) is 445mm2, around five times larger than that of the

Snapdragon 845 (91mm2). The upcoming Ampere chips are believed to feature a larger die

size than existing GPUs, given their sharply increased transistor count despite the use of the

7nm process.

A larger die size generally implies higher foundry capacity requirements. Accordingly, SEC

will need to add capacity to handle mass production. Considering that larger chips suffer

from greater wafer yield losses than smaller chips, successful production of Nvidia’s new

GPU will help SEC establish a strong track record in large-sized chip mass production.

We forecast SEC’s foundry revenue from Nvidia at W0.8tr in 2020 and W2.5tr in 2021.

Table 2. Nvidia GPU specifications

Name GK180 GM200 GP100 GV100 TU106 GA100 GA103 GA104

Architecture Kepler Maxwell Pascal Volta Turing Ampere Ampere Ampere

Transistor count 7bn 8bn 15bn 21bn 11bn 30bn+ Approx. 22bn Approx. 16bn

Process 28nm 28nm 16nm FinFET+ 12nm FFN 12nm FFN 7nm 7nm 7nm

Die size 551mm2 601mm2 610mm2 815mm2 445mm2 Huge Big Moderate

Launch date 3Q20 3Q20 2021

Source: Nvidia, Mirae Asset Daewoo Research

Figure 10. Nvidia GPU (Turing) production: 62 dies per wafer (12”)

Source: Company materials, Mirae Asset Daewoo Research

Samsung Electronics


May 13, 2020

� AMD vs. Intel rivalry in 2022 and beyond

The CPU rivalry between Intel and AMD (AMD US/CP: US$55.47) is intensifying. In recent

years, AMD has gained ground with its 7nm technology, while Intel has been held back by

delays to the launch of its 10mn process and poor yields. The primary foundries with which

AMD does business are TSMC (7nm) and GlobalFoundries (14nm+). With Intel already

planning to migrate to 7nm due to poor 10nm yields, AMD will likely have to adopt 5nm to

maintain competitiveness. According to recent press releases, AMD is aiming to kick off 5nm

mass production in 2021, with TSMC handling manufacturing. Meanwhile, the company is

likely to gradually replace its 14nm CPUs with 7nm CPUs, but this migration should prove

complicated given GlobalFoundries’ abandonment of 7nm development. As such, in 2021,

we believe that AMD will decide between: 1) relying solely on TSMC for chip manufacturing;

or 2) choosing to partner with SEC. We believe that both options will be beneficial to SEC.

Indeed, even though the first scenario will not directly benefit the Korean giant, it should be

positive to overall supply/demand dynamics given the likely increase in capacity utilization

on 7nm-or-below processes.

Figure 11. Intel’s manufacturing road map: 7nm CPUs in 2021

Source: Intel, Mirae Asset Daewoo Research

Figure 12. AMD’s CPU and GPU manufacturing road map: 7nm already in place

Source: AMD, Mirae Asset Daewoo Research

Samsung Electronics


May 13, 2020

All in all, we think there are three major factors that will affect SEC’s foundry demand in

2021 and beyond:

1) 5nm production for Qualcomm’s 5G modems and potential orders for 4nm fabrication

2) Successful mass production of Nvidia’s new Ampere GPU

3) Whether the company can displace GlobalFoundries to become one of AMD’s two primary

7nm-or-below manufacturing foundry partners

For 45nm+ processes, leading-edge capacity utilization is already high at major foundries

(including SEC); this means that ramp-ups will be required to meet additional demand.

Furthermore, Qualcomm, Nvidia, and AMD—all of which are growing increasingly reliant on

SEC and/or TSMC—are forecast to report above-market revenue growth in the coming

years. The three companies are projected to report combined growth of 19.0% in 2020 and

20.6% in 2021, while the other PHLX Semiconductor Sector Index constituents are

anticipated to display growth of 6.3% and 10.2%, respectively.

Figure 13. Global foundry utilization: Leading-edge utilization for 45nm+ is near full capacity


Figure 14. PHLX Semiconductor Sector Index constituents: Revenue and growth forecasts


101.0 95.8

91.5 91.0 90.2

0

30

60

90

120

0

6,000

12,000

18,000

24,000

1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20F 3Q20F

(%)('000 wafers)

Capacity (L) Shipments (L)

Foundry utilization (R) Leading-edge utilization (R)

-30

0

30

60

90

0

100

200

300

400

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

(%)(US$bn)

AMD (L) Nvidia (L) Qualcomm (L)

Other PHLX (L) Qualcomm YoY (R) Nvidia YoY (R)

AMD YoY (R) Other PHLX YoY (R)

Samsung Electronics


May 13, 2020

Given the strong demand prospects, we anticipate that SEC’s foundry business, which is

operating at near full capacity, will need additional capacity of 40,000 wpm in 2020. Fabs

that are well positioned to add capacity include the S3, S4 (Line 11 for CMOS image sensors

[CIS]), and S5 (EUV line).

In 2021, we project that SEC will need additional capacity of 50,000 wpm, which translates to

capex of W9.2tr (+76.3% YoY). Among the firm’s facilities, we think the new P2 fab in

Pyeongtaek is best positioned to add capacity. While others (P3 in Pyeongtaek and S2 in the

US) could also be considered for expansion, we believe P2 will be first in line given its

existing back-end infrastructure, etc.

Table 3. SEC: Foundry wafer capacity trends and forecasts (‘000 wpm)

Group Fab Site Wafer size Products 2016 2017 2018 2019 2020F 2021F

Legacy fab

Line 4 Giheung 150mm (6") LED 55 55 55 55 55 55

Line 5 Giheung 200mm (8") CIS, smart card IC 50 50 50 50 50 50

Line 6 Giheung 200mm (8") PMIC, DDI, CIS RF/IoT, FPS

80 80 80 80 80 80

Line 7 Giheung 200mm (8") 70 70 70 70 70 70

S1

Line 8 Giheung 200mm (8")

Logic (AP, etc.), CIS

70 70 70 70 70 70

Line 14 Giheung 300mm (12") 45 45 45 45 45 45

Line S Giheung 300mm (12") 40 40 40 40 40 40

S2 SAS Austin 300mm (12") Logic (AP, etc.) 50 50 50 50 50 50

S3 Quarter of Line

17 Hwaseong 300mm (12") 7-10nm, EUV 0 3 18 20 30 40

S4 Line 11 Hwaseong 300mm (12") CIS 0 2 11 15 23 25

V1 EUV fab Hwaseong 300mm (12") 7nm or below (planned), EUV 0 0 0 0 23 30

New fab - - 300mm (12") 7nm or below (planned), EUV 0 0 0 0 1 19

Total wafer capacity (12" equiv.) 269 274 302 314 334 379

Source: Mirae Asset Daewoo Research estimates

Figure 15. SEC: Foundry capacity trend Figure 16. SEC: Foundry capex trend

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

6.7

5.2

9.2

-100

0

100

200

300

0

3

5

8

10

2005 2007 2009 2011 2013 2015 2017 2019 2021F

(%)(Wtr)SEC foundry capex (L)

YoY (R)

0

100

200

300

400

2008 2010 2012 2014 2016 2018 2020F

Total capacity

Total capacity (12" equiv.)

('000 wafers)

Samsung Electronics


May 13, 2020

High visibility on ROIC for leading-edge foundry investments

We believe visibility on the ROIC outlook for SEC’s foundry investments is improving amid: 1)

rising barriers to entry; and 2) signs of structural demand growth.

Our analysis of global pure semiconductor plays shows that memory manufacturers such as

Micron and SK Hynix exhibit high ROIC volatility due to the cyclical nature of the memory

industry and the high sensitivity of supply/demand dynamics to capex. In contrast,

semiconductor manufacturers such as Intel and TSMC have generally managed to keep

their ROIC steady at around 25%, as: 1) non-memory facility investments are unlikely to

cause oversupply; and 2) the oligopolistic market structure ensures a high likelihood of

capital recovery.

Going forward, SEC is likely to concentrate its capex in 7nm-or-below processes, where new

competition is unlikely to emerge. As mentioned earlier in this report, we project that SEC

will execute foundry capex of W9.2tr in 2021 to meet growing demand. We believe that once

a consensus on the scale of capex is formed, the firm’s foundry investments will be priced

into shares. Assuming SEC’s foundry ROIC matches TSMC’s level (23.5%), we believe that a

valuation based on TSMC’s multiple (18x P/E) will be warranted. This would add roughly

W40tr (18x W2.2tr) to SEC’s market cap.

Figure 17. ROIC by semiconductor manufacturer


Figure 18. TSMC: 12-month-forward P/E


18.0

0

6

12

18

24

1/15 10/15 7/16 4/17 1/18 10/18 7/19 4/20

(x)

Avg. since 2019:18.0x

-50

-25

0

25

50

1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

(%)

SEC SK Hynix TSMC Micron

SMIC UMC Intel

TSMC ROIC avg.: 23.5x

Samsung Electronics


May 13, 2020

We believe the case of TSMC illustrates how the market reflects capex into share price. The

foundry player’s 12-month-forward P/E—which gradually rose from an average of 13x in

2016 to 15x in 2017 and 16x in 2018—displayed its sharpest rise ever in 2019. Indeed, while

2020-21 earnings forecasts were left virtually unchanged last year, the stock’s valuation

increased by 20%.

We believe the re-rating was driven by capex outlook upgrades rather than by earnings

forecasts. While earnings projections stayed flat, market expectations for TSMC’s 2020

capex were revised upward by 30% in the second half of 2019. As a consensus formed that

the firm’s investments would translate safely into earnings, upward revisions to capex

projections were accompanied by market value expansion. Like TSMC, we expect SEC to see

a valuation re-rating driven by a promising foundry investment outlook.

Figure 19. TSMC: Quarterly capex Figure 20. TSMC: Quarterly OP

Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research

Figure 21. TSMC: 12-month-forward P/E Figure 22. TSMC: OP and capex consensus throughout 2019

Source: Thomson Reuters, Mirae Asset Daewoo Research Source: Thomson Reuters, Mirae Asset Daewoo Research

0.0

1.5

3.0

4.5

6.0

1Q15 1Q16 1Q17 1Q18 1Q19 1Q20F 1Q21F

(US$bn)

0.0

1.5

3.0

4.5

6.0

1Q15 1Q16 1Q17 1Q18 1Q19 1Q20F 1Q21F

(US$bn)

9

12

15

18

21

1/19 3/19 5/19 7/19 9/19 11/19

(US$bn)

2020F OP

2021F OP

2020F capex

16.3

20.8

12.9

14.6

15.9

18.0

10

13

16

19

22

1/16 7/16 1/17 7/17 1/18 7/18 1/19 7/19

(x)

Samsung Electronics


May 13, 2020

Point II: Lower DRAM investments �� Structural earnings growth

We expect SEC to remain conservative on DRAM investments, in light of the following

factors:

1) The firm needs to channel resources to its foundry business. Against this backdrop, we

believe that SEC is likely to remain conservative on DRAM investments to keep

semiconductor capex at an appropriate level relative to EBITDA.

2) Conservative DRAM investments will help stabilize DRAM prices. DRAM industry growth is

driven by price increases rather than by bit growth. When the demand outlook is subdued

(as it is currently), price stability, not shipment growth, holds the key to maximizing market

share gains and margins.

3) Even if SEC makes aggressive capital investments to increase its market share, well-

financed rivals are likely to follow suit. We believe aggressive DRAM capex is more likely to

cause DRAM price declines than to bring about the desired result.

All in all, SEC’s conservative DRAM investments should help keep DRAM prices steady,

leading to sequential earnings growth and the opening of a structural growth phase. For

2020, we estimate that the firm will execute W7.2tr (-11.1% YoY) in DRAM capex (or wafer

capacity additions of 40,000 wpm), and that DRAM ASP will continuously increase, driving

quarterly earnings growth.

Figure 23. SEC: DRAM capex trend Figure 24. SEC: DRAM wafer capacity trends


Figure 25. SEC: DRAM ASP trend Figure 26. SEC: DRAM revenue and OP forecasts


13.7

8.1 7.2

7.8

-100

0

100

200

300

0

4

8

12

16

2005 2008 2011 2014 2017 2020F

(%)(Wtr) SEC DRAM capex (L)

YoY (R)

-30

-15

0

15

30

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20P 1Q21F

(%)

32.2

53.0

0

20

40

60

80

0

4,000

8,000

12,000

16,000

1Q16 1Q17 1Q18 1Q19 1Q20P 1Q21F

(%)(Wbn)

Revenue (L) OP (L) OP margin (R)

40

60

15 21

-15

14

39 30

-19

30

-100

-50

0

50

100

2014 2015 2016 2017 2018 2019 2020F 2021F

Increase

Decrease

Avg. capacity chg.

('000 wpm)

Samsung Electronics


May 13, 2020

Rationale behind our conservative DRAM capex outlook: 1) SEC needs to make

room for foundry capex

As we highlighted in our first investment point, SEC needs to significantly increase its

foundry capex in 2021. However, the foundry business does not yet generate sufficient

EBITDA to fund the required capex. We estimate foundry capex executed in 2017 and 2019

was equivalent to more than 150% of the EBITDA generated in each respective year. In our

view, SEC needs to secure sufficient funds for investment within the semiconductor

business, while also striking a balance between EBITDA and capex. We believe the

semiconductor division’s overall capex has never once exceeded 70% of EBITDA since 2014.

We think conservative spending on DRAM is a sensible move from this perspective. More

disciplined DRAM capex would allow SEC to generate stable profits (rather than expand

market share) and dedicate more resources to the foundry business. After expanding

capacity through aggressive capex in the past, TSMC has now entered a virtuous cycle, in

which the company is making stable profits from its facilities following the end of

depreciation, which is, in turn, leaving more room for investments in advanced processes.

Similarly, we believe the DRAM business can serve as a cash cow for SEC. In 2020-21, we

forecast DRAM capex to be W15.0tr. We expect DRAM EBITDA to be around W52.2tr. Even

after taking into account foundry capex of W14.6tr, this should still be enough to keep the

semiconductor division’s overall EBITDA/capex ratio at 50.0%, in line with the level seen

during the 2018 memory up cycle.

Figure 27. SEC: Foundry EBITDA and capex Figure 28. SEC: Semiconductor EBITDA and capex


Figure 29. SEC: DRAM EBITDA and capex Figure 30. TSMC: EBITDA and capex

Source: Company data, Mirae Asset Daewoo Research Source: TSMC, Thomson Reuters, Mirae Asset Daewoo Research

161.7

93.8

56.3

150.8

61.4

132.5

80.1

99.4

0

50

100

150

200

0

2,500

5,000

7,500

10,000

2014 2015 2016 2017 2018 2019 2020F 2021F

(%)(Wbn) Foundry EBITDAFoundry capexCapex/EBITDA

68.7

54.5

47.3 55.0

38.2

68.3

50.3 50.0

0

25

50

75

100

0

20,000

40,000

60,000

80,000

2014 2015 2016 2017 2018 2019 2020F 2021F

(%)(Wbn) Total semiconductor EBITDA

Total semiconductor capex

Capex/EBITDA

39.2 34.5

24.3

33.8

40.0

31.3

26.6

0

15

30

45

60

0

12,000

24,000

36,000

48,000

2014 2015 2016 2017 2018 2019 2020F 2021F

(%)(Wbn) DRAM EBITDADRAM capexCapex/EBITDA

75.7

85.7

78.8 79.3

58.8

48.0

55.2 51.8

47.6

71.1

60.0

0

25

50

75

100

0

8

16

24

32

10 11 12 13 14 15 16 17 18 19 20F

(%)(US$bn) TSMC capex

TSMC EBITDA

Capex/EBITDA

Samsung Electronics


May 13, 2020

Rationale behind our conservative DRAM capex outlook: 2) SEC needs to keep

DRAM prices stable

DRAM revenue and profit growth move in line with price changes. It is safe to say that

during the past decade, DRAM revenue and profits have never increased during periods of

price decline. Unlike the NAND market, whether DRAM revenue and profits grow is

determined by whether ASP is rising or falling (not by the price elasticity of shipments), with

bit growth largely fixed.

That said, aggressive pricing strategies do work during down cycles. In 2016 and 2019, SEC

was able to either expand or maintain its market share (45.3% � 48.0% in 2016; 43.9% �

43.7% in 2019) by employing an aggressive bit growth strategy. During these years,

operating profit across the DRAM industry declined 30.7% and 66.6%, respectively, but SEC’s

share of overall profits increased from 58.3% to 68.8% and from 47.9% to 52.0%,

respectively. In other words, the company’s strategy of overcoming market downturns

through preemptive inventory depletion has worked well.

However, the DRAM cycle is set to undergo a recovery from 2020. In this case, maintaining

stable prices is likely to take priority over aggressive spending or shipments. Due to SEC’s

conservative capex stance, we expect quarterly ASP to move up in 2020. The uptrend in ASP

should continue through 2021, driving strong profit growth. We forecast SEC’s DRAM

operating profit to grow 12.1% to W13.5tr in 2020 and 55.1% to W21.0tr in 2021.

Figure 31. Global DRAM ASP, bit, revenue, and OP growth

Source: DRAMeXchange, Mirae Asset Daewoo Research estimates

Figure 32. SEC: DRAM ASP, bit, revenue, and OP growth


-49.9 -29.8

2.3

-0.9 -20.0 -27.0

47.1

14.8

-46.7

50.4

28.6 26.6 34.1 22.8 23.7 19.9 21.0 19.0

-80

0

80

160

240

2011 2012 2013 2014 2015 2016 2017 2018 2019

(%) ASP chg. Bit growth Sales growth OP growth

2011-12Industry-wide losses

-45.8 -29.3

-6.3 -5.0 -17.5

-29.7

48.2

19.5

-49.2

-9.1

3.9

49.8

27.1 25.8

54.1

30.1 35.8

14.7 12.3 23.1 16.7 21.1

-80

0

80

160

240

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

(%)

ASP chg. Bit growth Sales growth OP growth

Samsung Electronics


May 13, 2020

Figure 33. Global DRAM: M/S by revenue


Figure 34. Global DRAM: M/S by OP


Figure 35. Global DRAM: OP trends

Note: OP growth figures for 2011 and 2012 represent chg. in the sum of profits, excluding operating losses.


72.1 59.8

99.7 100.0

50.9 47.0 58.3

68.8

51.4 47.9 52.0

27.9

24.1 34.5

30.5

28.5

25.2

28.9 29.1 25.1

7.5 12.8

18.6 10.6

3.6

18.1 20.9 21.5

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Nanya

Powerchip

ProMOS

Elpida

Micron

SK Hynix

SEC

72.1

59.8

99.7 100.0

50.9 47.0

58.3

68.8

51.4 47.9

52.0

0

25

50

75

100

-25

0

25

50

75

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

(%)(Wtr)

Nanya PowerchipProMOS ElpidaMicron SK HynixSEC SEC OP share (R)

-30.7%

-66.6%

-71.9%-41.9%

33.3 36.9 42.3 40.9 36.7 39.6 45.3 48.0 45.8 43.9 43.7

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Other

Nanya

Powerchip

ProMOS

Elpida

Micron

SK Hynix

SEC

Samsung Electronics


May 13, 2020

Rationale behind our conservative DRAM capex outlook: 3) Competitors to follow

suit

If SEC were to execute capex exceeding demand in order to expand its market share, its

competitors would most likely follow suit. SK Hynix has room for an additional 20,000 wpm

at its C2E fab in Wuxi, China, and is set to complete construction of its M16 fab (designed

capacity of around 100,000 wpm). Micron is also likely to complete expansion of its Taichung

fab in Taiwan and its Hiroshima fab in Japan by the end of the year. As such, DRAM makers

are well-positioned to increase capacity swiftly if necessary. And considering that they differ

very little in terms of cost competitiveness, any competition to expand capacity would likely

only lead to price declines, rather than market share gains. As such, we expect SEC to focus

its investments on bolstering its cost competitiveness.

Until early this year, many expected SEC to pursue aggressive DRAM capex as part of its

efforts to widen its lead over rivals. During past periods of rapid growth, all DRAM makers

vied for market share gains via capacity additions. But with the market now stable and

controlled by a handful of players, aggressive capex would be a recipe for losses rather than

market share gains. As such, we believe mega-fabs represent the best strategy, and one

that is already adopted by all DRAM makers. By maintaining sufficient room in such facilities

for potential lines and clean rooms, companies can expand capacity flexibly depending on

market conditions, thus preventing unnecessary capex spending based on excessive

projections.

Figure 36. SEC: DRAM breakdown by tech node (%) Figure 37. SK Hynix: DRAM breakdown by tech node (%)

Source: DRAMeXchange, Mirae Asset Daewoo Research Source: DRAMeXchange, Mirae Asset Daewoo Research

Figure 38. Micron: DRAM breakdown by tech node (%) Figure 39. Avg. tech node factors of major DRAM makers

Source: DRAMeXchange, Mirae Asset Daewoo Research Source: DRAMeXchange, Mirae Asset Daewoo Research

15

20

25

30

35

0

25

50

75

100

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20

Average tech node factor (R)1Znm

1Ynm

1Xnm

20nm

23nm

25nm

35nm

15

20

25

30

35

0

25

50

75

100

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20

Average tech node factor (R) 1Znm

1Ynm

1Xnm

21nm

25m

29nm

38nm

15

20

25

30

35

0

25

50

75

100

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20

Average tech node factor (R)

1Znm

1Ynm

1Xnm

20nm

25m

30nm

15

20

25

30

35

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20

(nm)

SEC

SK Hynix

Micron

Samsung Electronics


May 13, 2020

Point III: NAND market share expansion to boost earnings

We expect SEC’s NAND capex to far exceed the market average for several reasons.

First, competitors’ poor earnings leave them with minimal financial room for investments. In

1Q20, most NAND suppliers, with the exception of SEC, recorded losses. In 2016, a pickup in

NAND prices improved margins across the industry, triggering massive capacity expansions.

However, the resulting oversupply drove down SEC’s NAND margins to near breakeven in

2019. We do not expect this situation to recur.

Second, massive NAND capex can stimulate demand. Unlike in the DRAM market, where

growth has been driven by steady price increases, a major driver of NAND market growth

has been the demand stimulated by persistent price declines (given NAND’s nature as a

substitute good). In 2017, however, NAND prices climbed sharply on supply shortages,

slowing the growth of NAND content in client solid-state drives (SSDs). In 2018, prices

started to fall again, leading to higher sales volume and content. With the price elasticity of

NAND confirmed, we expect SEC to pursue a bit growth-oriented strategy for client SSDs. As

such, we expect SEC to continue to execute massive capex and enjoy a dominant earnings

share in the NAND market. In 2020, we expect SEC’s NAND capex to come in at W8.8tr,

equivalent to 90,000 wpm.

Figure 40. SEC: NAND capex forecasts Figure 41. SEC: NAND wafer capacity forecasts


Figure 42. SEC: NAND ASP chg. Figure 43. SEC: NAND revenue and OP forecasts

Source: Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

7.0 7.8

8.8 9.7

-100

0

100

200

300

0

4

8

12

16

2005 2008 2011 2014 2017 2020F

(%)(Wtr)

SEC NAND capex (L)

YoY (R)

-30

-15

0

15

30

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20P 1Q21F

(%)

20.5 22.4

-20

0

20

40

60

-4,000

0

4,000

8,000

12,000

1Q16 1Q17 1Q18 1Q19 1Q20P 1Q21F

(%)(Wbn)Revenue (L)

OP (L)

OP margin (R)

90 100

18

40 41 47

11

-30

23

80

-120

-60

0

60

120

2014 2015 2016 2017 2018 2019 2020F 2021F

Increase

Decrease

Avg. capacity chg.

('000 wpm)

Samsung Electronics


May 13, 2020

Rationale behind our aggressive NAND capex outlook: 1) Revisit previous cycle

In 1Q20, margins dipped below breakeven for all NAND makers except SEC, which recorded

an OP margin at the low-20% level. The firm accounted for more than 90% of overall NAND

market profits in the quarter. As SEC will likely strive to maintain its current profit share and

margin levels, we believe it will continue to execute capex in line with demand growth.

We believe NAND makers’ 2016-18 capex strategy is worth revisiting. NAND ASP/GB, which

had declined continuously from 1Q10, picked up in 2H16 on wafer capacity shortages

arising from the conversion to 3D NAND. At that time, both first-tier (including SEC) and

second-tier NAND suppliers enjoyed high margins. Amid high margins and optimistic

demand forecasts, NAND makers executed aggressive capex.

Although SEC’s NAND capex spending in 2017 was the largest in the industry, its 2018 capex

accounted for only 30% of overall market spending. Thus, the firm displayed below-industry

NAND wafer capacity growth and bit growth in 2017-18. In 2018, prices plunged due to

oversupply stemming from aggressive shipments by chipmakers, driving down NAND

makers’ profits to near or below break-even levels. Of note, the easing of the oversupply

seen in 2019 was mainly driven not by demand growth, but by reduced supply caused by

Toshiba Memory’s power outage.

As the NAND market is still not fully concentrated, we think SEC is highly likely to

aggressively ramp up its NAND capex going forward, setting the stage for another game of

chicken among NAND makers. We see NAND prices stabilizing from 2H20 amid a slowdown

in price growth. With upside to NAND prices likely limited, we believe only players capable of

reducing costs will benefit. All in all, we expect SEC to maintain its leading position in the

NAND space (in terms of capex and operating profit) for some time.

Figure 44. Global NAND makers: OP margin trends Figure 45. SEC: NAND capex trend

Source: Company data, Thomson Reuters, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

-80

-40

0

40

80

1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

(%) SEC SK Hynix

Micron Intel

Toshiba

7.0 7.8

8.8 9.7

-100

0

100

200

300

0

4

8

12

16

2005 2008 2011 2014 2017 2020F

(%)(Wtr)

SEC NAND capex (L)

YoY (R)

Samsung Electronics


May 13, 2020

Figure 46. Global NAND makers: Capex trends

Source: DRAMeXchange, Mirae Asset Daewoo Research

Figure 47. Global NAND makers: Bit growth trends


Figure 48. Global NAND M/S breakdown in terms of OP


36.6 45.8

38.4 37.3 44.3

59.3 48.3 46.4

95.5

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015 2016 2017 2018 2019

Toshiba

Intel

Micron

SK Hynix

SEC

67.5

26.6

33.4

48.1

24.7

42.7

49.9

34.6

41.6 45.4

29.0

40.3

0

20

40

60

80

2016 2017 2018 2019 2020 2021

(%) SEC Kioxia (Toshiba Memory) Western Digital Micron SK Hynix Total

30.4

0

15

30

45

60

0

8,000

16,000

24,000

32,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

(%)(US$mn)

Intel

Micron

Toshiba/SanDisk

SK Hynix

SEC

SEC share of global NAND capex (R)

Samsung Electronics


May 13, 2020

Rationale behind our aggressive NAND capex outlook: 2) Higher client SSD

demand needed

DRAM market growth has been driven mainly by steady price increases. In contrast, a major

driver of NAND market growth has been the demand stimulated by persistent price

declines, given the nature of NAND (SSDs) as a substitute good for hard disk drives (HDDs).

Indeed, NAND ASP/GB has been trending downward since 2007, supporting continuous bit

growth.

In 2017, however, the spike in NAND prices caused by supply shortages crippled growth in

SSD penetration and content in PCs. From 2012 to 2016, overall NAND market bit growth

averaged 48.2%, with ASP declining 27.2% annually. In 2017, bit growth slowed to 35.7%,

while ASP climbed 36.9%.

As for enterprise SSDs, bit growth improved to 63.8% in 2017 on the back of stronger

demand for cloud SSDs, even though prices (ASP/GB) declined at a much slower rate of

around 5%. We believe enterprise SSD bit growth was more affected by server-class SSDs—

which benefited from robust server demand—than by storage-class SSDs (HDD substitute).

For mobile NAND, content per device expanded 56% YoY in 2017 even though mobile NAND

ASP increased 24.5% YoY. To sum up, for both enterprise SSDs and mobile NAND, the

expansion of applications had a greater impact on bit growth than price changes.

For client SSDs, sales volume and content per PC increased at CAGRs of 27% and 13%,

respectively, from 2012 to 2016. In 2017, these growth rates slowed to 7.6% and 3%,

respectively, as ASP increased 16% YoY. In 2018, prices started to fall again, leading to

higher sales volume and content. With client SSDs’ relatively high price elasticity confirmed,

we expect SEC to pursue a bit growth-oriented strategy for client SSDs.

Indeed, we see limited upside to top-line growth of the PC SSD market going forward, as

SSDs are already used in a significant portion of consumer PCs. Going forward, we think a

major factor in the market’s growth is highly likely to be the content per unit trend.

For consumer PCs, average SSD content per unit stands at just 351GB, much lower than the

average HDD content range of 1.1TB (2.5”)-2.3TB (3.5”). Going forward, we expect storage

capacity of 1TB+ to become the status quo for consumer PCs. With average spending on

storage capacity per PC likely to remain flattish, we forecast average SDD content per PC to

expand to the level of HDD content in line with SSD price declines.

Figure 49. NAND flash: Bit, sales, and ASP growth


-57.0 -62.5

-32.1 -15.1

-30.7 -41.1

-18.1 -26.5 -27.6 -22.6

36.9

-23.5 -43.5

151.2

117.7

68.5 77.4

67.7 58.4

45.3 39.8 46.3 51.4

35.7 44.9

31.7

-80

0

80

160

240

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

(%)

ASP chg. Bit growth Sales growth

Samsung Electronics


May 13, 2020

Figure 50. Enterprise SSDs: Bit, sales, and ASP growth


Figure 51. Storage-class enterprise SSDs: Bit, sales, and ASP

growth

Figure 52. Server-class enterprise SSDs: Bit, sales, and ASP

growth

Source: Gartner, Mirae Asset Daewoo Research Source: Gartner, Mirae Asset Daewoo Research

Figure 53. Client SSDs: Sales volume and content per PC Figure 54. Client SSDs: Content per PC trend


111.3

82.7

41.4

63.8 76.6

27.4 41.8

51.9

-38 -40

-6 -5

-35-50

26

-17

62.6

30.0 32.8 37.4

15.3 12.5 10.5 10.3

-60

0

60

120

180

2014 2015 2016 2017 2018 2019 2020F 2021F

(%) Enterprise SSD bit growth

Enterprise SSD ASP chg.

Enterprise SSD unit growth

50

-1

11

-100

0

100

200

300

2013 2014 2015 2016 2017 2018 2019 2020F 2021F

(%) PB chg. ASP/GB chg. Unit growth

70

-6

44

-100

0

100

200

300

2013 2014 2015 2016 2017 2018 2019 2020F 2021F

(%) PB chg. ASP/GB chg. Unit growth

13.318.8

26.7

29.3

37.2

51.4

59.4

67.7

7.6

46.1

7.2

0

20

40

60

80

0

150

300

450

600

2014 2016 2018 2020E

(%)(mn units) PC SSD (L) PC HDD (L)

PC SSD penetration (R) PC SSD unit growth(R)

351

10.4

14.412.8

3.0 5.6

14.0

28.3

15.0

0

8

16

24

32

0

150

300

450

600

2014 2016 2018 2020E

(%, YoY)(GB) Mainstream PC SSD content/unit (L)

Mainstream PC SSD content/unit growth (R)

Samsung Electronics


May 13, 2020

Figure 55. Mobile storage (eMMC MLC) spot price trend

Source: TrendForce, Mirae Asset Daewoo Research

Figure 56. Mobile storage (eMMC, TLC) spot price trend

Source: TrendForce, Mirae Asset Daewoo Research

Figure 57. Smartphone NAND content per unit trend

Source: IDC, Mirae Asset Daewoo Research

56.0

0

15

30

45

60

0

50

100

150

200

2015 2016 2017 2018 2019 2020F 2021F

(%)(GB)Smartphone NAND content/unit (L)

YoY growth (R)

-4.3 -7.5

-5.2 -8.9

-6.4

-12.5

-5.8

3.9 6.4

15.8

4.1 1.5 1.6 1.8

-1.4

-6.9 -10.7

-16.9 -16.1

-6.6

6.2 5.6 4.8

-30

-15

0

15

30

0.00

0.15

0.30

0.45

0.60

4Q14 3Q15 2Q16 1Q17 4Q17 3Q18 2Q19 1Q20

(%)(US$/GB)

eMMC MLC QoQ (R)

eMMC MLC price (1GB equiv., L)

-18.1

-7.5

3.8

9.4

17.2

4.7

0.3 1.9

-1.6 -2.1 -5.2

-12.1

-22.5

-17.4

-6.0

0.5

5.1 3.0

-30

-15

0

15

30

0.00

0.10

0.20

0.30

0.40

1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20

(%)(US$/GB)

eMMC TLC QoQ (R)

eMMC TLC price (1GB equiv., L)

Samsung Electronics


May 13, 2020

II. Outlook and earnings forecasts by division

Key assumptions for IT product demand forecasts

Given the pace of the COVID-19 spread and the growth of new cases by country, we expect

China to be the first market to see a recovery in IT product demand, followed by the

US/Europe and then India. All in all, our base-case scenario assumes an 8.3% YoY decline in

global smartphone demand and a 15.8% increase in global server demand in 2020.

For smartphone shipment volume, we formulated three scenarios according to the severity

of negative growth in 2Q20 and the extent of demand recovery in 2H20. Our base-case

scenario has smartphone demand: 1) declining at a slower pace QoQ in 2Q20; 2) making a

full-fledged QoQ recovery in 3Q20; 3) and return to the previous year’s levels in 4Q20. Under

our worst-case scenario, which assumes sharper-than-expected contraction in the US and

Europe in 2Q20, demand would continue to decline YoY and fail to recover to the previous

year’s levels in 4Q20.

Table 4. Smartphone shipment scenario analysis (mn units, %)

1Q20F 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Base case 278 272 336 372 1,372 1,258 1,403

Bear case 278 265 322 370 1,372 1,235 1,287

Worst case 278 255 305 351 1,372 1,189 1,254

YoY

Base case -11.0 -18.1 -6.2 0.7 -2.2 -8.3 11.6

Bear case -11.0 -20.0 -10.0 0.0 -2.2 -10.0 4.2

Worst case -11.0 -23.0 -15.0 -5.0 -2.2 -13.3 5.5

QoQ

Base case -24.9 -2.3 23.7 10.8

Bear case -24.9 -4.6 21.6 14.7

Worst case -24.9 -8.1 19.3 15.3

Source: Mirae Asset Daewoo Research

For server shipment volume, we created two scenarios based on server replacement cycle

length and regional COVID-19 impact. In our analysis, we assumed ODM direct servers to be

more sensitive to changes in the replacement cycle due to their high exposure to cloud

infrastructure. That said, given that ODM direct servers account for just a small slice of the

total pie, we believe structural growth of the server market hinges on hyperscale capex. We

note that our bear-case scenario reflects the possibility of disruptions in server

shipments/installations in the US and Europe.

Table 5. Server shipment scenario analysis (mn units, %)

1Q20F 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Base case 2,980 3,131 3,165 3,262 10,827 12,538 12,704

Bear case 2,980 2,952 2,985 3,076 10,827 11,993 12,704

YoY

Base case 25.1 27.2 11.6 3.7 -1.5 15.8 1.3

Bear case 25.1 19.9 5.2 -2.2 -1.5 10.8 5.9

QoQ

Base case -5.3 5.1 1.1 3.1

Bear case -5.3 -0.9 1.1 3.1


Samsung Electronics


May 13, 2020

1) Smartphone shipment outlook and key assumptions

No consensus has formed among market researchers regarding the real impact of COVID-

19 on IT demand. While it appears clear that smartphone shipments posted a quarterly

decline in the mid-20% range in 1Q20, there are diverging views on: 1) the pace of shipment

declines in 2Q20; and 2) the likelihood of a release of pent-up demand in 2H20.

The spread of COVID-19 began to accelerate around the world (beyond China) in March, and

social distancing has been implemented globally since April, dampening consumer

sentiment. Given the cases of China and Korea, where infections peaked two months after

the first cases emerged, we project that smartphone demand will fall off a cliff during the

first two months of 2Q20 before beginning to stabilize..

Our projections also assume that smartphone shipment volume will decline only 6.2% YoY

and expand more than 20% QoQ, supported by the release of pent-up demand, in 3Q20.

Accordingly, our base-case scenario projects full-year shipment volume to decline 8.3% YoY

(or 110mn units) to 1.26bn units in 2020 and increase 11.6% YoY to 1.4bn units in 2021,

matching 2019 levels.

Figure 58. Global smartphone shipment scenario (quarterly)

Source: IDC, Counterpoint, Mirae Asset Daewoo Research

Figure 59. Global smartphone shipment scenario (annual)


-40

-20

0

20

40

0

120

240

360

480

1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F

(%)(mn units) Base case (U-shaped recovery, L) Bear case (L)Worst case (L) Base case YoY (R)Bear case YoY (R) Worst case YoY (R)

12.6

14.0 13.7

12.4

12.9

11.9

12.5

-20

-10

0

10

20

8

10

12

14

16

2016 2017 2018 2019 2020F 2021F

(%)(mn units) Base case (U-shaped recovery, L) Bear case (L)

Worst case (L) Base case YoY (R)

Bear case YoY (R) Worst case YoY (R)

Samsung Electronics


May 13, 2020

In formulating our base-case scenario, we approached the recovery outlook from a top-

down perspective (by country/market) as the collapse in global demand has rendered

distinctions among brands less relevant. Once demand recovers, we expect smartphone

shipment volume to exhibit the strongest quarterly growth in recent years. We estimate

that shipment volume, after falling 24-39% QoQ across the globe in 1Q20, will display a 20-

25% QoQ bounce in China in 2Q20 and then start to recover in in the US/Europe from 3Q20.

For India, we project shipment volume to decline around 20% QoQ in 2Q20 and begin to

recover from 3Q20. Despite clear differences in marketing resources/capabilities, we believe

that individual companies’ recoveries are unlikely to diverge significantly from the pace of

market shipment growth. Accordingly, we assume market share levels will remain largely

unchanged from the pre-COVID-19 levels.

By region, Apple (AAPL US/CP: US$313.14) holds meaningful market share in the US (44.2%,

based on 2019 data), Europe (19.6%), and China (8.9%). Meanwhile, SEC has a significant

presence in the US (22.7%), Europe (34.0%), and India (20.3%). Against this backdrop, we

believe that SEC and Apple stand to see similar rebounds in the US and European markets

(to which they both have significant exposure). However, given the exposure gaps in China

and India, we expect Apple to exhibit a faster recovery in shipment volume than SEC, as

China is likely to see a faster YoY recovery than India (3Q20 vs. 4Q20).

Figure 60. Smartphone shipment volume forecasts by region


Figure 61. Smartphone market breakdown by region (2019)


-60

-40

-20

0

20

40

0

120

240

360

480

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F

(%)(mn units) Europe (L) US (L) India (L) China (L)

Other (L) China QoQ (R) India QoQ (R) US QoQ (R)

8.9

44.2

19.6 20.3

22.7

34.0

38.3

23.2

10.9

28.6

9.0

17.1

10.7

0.7 18.1

15.6

6.5

23.8 33.0

13.5

China India US Europe

(%)Other

Vivo

Oppo

Xiaomi

Huawei

SEC

Apple

Samsung Electronics


May 13, 2020

According to Counterpoint Research, SEC’s global smartphone sales volume contracted

20.8% QoQ in March 2020 (based on cumulative sell-through), worsening from a 9.9%

decline one year prior. We estimate that the firm’s sales volume did not decline sharply YoY

until March, when the impact of COVID-19 began to be felt in earnest.

In the US, SEC’s sales volume fell 16.4% QoQ, outperforming the overall market (-33.3%

QoQ). We believe the firm fared similarly well in Europe. However, the firm’s sales volume

plunged 42.2% QoQ in India, one of its key markets, faring worse compared to the same

period last year (-27.2% QoQ in 1Q19) and the overall Indian market (-38.8% QoQ).

By region, Europe accounts for 23.6% (as of 2019) of SEC’s sales volume, the US 12.1%, and

India 7.4% We estimate the firm’s smartphone shipment volume in Europe dropped 31.6%

QoQ in 1Q20, with negative growth likely to continue in 2Q20, albeit at a slower pace (aided

by the absence of the weak seasonality seen in 1Q20). We expect the firm’s shipment

volume to recover QoQ in 3Q20 and achieve positive YoY growth in 4Q20. Accordingly, we

estimate SEC’s annual smartphone shipment volume will reach 246mn units (-16.9% YoY) in

2020 and 271 mn units (+10.1% YoY) in 2021.

By region, the US accounts for 44.2% (as of 2019) of Apple’s sales, Europe 19.6%, and China

8.9%. We estimate that Apple’s US smartphone shipment volume declined 33.3% QoQ in

1Q20, with negative growth likely to continue in in 2Q20. However, given the likelihood of a

slowdown in negative shipment growth in the US and high exposure to China, which is

ahead of the pandemic curve, we project that Apple’s global smartphone shipment volume

will expand 6.8% QoQ in 2Q20 and 7.0% YoY in 2020.

The resilient outlook for Apple is due to the fact that 1Q, which marked the peak of the

COVID-19 outbreak, is an off-peak period for Apple in terms of shipments. Indeed, while

Apple’s smartphone shipment volume declined 37.5% QoQ (sell-through basis) in 1Q20, this

figure is largely in line with the average 1Q decline of 34.3% QoQ (sell-in basis) between

2017 and 2019. Even after accounting for the sell-through/sell-in difference, we believe

there remains a possibility that Apple could achieve YoY shipment growth in 2020.

For reference, our base-case scenario is premised on: 1) a significant slowdown in negative

QoQ growth in 2Q20; and 2) a swing to positive QoQ growth in 3Q20 onward, which should

lead to flattish YoY growth in 4Q20.

However, if the decline in shipment growth is sharper than expected in 2Q20, there is a

possibility of demand failing to recover to the previous year’s level in 4Q20. Under this

worst-case scenario, we assume smartphone shipment volume will decline 13.3% YoY (or

180mn units) in 2020 and increase only 5.5% YoY in 2021, failing to reach the 2019 level for

two consecutive years.

Samsung Electronics


May 13, 2020

Figure 62. Apple: Smartphone shipments by region Figure 63. SEC: Smartphone shipments by region

Source: IDC, Mirae Asset Daewoo Research Source: IDC, Mirae Asset Daewoo Research

Figure 64. Huawei: Smartphone shipments by region Figure 65. Xiaomi: Smartphone shipments by region


Figure 66. Annual smartphone shipment outlook


0

10

20

30

40

0

70

140

210

280

2015 2016 2017 2018 2019 2020F

(%)(mn units) Other (L) Europe (L)US (L) China (L)China share (R) US share (R)Europe share (R)

0

5

10

15

20

25

30

0

100

200

300

400

2015 2016 2017 2018 2019 2020F

(%)(mn units) Other (L) Europe (L)India (L) US (L)China (L) US share (R)India share (R) Europe share (R)

0

20

40

60

80

0

80

160

240

320

2015 2016 2017 2018 2019 2020F

(%)(mn units) Other (L) Europe (L)

India (L) US (L)

China (L) China share (R)

Europe share (R)

0

25

50

75

100

0

35

70

105

140

2015 2016 2017 2018 2019 2020F

(%)(mn units) Other (L) Europe (L)India (L) US (L)China (L) China share (R)India share (R) Europe share (R)

311 318 292 296 246 271

215 216 209 191 204 209

139 154 206 241 206

245 53 93 119 126

104 126 100

112 113 114

112 131

77 88

101 110 99

116

0

400

800

1,200

1,600

2016 2017 2018 2019 2020F 2021F

(mn units)

Other

Vivo

Oppo

Xiaomi

Huawei

Apple

SEC

Samsung Electronics


May 13, 2020

Table 6. Smartphone shipment volume: Key assumptions and scenarios (mn units, %)

Scenario Manufacturer 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Base case

SEC 72 76 78 70 58 51 63 74 296 246 271

Apple 37 34 47 74 43 46 53 62 191 204 209

Huawei 59 59 67 56 42 46 58 60 241 206 245

Xiaomi 28 32 33 33 23 22 27 31 126 104 126

Oppo 23 30 31 31 24 25 31 32 114 112 131

Vivo 23 28 30 28 21 22 28 29 110 99 116

Other 70 73 73 79 68 60 75 84 295 286 305

Total 312 331 358 370 278 272 336 372 1,372 1,258 1,403

Bear case 312 312 331 358 370 278 265 322 370 1,372 1,235

Worst case 312 312 331 358 370 278 255 305 351 1,372 1,189

YoY (%)

Base case

SEC -8.1 6.5 8.3 -1.0 -19.0 -33.2 -19.3 6.0 1.2 -16.9 10.1

Apple -29.5 -18.2 -0.7 7.8 16.4 35.6 14.7 -15.6 -8.5 7.0 2.4

Huawei 50.2 8.3 28.2 -7.1 -29.6 -21.5 -12.4 7.1 16.8 -14.3 18.7

Xiaomi -0.1 -0.3 -3.2 31.1 -17.3 -30.7 -16.1 -5.8 5.5 -17.4 21.2

Oppo -6.1 0.4 4.0 4.2 3.7 -16.5 -0.7 5.3 0.9 -2.3 17.1

Vivo 24.0 4.8 2.2 9.6 -10.9 -22.3 -7.3 1.1 8.8 -9.8 17.1

Other -23.3 -14.9 -20.1 -16.1 -4.2 -17.8 2.6 7.3 -18.7 -2.8 6.7

Total -6.1 -2.9 0.8 -0.9 -11.0 -18.1 -6.2 0.7 -2.2 -8.3 11.6

Bear case -6.1 -6.1 -2.9 0.8 -0.9 -11.0 -20.0 -10.0 0.0 -2.2 -10.0

Worst case -6.1 -6.1 -2.9 0.8 -0.9 -11.0 -23.0 -15.0 -5.0 -2.2 -13.3

QoQ (%)

Base case

SEC 2.3 6.0 2.6 -11.1 -16.2 -12.6 23.8 16.9

Apple -46.1 -8.3 37.9 58.3 -41.8 6.8 16.6 16.6

Huawei -2.3 -0.6 13.4 -15.6 -25.9 10.8 26.4 3.2

Xiaomi 11.0 16.0 1.5 0.3 -29.9 -2.8 22.9 12.6

Oppo -21.4 28.0 5.6 -1.9 -21.8 3.1 25.5 4.1

Vivo -10.3 22.3 6.5 -6.2 -27.1 6.7 27.0 2.4

Other -24.8 3.0 0.4 7.8 -14.1 -11.6 25.3 12.8

Total -16.3 6.1 8.1 3.2 -24.9 -2.3 23.7 10.8

Bear case -16.3 -16.3 6.1 8.1 3.2 -24.9 -4.6 21.6 14.7

Worst case -16.3 -16.3 6.1 8.1 3.2 -24.9 -8.1 19.3 15.3

Source: Counterpoint, Mirae Asset Daewoo Research

Samsung Electronics


May 13, 2020

2) Data center capex and server demand outlook

Server shipment volumes increased sharply from 2016, when global hyperscalers began to

build data centers in earnest. The sharp increase in capex by cloud service providers in

North America and Greater China—e.g., Microsoft (MSFT US/CP: US$183.63), Amazon (AMZN

US/CP: US$2,449.33), and Alibaba (BABA US/CP: US$217.20)—led to robust demand for both

branded servers from OEM vendors (e.g., Hewlett Packard Enterprise [HPE US/CP: US$10.04]

and Dell [DELL US/CP: US$44.04]) and white box servers from ODM vendors (e.g., Taiwan-

based Wiwynn [6669 TT/CP: NT$883.00], etc.). Demand for server DRAM also surged,

causing DRAM prices to skyrocket 160% for a 26-month period amid tight supply.

The capacity expansion from 2016 to 2018 was followed by a lull in additions in 2019. There

are many factors speculated to have had a role in the capex contraction, such as

temporary data center saturation or increases in server efficiency via software optimization.

However, we find it difficult to pinpoint a single reason. The decline in capex led to the first

negative YoY growth in server shipment volume in nine quarters.

Server orders recovered from 2H19, supported by increasing capex. Against this backdrop,

we believe that capex by hyperscalers and the purchase/replacement cycles hold the key to

forecasting server demand.

Figure 67. Capex by major hyperscale operators


Figure 68. Server shipment volume

Source: Industry data, Mirae Asset Daewoo Research

9.821.3

21.4

47.2

-0.1

8.812.0

-30

0

30

60

90

0

40

80

120

160

06 07 08 09 10 11 12 13 14 15 16 17 18 19 20F 21F 22F

(%)(US$bn) Baidu IBM Salesforce

Oracle Alibaba Tencent

Google Facebook Amazon

Microsoft Apple Total capex YoY (R)

21.9

62.8

-40

0

40

80

120

0.0

1.0

2.0

3.0

4.0

1Q02 3Q04 1Q07 3Q09 1Q12 3Q14 1Q17 3Q19

(%)(mn units)

ODM direct servers (L)

OEM servers (L)

Total servers YoY (R)

OEM servers YoY (R)

ODM direct servers YoY (R)

Robust server shipments

Lull in server shipments

Samsung Electronics


May 13, 2020

Looking ahead, we expect memory chip demand from data centers to remain stable, in light

of the following: 1) capex trends at cloud service providers suggest that the most recent

memory down cycle (end-2018 to early-2019) was triggered by customers’ inventory

reductions, rather than by fundamental demand contraction; 2) the server replacement

cycle is arriving for hyperscalers; and 3) cloud service providers continue to possess strong

growth potential and profitability. (Their interest coverage ratios have reached peak levels.)

With demand from hyperscalers very likely to remain strong, we believe that the timing of

server memory purchases will depend on the direction of mobile market demand. And we

think supply management at DRAM makers will hasten the timing of purchases.

(1) Microsoft and Amazon (cloud service providers): Capex and capital lease trends

Cloud investments at Microsoft and Amazon have shown an oscillating pattern, with

company-wide capex growth and the combined growth of capex and capital leases taking

turns outpacing one another.

At Microsoft, the combined growth of capex and capital leases outstripped capex growth in

4Q16-4Q17. In the subsequent four quarters (1Q18-4Q18), capex displayed faster growth

than capex and capital leases combined. The growth structure reversed in 1Q19-4Q19 (with

capex and capital lease growth prevailing) and again in 1Q20 (with capex growth picking up

more rapidly). Amazon has exhibited a similar, albeit not as pronounced, pattern.

As some servers/network equipment used in data centers are leased assets, we can assume

that new server installations took place during periods in which the combined growth of

capex and capital leases was higher. Accordingly, we estimate that in 1Q20, more

investments were made in infrastructure than in servers. Nevertheless, server DRAM sales

have picked up recently, likely driven by stockpiling demand.

While some market watchers are fretting over the possibility of another server DRAM down

cycle, we note several differences in market conditions compared to in 1Q19. Back before

the onset of the last down cycle, inventory stockpiling continued for over four quarters at

hyperscalers, with capital leases remaining at low levels since 1Q18. With this in mind, we

do not believe that a pickup in stockpiling demand during a single quarter (1Q20) is enough

to give buyers strong bargaining power.

In addition, we believe that DRAM suppliers will no longer just sit on their hands in the face

of a down cycle triggered by stockpiling demand, especially given their oligopolistic market

positioning.

We also note that capital leases continued to expand even during the 2019 memory down

cycle (when capex growth slowed or even turned negative). Microsoft reported zero capex

growth throughout the year, and Amazon posted single-digit capex growth for five

quarters, from 2Q18 to 2Q19. During the same period, however, both companies reported

double-digit growth in capex and capital leases combined. This suggests that investments in

network equipment and servers continued despite the overall fall in investments.

Nevertheless, server DRAM demand stagnated at extremely low levels from end-2018 to

early 2019. We attribute this demand weakness to buyers’ inventory management strategies

aimed at increasing negotiating power, rather than to fundamental demand contraction. In

other words, large channel inventories, rather than a lack of server demand, caused the

down cycle.

Samsung Electronics


May 13, 2020

Figure 69. Microsoft: Capex/lease trends

Source: Microsoft, Mirae Asset Daewoo Research

Figure 70. Amazon: Capex/lease trends

Source: Amazon, Mirae Asset Daewoo Research

-40

0

40

80

120

0

1,500

3,000

4,500

6,000

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20

(%)(US$mn)

Capex (L)

Capex + capital leases (L)

Capex YoY (R)

Capex + capital leases YoY (R)

-60

0

60

120

180

0

2,000

4,000

6,000

8,000

1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20

(%)(US$mn) Capex (L)

Property/equipment acquired under capital/operating leases (L)

Capex YoY (R)

Property/equipment acquired under capital/operating leases YoY (R)

Property/equipment acquired under capital leases YoY (R)

Samsung Electronics


May 13, 2020

(2) Cloud providers still displaying strong potential, profitability, and financial stability

As data center investments often include leverage (e.g., leases, borrowings, etc.), they can

often put strain on a company’s financial health. However, cloud providers have continued

to report robust earnings growth, with leverage ratios increasingly stabilizing.

For 1Q20, Microsoft’s Intelligent Cloud business reported record revenue of US$12.2bn

(+27.3% YoY) and operating profit of US$4.6bn (+42.1% YoY; highest growth in three years).

Notably, Azure displayed revenue expansion of 59% YoY, growing faster than Amazon Web

Services (AWS), which posted revenue of US$10.2bn (+32.8% YoY) and operating profit of

US$3.1bn (+38.3% YoY). Both Microsoft’s Intelligent Cloud business and AWS continue to

deliver high margins (above 30%).

Microsoft’s quarterly interest expenses have surged since 1Q16, now standing at around

US$600mn. Amazon has also seen its interest expense burden grow since 2Q17, to

US$400mn per quarter. However, we note that both companies generate enough operating

profit to cover such expenses. Indeed, as of 1Q20, Microsoft and Amazon each boast an

interest coverage ratio of around 750% based on cloud income alone.

Figure 71. Microsoft: Revenue and OP trends

Source: Microsoft, Mirae Asset Daewoo Research

Figure 72. AWS: Revenue and OP trends

Source: Amazon, Mirae Asset Daewoo Research

-40

0

40

80

120

0

3,000

6,000

9,000

12,000

1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20

(%)(US$mn) AWS revenue (L) AWS OP (L)

AWS OP margin (R) AWS OP YoY (R)

AWS OP QoQ (R)

-40

0

40

80

120

0

4,000

8,000

12,000

16,000

1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20

(%)(US$mn) Intelligent Cloud revenue (L) Intelligent Cloud OP (L)

Intelligent Cloud OP YoY (R) Intelligent Cloud OP margin (R)

Azure revenue YoY (R)

Samsung Electronics


May 13, 2020

Figure 73. Cloud providers: Interest expenses and interest coverage ratios

Source: Thomson Reuters, Microsoft, Amazon, Mirae Asset Daewoo Research

0

250

500

750

1,000

0

200

400

600

800

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20

(%)(US$mn) Microsoft interest expenses (L)

Amazon interest expenses (L)

Google interest expenses (L)

AWS interest coverage ratio (R)

Microsoft Intelligent Cloud interest coverage ratio (R)

Samsung Electronics


May 13, 2020

(3) Arrival of the server replacement cycle

The impending arrival of the server replacement cycle also brightens our demand outlook.

According to industry insiders, the optimal server replacement cycle is 3.5 years on average,

as errors tend to increase sharply after three years of usage.

This replacement demand, on top of secular demand growth, should sharply boost the

overall outlook. As the previous replacement cycle came in 2017, we expect replacement

demand to start to pick up full swing from end-2020. Assuming base (new) server demand

(stripping away replacement demand) for 2020 at the 2H17-2H18 average level, we expect

total demand to surge 14.5% YoY, with the full impact of the replacement cycle kicking in

from 2021 (ODM server demand growth of +6.2% YoY).

Figure 74. ODM server shipments forecasts (reflecting replacement cycle)


Factoring in new demand, the impending replacement cycle, and historical server shipment

data, we expect ODM direct server sales to rise meaningfully from 2H20. Meanwhile,

negative growth in 1H20 was steeper than forecast due to greater-than-expected shipments

in 4Q19.

ODM direct server shipments in 2H19 came in higher than our previous projection, surging

46.7% HoH (vs. our forecast of 15.4% HoH). We attribute this to higher-than-expected base

demand, rather than to a shorter replacement cycle. In our previous estimates, we used

2H15-2H16 average shipments as our base demand assumption, which seems too

conservative. As such, we now use 1H17-1H18 average shipments in our revised forecasts

for ODM direct servers.

We also project the decline in 1H20 server shipments (caused by a high base of comparison)

to be slower than originally forecast. Indeed, Aspeed (5274 TT/CP: NT$1,420.00), a

Taiwanese maker of baseboard management controllers (BMCs) for servers, has reported

robust growth this year (through April), with revenue reaching a historic high in 1Q20.

Heading toward 2H20, we expect server replacement demand to grow further (although we

will still need to track the capex plans of hyperscalers).

0.88 1.11

48.0

30.5

9.7 14.5

6.2

-20

0

20

40

60

0

1

2

4

5

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

(%)(mn units)

Servers to be replaced soon (L) ODM direct servers (L) ODM direct servers YoY (R)

Around 0.74mn

Pre-cloud capex boomAvg. of 1.58mn ODM servers

Samsung Electronics


May 13, 2020

Table 7. Global ODM direct server shipment outlook (HoH): Feb. 2020 est. (previous) (%)

2H19 Base server demand

2H15 average 1H16 average 2H16 average Average

Replacement cycle assumption

Three years 5.84 -2.57 4.07 2.45

Four years 22.58 14.16 20.80 19.18

Five years 26.62 19.98 26.62 24.41

Average 18.35 10.52 17.17 15.35




Three years -17.48 -27.63 -19.48 -21.53

Four years -23.34 -32.43 -25.14 -26.97

Five years -18.62 -25.18 -18.62 -20.81

Average -19.81 -28.41 -21.08 -23.10




Three years 20.36 25.23 21.23 22.27

Four years 4.82 5.87 5.01 5.23

Five years 10.75 12.34 10.75 11.28

Average 11.98 14.48 12.33 12.93




Three years 10.89 12.97 11.27 11.71

Four years 3.85 4.65 4.00 4.17

Five years -18.82 -21.30 -18.82 -19.65

Average -1.36 -1.23 -1.18 -1.26


Table 8. Global ODM direct server shipment outlook (HoH): May 2020 est. (revised) (%)

2H19 Actual: +46.7%




Three years -19.40 -14.13 -6.77 -13.43

Four years -14.87 -9.61 -2.24 -8.91

Five years -6.27 -1.00 6.36 -0.30

Average -13.51 -8.25 -0.88 -7.55



Replacement cycle

assumption

Three years 15.04 14.12 13.01 14.06

Four years 3.63 3.41 3.16 3.40

Five years 8.06 7.63 7.10 7.59

Average 8.91 8.39 7.75 8.35




Three years 8.42 7.97 7.41 7.93

Four years 2.93 2.77 2.57 2.76

Five years -14.46 -13.75 -12.86 -13.69

Average -1.04 -1.00 -0.96 -1.00


Samsung Electronics


May 13, 2020

Figure 75. Aspeed: Monthly revenue trend

Source: Aspeed, Mirae Asset Daewoo Research

Figure 76. Aspeed: Quarterly revenue trend

Source: Aspeed, Mirae Asset Daewoo Research

Figure 77. Aspeed: Quarterly revenue growth vs. ODM direct server shipment growth


-40

0

40

80

120

0

80

160

240

320

4/14 10/14 4/15 10/15 4/16 10/16 4/17 10/17 4/18 10/18 4/19 10/19 4/20

(%)(NT$mn)

Aspeed monthly revenue (L) YoY (R)

49.4

-30

0

30

60

90

0

200

400

600

800

4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18 4Q19

(%)(NT$mn)

Aspeed quarterly revenue (L) QoQ (R) YoY (R)

-40

0

40

80

120

1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20F

(%)

Revenue YoY ODM direct server shipments YoY

Samsung Electronics


May 13, 2020

Table 9. Global top 10 OEM server shipment outlook (HoH): Feb. 2020 est. (previous) (%)


2015 average 2016 average 2017 average Average


Three years 16.61 18.65 18.27 17.84

Four years 14.98 17.01 16.64 16.21

Five years 18.90 20.94 20.56 20.14

Average 16.83 18.87 18.49 18.06




Three years -5.39 -3.58 -3.91 -4.29

Four years 0.58 2.31 1.99 1.63

Five years -2.40 -0.68 -0.99 -1.36

Average -2.40 -0.65 -0.97 -1.34




Three years 3.35 3.23 3.25 3.28

Four years 2.79 2.69 2.71 2.73

Five years 4.68 4.52 4.55 4.58

Average 3.60 3.48 3.50 3.53




Three years -2.18 -2.10 -2.11 -2.13

Four years -6.81 -6.58 -6.62 -6.67

Five years -3.27 -3.17 -3.19 -3.21

Average -4.09 -3.95 -3.97 -4.00


Table 10. Global top 10 OEM server shipments outlook (HoH): May 2020 est. (revised) (%)

2H19 Actual: +14.7%




Three years 0.61 -0.48 10.08 3.40

Four years 5.44 4.36 14.91 8.24

Five years 6.09 5.00 15.56 8.88

Average 4.05 2.96 13.52 6.84




Three years 3.42 3.46 3.13 3.34

Four years 3.35 3.39 3.08 3.27

Five years 5.25 5.31 4.82 5.13

Average 4.01 4.05 3.67 3.91




Three years -2.84 -2.87 -2.61 -2.78

Four years -7.32 -7.40 -6.74 -7.15

Five years -4.13 -4.17 -3.80 -4.03

Average -4.76 -4.81 -4.38 -4.65


※※※※ For continuity, we included our estimates for the top 10 OEMs; however, our actual

demand model is based on the data of all OEMs <Table 11>.

Samsung Electronics


May 13, 2020

Table 11. Global total OEM server shipment outlook (HoH): May 2020 est. (revised) (%)

2H19 Actual: +14.7%




Three years -1.92 -2.65 8.62 1.35

Four years -1.90 -1.90 9.37 1.85

Five years 0.02 -0.72 10.55 3.28

Average -1.27 -1.76 9.51 2.16




Three years 8.32 8.38 7.51 8.07

Four years 4.37 4.37 3.92 4.22

Five years 5.52 5.56 4.99 5.35

Average 6.07 6.10 5.47 5.88



Replacement cycle

assumption

Three years 1.12 1.13 1.02 1.09

Four years -6.15 -6.15 -5.54 -5.94

Five years -6.25 -6.30 -5.69 -6.08

Average -3.76 -3.77 -3.40 -3.64




Three years 3.83 3.86 3.49 3.73

Four years 10.93 10.93 9.79 10.55

Five years 2.46 2.48 2.23 2.39

Average 5.74 5.76 5.17 5.56


In conclusion, we expect server shipments to increase 4.2% YoY in 2020 and 3.2% YoY in

2021. On a QoQ basis, we estimate that shipments will expand 6.1% in 2Q20 after declining

in 1Q20 on a high base of comparison.

Meanwhile, OEM server demand has remained fairly consistent even throughout the 2016-

18 replacement cycle; thus, the arrival of another cycle will not have much impact on our

model. For 2020, we expect shipments to climb 0.2% YoY, recovering from the negative

growth seen in early 2019. We also anticipate the figure to remain more or less the same in

2021.

ODM direct server shipments, on the other hand, surged in 2016-18, led by hyperscalers. As

such, the arrival of replacement demand should have a positive impact. We expect overall

demand to plunge 16.0% QoQ in 1Q20 (due to sharp demand expansion in the previous

quarter), and then grow steadily in 2Q-3Q20. Replacement demand should kick in from

2H20, driving up full-year shipments by 14.5% YoY in 2020 and 6.2% in 2021.

As the aforementioned assumptions represent the average values among various growth

scenarios, we see potential upside, depending on how the replacement cycle plays out. For

instance, if the three-year replacement cycle becomes fully fleshed out, shipments are

anticipated to climb 14% HoH in 2H20 (vs. +9% YoY on average), and 8% HoH in 1H21 (vs.

-1% on average).

Samsung Electronics


May 13, 2020

Meanwhile, our bear-case scenario assumes a prolonged COVID-19 impact. Most data

centers operated by the top three cloud providers are located in Europe and the US, which

account for 57% of global server demand. A longer-than-expected outbreak could disrupt

server transport and installations in these regions. We estimate that a one-month

suspension of operations will translate into a 0.3% YoY fall in shipments in 2020 (followed by

a recovery in 2021).

Figure 78. Microsoft, Google, and AWS: Data center locations

Source: Atomia, Mirae Asset Daewoo Research

Figure 79. Server shipments by region


48

51

54

57

60

0.0

1.0

2.0

3.0

4.0

1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19

(%)(mn units)

Other Europe

China US

US + Europe share (R)

Samsung Electronics


May 13, 2020

Table 12. Server shipment assumptions and scenarios (‘000 units, %)

Scenario Product 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Base case

OEM 1,929 2,012 2,174 2,349 1,989 2,132 2,087 2,276 8,463 8,484 8,640

ODM direct 651 679 897 1,055 886 918 994 958 3,282 3,756 3,989

Total 2,581 2,691 3,070 3,403 2,876 3,050 3,081 3,234 11,745 12,240 12,629

Bear case 2,581 2,691 3,070 3,403 2,876 2,876 2,905 3,050 11,745 11,706 12,629

YoY (%)

Base case

OEM -5.1 -10.0 -5.2 2.2 3.1 6.0 -4.0 -3.1 -4.5 0.2 1.8

ODM direct -5.7 -7.3 2.1 53.0 36.0 35.2 10.8 -9.1 9.7 14.5 6.2

Total -5.3 -9.3 -3.2 14.0 11.4 13.3 0.3 -5.0 -0.9 4.2 3.2

Bear case -5.3 -9.3 -3.2 14.0 11.4 6.9 -5.4 -10.4 -0.9 -0.3 7.9

QoQ (%)

Base case

OEM -16.0 4.3 8.1 8.0 -15.3 7.2 -2.1 9.1

ODM direct -5.5 4.2 32.1 17.6 -16.0 3.6 8.3 -3.6

Total -13.6 4.3 14.1 10.8 -15.5 6.1 1.0 5.0

Bear case -13.6 4.3 14.1 10.8 -15.5 0.0 1.0 5.0


Figure 80. Quarterly server shipment forecasts Figure 81. Quarterly server shipment forecasts (by scenario)

Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

-15

0

15

30

45

0

1,000

2,000

3,000

4,000

1Q17 1Q18 1Q19 1Q20F 1Q21F

(%)('000 units) Base case (L) Bear case (L)

Base case YoY (R) Bear case YoY (R)

-30

0

30

60

90

0

1,000

2,000

3,000

4,000

1Q17 1Q18 1Q19 1Q20F 1Q21F

(%)('000 units) ODM direct (L) OEM (L)

OEM YoY (R) ODM direct YoY (R)

Total YoY (R)

Samsung Electronics


May 13, 2020

[Semiconductors] NAND outlook

NAND supply/demand and earnings forecasts

(Demand) For 2020, we expect demand bit growth of 33.0% for core NAND applications. In

the short term, demand from enterprise SSDs is likely to help make up for the decrease in

smartphone NAND bit growth. Overall, we anticipate NAND manufacturers to limit supply

growth to a conservative 29% YoY this year to keep inventory at appropriate levels.

Mobile NAND accounts for around 35% of total NAND demand. Our base-case scenario has

shipments declining 8.3% YoY in 2020; in this case, we estimate bit growth at 24.2% amid

content growth of 35.5%.

We believe that client SSD adoption growth peaked in 2019. Going forward, we believe the

major factor in client SSD bit growth is highly likely to be the content per unit trend. For

2020, we forecast overall client SSD shipments to grow 7.2% YoY to 280mn units and

average content per PC to expand 28.3% YoY to 466GB, resulting in overall client SSD bit

growth of 37.4%.

For enterprise SSDs, bit shipments began to pick up in 4Q19 as prices began to stabilize,

raising expectations for price hikes in 2020. For 2020, we forecast enterprise SSD sales

volume growth at 10.5% and bit growth at 41.8%.

(Supply) For 2020 and 2021, we forecast NAND market bit growth at 29.0% and 40.3%,

respectively, and SEC’s bit growth at 24.7% and 42.7%. Stripping away the resumption of

85,000 wpm that had been lost due to power outages at Kioxia’s Yokkaichi plants in 2019,

we project market net capacity growth at 18,000 wpm in 2020 and 87,000 wpm in 2021. As

for SEC, we forecast net capacity expansions of 23,000 wpm in 2020 and 80,000 wpm in

2021, which would account for most of the industry’s growth. SEC’s competitors are

anticipated to engage in efforts to improve cost efficiency in order to counteract the Korean

giant’s market share expansion strategy.

From 2H20, bit growth is likely to be driven by a recovery in smartphone NAND demand. In

2021, we expect supply/demand conditions to be similar YoY, as SEC will likely ramp up

supply to take advantage of a bump in demand from the client SSD segment. Prices are

projected to remain stable. (Sharp price hikes seem unlikely given the supply and demand

dynamics.)

(Earnings) For 2Q20, we forecast SEC’s NAND unit to post revenue of W6.0tr (+9.0% QoQ)

and an OP margin of 2.3% (slight QoQ improvement). With inventory remaining at normal

levels (two weeks), we believe a 4.0% ASP hike is likely. Moreover, we expect to see bit

growth of 3.0%, driven by solid demand from server and laptop SSDs through 2Q.

Although SEC is anticipated to continue to add wafer capacity until end-2020, the company

is projected to aggressively push out shipments to keep inventory at normal levels. For

4Q20, we expect that the firm’s OP margin will stay largely unchanged from the 2Q level,

with the release of pent-up smartphone demand likely to pick up and ASP holding steady

overall.

For 2021, we forecast NAND demand bit growth to hit 42.4%, driven by smartphone

(+48.0%) and enterprise SSD (+51.9%) applications. On the supply side, SEC is likely to post

above-industry bit growth of 42.7% (vs. industry average of 40.3%). All in all, we expect SEC’s

NAND wafer capacity to expand 16.9%, ASP to decline 2.4%, and OP margin to edge up YoY

to 23.6%.

Samsung Electronics


May 13, 2020

Mobile NAND: 2020 bit growth to reach 24.2%

Mobile NAND accounts for around 35% of total NAND demand, with Apple being the single

largest consumer (23-25%). Despite its relatively low share of smartphone shipments (14%),

Apple generates high NAND demand, as its average NAND content per unit (141GB) is 67%

higher than the market average (84GB).

Since 2018, NAND content in Chinese makers’ smartphone models has been increasing

sharply. The four major Chinese smartphone makers (Huawei, Oppo, Vivo, and Xiaomi [1810

HK/CP: HK$12.84]) account for 45.2% of mobile NAND demand. In 2019, Huawei’s NAND

content per unit grew by a whopping 55.4% YoY. With smartphone volume growth slowing,

mobile NAND demand hinges on growth in content per unit. Currently, the share of

smartphone models with NAND content of less than 128GB is still as high as 67%.

However, we believe the proportion of high NAND-content (i.e., 128GB+) models will

expand, given: 1) the increasing penetration of 5G smartphone models; and 2) the

continuous increase in photo/video file sizes stemming from improving camera specs.

Although Chinese smartphone makers’ market shares outside of China have been stagnant

due to US-China trade friction, we think NAND demand will remain stable as long as

shipments within China remain solid. Indeed, in 2019, most 256GB+ smartphone shipments

of Chinese makers were digested in China.

Figure 82. Mobile NAND demand by company Figure 83. Mobile NAND content per unit by company (global)


Figure 84. Smartphone shipments by NAND content Figure 85. 256GB+ smartphone shipments of Chinese makers


11.0 13.3

28.3 33.4

39.6

45.2 46.1

53.0

36.3 37.7 34.5 35.7

31.8

23.3 23.8

18.9

0

15

30

45

60

0%

25%

50%

75%

100%

2014 2015 2016 2017 2018 2019 2020F 2021F

Other VivoOppo XiaomiHuawei AppleSEC Share of Chinese big 4 (R)Apple share (R)

31 42

63

101

127 141

167

192

12 18

27 42

60

84

114

152

0

60

120

180

240

2014 2015 2016 2017 2018 2019 2020F 2021F

(GB)

SEC Apple Huawei

Xiaomi Oppo Vivo

Other Avg.

0

10

20

30

40

0

400

800

1,200

1,600

2014 2015 2016 2017 2018 2019

(%)(mn units) >512GB (L) 128-256GB (L)

32-128GB (L) <32GB (L)

>128GB share (R)

0.0 0.8 2.1

23.7

0

8

16

24

32

2016 2017 2018 2019

(mn units)

Other regions

China

Samsung Electronics


May 13, 2020

In 2020, based on our mobile NAND demand model (smartphone shipment and bit growth

scenarios), we estimate that average NAND content per unit will grow 35.5% YoY to 114GB.

Under our smartphone shipment scenarios, we estimate mobile NAND bit growth at 13.2-

24.2%. Our base case scenario has shipments declining around 2% QoQ in 2Q20 and

recovering in 2H20 (annual: -8.3%); in this case, we estimate bit growth at 24.2% amid

content growth of 35.5%. Under a worst-case scenario in which shipments fail to recover

markedly, we estimate bit growth at only 13.2%.

Table 13. Mobile NAND bit growth outlook based on smartphone shipment scenarios (%)

Scenario 1Q20F 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Smartphone shipments

Base -24.9 -2.3 23.7 10.8 -2.2 -8.3 11.6

Bear -24.9 -3.0 10.0 20.0 -2.2 -12.6 10.7

Worst -24.9 -4.0 5.0 15.0 -2.2 -16.4 13.0

NAND content per unit 6.5 9.4 6.7 2.6 41.4 35.5 32.7

Mobile NAND bit growth

Base -20.0 6.9 32.0 13.7 38.4 24.2 48.0

Bear -20.0 6.1 17.4 23.2 38.4 18.5 46.9

Worst -20.0 5.0 12.1 18.0 38.4 13.2 50.0


In the medium to long term, we expect to see significant NAND volume growth if NAND

content in iPhone models increases. Apple has adopted 64GB as the lowest tier of storage

since the launch of the iPhone 8 (vs. 32GB for previous models). The gap in NAND content

between 64GB iPhones and other similarly priced smartphone models has been gradually

widening, recently reaching 111GB (73%). Of note, Apple and other smartphone makers are

adopting increasingly sophisticated camera modules. Apple adopted dual cameras starting

with the iPhone X series, and an increasing number of new iPhone models adopt triple

cameras. In addition, the average number of rear-facing cameras per iPhone increased

from 1.2 in 3Q16 to 2.3 in 4Q19. Amid the shift toward higher-spec cameras, storage

requirements should inevitably increase in line with increasing photo/video file sizes.

Apple has stuck to 64GB as the lowest storage tier for the iPhone for some time in order to

promote the use of iCloud. However, given the wide gap in NAND content, we think Apple

may raise the lowest storage tier to 128GB in 2021.

Figure 86. Gap in NAND content between 64GB iPhones and

other similarly priced smartphone models Figure 87. Average no. of rear-facing cameras per iPhone


570.6

907.2

0

50

100

150

200

0

250

500

750

1,000

1Q15 1Q16 1Q17 1Q18 1Q19

(GB)(US$) 64GB iPhone ASP (L)

Avg. NAND content per smartphone (US$500-950, R)

+111GB(73%)

0.0

0.6

1.2

1.8

2.4

0

20

40

60

80

1Q15 1Q16 1Q17 1Q18 1Q19

(mn units) Dual (L)

Single (L)

Triple (L)

Average no. of rear-facing cameras (R)

Samsung Electronics


May 13, 2020

Table 14. Global mobile NAND demand model

2015 2016 2017 2018 2019 2020F 2021F

Avg. NAND content (GB) 18.0 26.6 41.6 59.6 84.3 114.2 150.8

SEC 19.8 19.4 25.3 45.7 84.2 120.8 159.6

Apple 42.1 62.7 100.8 127.2 141.3 167.5 192.6

Huawei 13.1 23.6 43.2 61.5 95.6 145.5 223.6

Xiaomi 13.9 28.8 41.2 46.9 65.7 85.1 112.7

Oppo 13.1 31.3 48.8 72.2 95.9 134.6 183.2

Vivo 12.9 40.3 50.3 66.0 90.8 123.9 170.3

YoY (%) 43.9 48.2 56.0 43.4 41.4 35.5 32.1

SEC 53.6 -2.1 30.4 80.2 84.5 43.4 32.2

Apple 37.4 49.0 60.9 26.2 11.1 18.6 15.0

Huawei 92.6 81.0 82.7 42.6 55.4 52.1 53.7

Xiaomi 9.0 107.4 43.0 13.9 40.0 29.6 32.4

Oppo 37.8 139.2 55.7 48.2 32.7 40.4 36.1

Vivo 35.1 211.7 24.9 31.3 37.5 36.4 37.4

Shipments (mn units) 1,438 1,469 1,465 1,403 1,372 1,258 1,403

SEC 320 311 318 292 296 246 271

Apple 232 215 216 209 191 204 201

Huawei 107 139 154 206 241 206 245

Xiaomi 71 53 93 119 126 104 126

Oppo 43 100 112 113 114 112 131

Vivo 38 77 88 101 110 99 116

YoY (%) 10.5 2.2 -0.3 -4.3 -2.2 -8.3 11.6

SEC 1.0 -2.8 2.0 -8.0 1.2 -16.9 10.1

Apple 20.2 -7.0 0.2 -3.2 -8.5 7.0 -1.4

Huawei 44.9 30.2 10.7 33.6 16.8 -14.3 18.7

Xiaomi 23.1 -25.3 74.8 28.4 5.5 -17.4 21.2

Oppo 39.9 133.8 12.0 1.4 0.9 -2.3 17.1

Vivo 35.8 103.1 13.4 15.4 8.8 -9.8 17.1

Bit shipments (mn GB) 25,833 39,136 60,890 83,586 115,642 143,620 211,574

SEC 6,353 6,050 8,047 13,341 24,915 29,704 43,209

Apple 9,738 13,500 21,756 26,559 26,976 34,231 38,792

Huawei 1,397 3,293 6,656 12,678 23,008 30,007 54,735

Xiaomi 987 1,528 3,821 5,587 8,250 8,836 14,183

Oppo 559 3,124 5,447 8,185 10,961 15,039 23,977

Vivo 492 3,112 4,409 6,679 9,995 12,303 19,797

Bit growth (%) 59.0 51.5 55.6 37.3 38.4 24.2 47.3

SEC 55.1 -4.8 33.0 65.8 86.8 19.2 45.5

Apple 65.1 38.6 61.2 22.1 1.6 26.9 13.3

Huawei 179.1 135.6 102.1 90.5 81.5 30.4 82.4

Xiaomi 34.2 54.9 150.1 46.2 47.7 7.1 60.5

Oppo 93.2 459.3 74.3 50.3 33.9 37.2 59.4

Vivo 83.5 533.1 41.7 51.5 49.6 23.1 60.9

Bit share (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0

SEC 24.6 15.5 13.2 16.0 21.5 20.7 20.4

Apple 37.7 34.5 35.7 31.8 23.3 23.8 18.3

Huawei 5.4 8.4 10.9 15.2 19.9 20.9 25.9

Xiaomi 3.8 3.9 6.3 6.7 7.1 6.2 6.7

Oppo 2.2 8.0 8.9 9.8 9.5 10.5 11.3

Vivo 1.9 8.0 7.2 8.0 8.6 8.6 9.4


Samsung Electronics


May 13, 2020

Client SSDs: 2020 bit growth estimated at 37.4%

We think the client SSD adoption growth rate has already peaked. For consumer PCs, the

SSD adoption rate increased 14%p YoY to 51.4% in 2019. In 2019, overall client SSD

shipments climbed 46.1% YoY to 260mn units, as lower NAND prices led to a decline in

mainstream SSD ASP (to US$40), helping to drive up SSD adoption by consumer PC makers.

Given the recent upturn in NAND prices and the sharp increase in SSD adoption rates for

consumer PCs, we believe a major factor in client SSD bit growth is highly likely to be the

content per unit trend. For 2020, we forecast overall client SSD shipments to grow 7.2% YoY

to 280mn units and average content per PC to expand 28.3% YoY to 466GB, resulting in

overall client SSD bit growth of 37.4%.

While per-unit content growth should be more limited for client SSDs compared to

enterprise SSDs, we still see moderate upside. For consumer PCs, average SSD content per

unit currently stands at just 351GB, much lower than Seagate Technology’s (STX US/CP:

US$50.17) average PC HDD capacity during 2018-19 (nearly 1.2TB). Going forward, we

expect storage capacity of 1TB+ to become the norm for consumer PCs. With average

spending on storage capacity per PC likely to remain flattish, we expect the average SSD

content per consumer PC to expand to nearly 1.2TB over the medium to long term.

Figure 88. PC SSDs: Sales volume and penetration trends Figure 89. PC SSD/HDD ASP trends


Figure 90. PC SSDs: Content per unit trend Figure 91. Seagate’s avg. PC HDD capacity

Source: Gartner, Mirae Asset Daewoo Research Source: Seagate, Mirae Asset Daewoo Research

13.3

18.8

26.729.3

37.2

51.4

59.4

67.7

7.6

46.1

7.2

0

20

40

60

80

0

150

300

450

600

2014 2016 2018 2020F

(%)(mn units) PC SSD units (L) PC HDD units (L)

PC SSD penetration (R) PC SSD unit growth(R)

134.6

117.4

90.6

78.8

94.2

70.4

41.4

67.0 62.9

0

40

80

120

160

2013 2015 2017 2019 2021F

(US$/unit)

Consumer PC SSD ASP

2.5" PC HDD ASP

3.5" PC HDD ASP

0.5

0.8

1.1

1.4

1.7

3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19

(TB)

351

10.4

14.412.8

3.0

5.6

14.0

28.3

15.0

0

8

16

24

32

0

150

300

450

600

2014 2016 2018 2020F

(%)(GB/unit)

Counsumer PC SSD content (L)

Consumer PC SSD content YoY (R)

Samsung Electronics


May 13, 2020

Enterprise SSDs: 2020 bit growth estimated at 41.8%

For mobile and client SSDs, content per device is determined mainly by device makers. For

enterprise SSDs, on the other hand, the customers (users) generally choose the content

based on their budgets. Thus, demand for enterprise SSDs is more tied to customers’

budgets than to price movements.

For example, in 2019, despite a 50% YoY fall in enterprise SSD ASP (following a 35% fall in

2018), enterprise SSD bit growth actually slowed to 27.4%—the lowest level in six years—as

the plunge in prices prompted prospective buyers to wait until a bottom was confirmed.

Indeed, bit shipments began to pick up in 4Q19, as prices began to stabilize at end-2019

raising expectations for sales volume and bit growth (� price increases) in 2020. For 2020,

we forecast enterprise SSD sales volume growth at 10.5% and bit growth at 41.8%.

For enterprise devices, SSD adoption rates are at the upper-30% level, but the proportion of

SSDs remains at the low-10% level. This points to ample growth potential, in our view.

Figure 92. Enterprise SSDs: Bit, ASP, and sales volume growth


Figure 93. Enterprise SSDs and HDDs: Content per unit trends Figure 94. Enterprise SSDs and HDDs: Sales volume trends


111.3

82.7

41.4

63.8 76.6

27.4 41.8

51.9

-38 -40

-6 -5

-35-50

26

-17

62.6

30.0 32.8 37.4

15.3 12.5 10.5 10.3

-60

0

60

120

180

2014 2015 2016 2017 2018 2019 2020F 2021F

(%)

Enterprise SSD Bit growth Enterprise SSD ASP chg. Enterprise SSD unit growth

3.5

5.6

7.4 7.6

9.9

11.6 11.811.2

12.3

0

5

10

15

20

0.0

0.4

0.8

1.2

1.6

2013 2015 2017 2019 2021F

(%)(mn PB)

Enterprise SSD (L)

Enterprise HDD (L)

Enterprise SSD share (R)

9.0

13.6

16.9

22.0

28.4 28.7

32.1

35.338.1

0

12

24

36

48

0

30

60

90

120

2013 2015 2017 2019 2021F

(%)(mn units)

Enterprise HDD units (L)Enterprise SSD units (L)Enterprise SSD penetration (R)

Samsung Electronics


May 13, 2020

Table 15. Global SSD demand model

2015 2016 2017 2018 2019 2020F 2021F

Average content per unit (GB) 337 374 434 531 556 720 893

Enterprise SSD 938 998 1,190 1,823 2,064 2,649 3,648

Server-class SSD 869 856 1,012 1,529 1,748 2,332 3,338

Storage-class SSD 1,211 1,611 2,180 3,441 3,863 4,427 5,467

Client SSD 245 284 296 317 364 466 536

YoY (%) 27.4 11.1 16.1 22.3 4.7 29.4 24.0

Enterprise SSD 40.5 6.5 19.2 53.2 13.2 28.3 37.7

Server-class SSD 25.9 -1.5 18.2 51.2 14.3 33.4 43.1

Storage-class SSD 120.9 33.0 35.3 57.8 12.3 14.6 23.5

Client SSD 18.5 16.2 4.0 7.1 14.8 28.2 15.1

Shipments (mn units) 106 149 166 209 295 317 355

Enterprise SSD 14 19 26 30 33 37 41

Server-class SSD 11 15 22 25 28 31 35

Storage-class SSD 3 4 4 5 5 6 6

Client SSD 92 130 140 179 261 280 315

YoY (%) 22.7 40.1 11.3 25.6 41.3 7.6 12.0

Enterprise SSD 30.0 32.8 37.4 15.3 12.5 10.5 10.3

Server-class SSD 23.8 34.9 43.6 15.2 13.1 10.3 10.9


Client SSD 21.7 41.3 7.6 27.5 46.1 7.2 12.2


Enterprise SSD 13,224 18,704 30,634 54,112 68,959 97,791 148,518

Server-class SSD 9,784 13,005 22,073 38,429 49,671 73,102 116,047


Client SSD 22,578 37,057 41,478 56,671 95,036 130,616 168,732

Bit growth (%) 56.4 55.7 29.3 53.6 48.0 39.3 38.9

Enterprise SSD 82.7 41.4 63.8 76.6 27.4 41.8 51.9

Server-class SSD 55.8 32.9 69.7 74.1 29.3 47.2 58.7


Client SSD 44.2 64.1 11.9 36.6 67.7 37.4 29.2

Bit share (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Enterprise SSD 36.9 33.5 42.5 48.8 42.0 42.8 46.8

Server-class SSD 27.3 23.3 30.6 34.7 30.3 32.0 36.6


Client SSD 63.1 66.5 57.5 51.2 58.0 57.2 53.2


Samsung Electronics


May 13, 2020

NAND supply outlook: Capacity expansion by SEC, cost reductions by competitors

In 2020 and beyond, we expect the NAND market to be shaped by: 1) SEC’s market share

expansion, and 2) cost reduction efforts by competitors. As outlined in our third investment

point, we expect SEC to continue to execute massive capex and enjoy a dominant share of

the NAND market.

For 2020 and 2021, we forecast NAND market bit growth at 29.0% and 40.3%, respectively,

and SEC’s bit growth at 24.7% and 42.7%. Notably, we expect SEC to deliver below-industry

bit growth in 2020 due to a high base of comparison. In 2021, however, the firm’s bit growth

will likely exceed overall market growth once again, as shipments of 96-layer 3D NAND (the

Xi’an II fab in China) and 128-layer 3D NAND (the P1 fab) are set to begin in 4Q20.

We also forecast NAND market wafer capacity to increase by 113,000 wpm in 2020 and

87,000 wpm in 2021. However, we note that our 2020 estimate for Kioxia’s capacity

expansion (94,000 wpm) includes the resumption of 85,000 wpm that had been lost due to

power outages at the firm’s Yokkaichi plants in 2019. Stripping away the recovered capacity,

we estimate Kioxia’s net additions at 9,000 wpm in 2020; factoring in this adjustment, we

project market net capacity growth at 18,000 wpm in 2020 and 87,000 wpm in 2021.

As for SEC, we forecast net capacity expansions of 23,000 wpm in 2020 and 80,000 wpm in

2021, which would account for most of the industry’s growth. Factoring in our net wafer

capacity growth estimates, the transition from 2D to 3D NAND, and capacity reductions

resulting from the 128-layer migration, we project new wafer input to total 58,000 wpm in

2020 and 106,000 wpm in 2021.

Meanwhile, SEC’s competitors are anticipated to engage in efforts to improve cost efficiency

in order to counteract the Korean giant’s market share expansion strategy.

For example, SK Hynix is expected to focus on beefing up 96-layer 3D NAND fabrication

(yield stabilization, etc.) without any net wafer capacity additions in 2020. Meanwhile, the

firm should continue its transition to 3D NAND by reducing its 2D NAND wafer capacity

(from the current 30%), and adding 40,000 wpm to the M15 fab in 2020-21.

Kioxia (Western Digital) is expected to see capacity reductions at the Yokkaichi plants (Fabs

3, 4, and 5) amid layer count increases and the transition to 3D NAND. The new K1 fab is

projected to add 50,000 wpm to compensate for such capacity reductions. Other than that,

we do not expect to see any capacity additions.

Figure 95. Quarterly NAND bit growth trends (SEC vs. market) Figure 96. Annual NAND bit growth trends (SEC vs. market)


-1.9

3.0 3.0

15.0

-3.0

25.0

15.0

5.0

-1.4

5.1 6.2

11.4

3.3

15.4

12.1

5.6

-10

0

10

20

30

1Q20 3Q20 1Q21 3Q21

(%)

SEC

Market48.1

24.7

42.7 45.4

29.0

40.3

0

15

30

45

60

2019 2020F 2021F

(%)

SEC Market

Samsung Electronics


May 13, 2020

Micron is transitioning to a replacement gate (RG) architecture for 128-layer 3D NAND

production (moving away from floating gate technology). The firm has expanded its 96-layer

3D NAND inventory since 3Q19 in preparation for capacity reductions amid the shift. It is

also expected to make supplementary investments in the newly added Fab 10 capacity

(Singapore) to tackle poor yields and productivity deterioration resulting from the

architecture transition. For 2021, we expect to see new wafer input of roughly 20,000 wpm.

Intel is expected to focus on the development of 144-layer 3D NAND (probably through the

double-stacking of 72-layer NAND). We have yet to figure out whether the company will

expand its NAND wafer capacity. The firm, which mainly offers server CPUs, has yet to map

out clear strategies for the NAND business.

Table 16. Global NAND wafer capacity outlook (‘000 wpm)

Company/fab 1Q20F 2Q20F 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F 2019 2020F 2021F

SEC 435 466 484 506 507 508 510 502 443 473 507

Line 12 108 106 104 101 99 97 95 94 125 105 96

Line 16 30 30 30 30 29 27 26 24 38 30 26

P1 180 185 185 190 190 190 190 190 165 185 190

Xi’an I 115 115 115 115 109 104 99 94 115 115 101

Xi’an II 2 30 50 70 80 90 100 100 0 38 93

Capacity increase 12 33 20 25 25 35 30 10 48 58 106

Capacity decrease -2 -2 -2 -2 -9 -9 -8 -8 -77 -35 -25

Net chg. 10 31 18 23 16 26 22 2 -30 23 80

SK Hynix 200 193 202 205 205 215 220 225 240 200 216

M11 70 65 65 65 65 65 65 65 90 66 65

M12 60 55 55 55 55 55 55 55 80 56 55

M14 40 38 37 35 35 35 35 35 50 38 35

M15 30 35 45 50 50 60 65 70 19 40 61

Capacity increase 0 5 10 5 0 10 5 5 19 21 21

Capacity decrease -5 -12 -1 -2 0 0 0 0 -39 -60 -5

Net chg. -5 -7 9 3 0 10 5 5 -20 -40 16

Kioxia/Western Digital 493 491 488 480 480 480 480 480 395 488 480

Y- 3 105 95 90 80 76 72 69 65 96 93 70

Y- 4 196 194 192 190 181 171 163 155 147 193 167

Y- 5 52 51 51 50 48 45 43 41 44 51 44

Y- new 2 50 50 50 50 50 50 50 50 49 50 50

Y- 6 90 100 100 100 100 100 100 100 59 98 100

Iwate K1 0 1 5 10 26 41 56 69 - 4 48

Net chg. 28 -2 -3 -8 0 0 1 -1 -77 94 -8

Micron 188 187 186 184 184 184 184 184 133 131 136

Manassas 38 38 37 36 36 36 36 36 38 37 36

Fab 7 52 52 52 52 49 47 45 42 55 52 46

Fab 10 98 97 96 94 89 85 81 77 40 40 35

Fab 10E 0 0 1 2 10 17 23 29 - 2 20

Net chg. -2 0 1 -1 1 0 -1 0 -8 -9 -1

Intel 100 100 99 98 93 88 84 80 73 99 86

Dalian, 100 100 99 98 93 88 84 80 73 99 86

Net chg. 15 0 -1 -1 -5 -5 -4 -4 25 27 -13

Other 20 25 30 40 40 40 40 40 9 29 40

Net chg. 0 5 5 10 0 0 0 0 9 20 11

Total 1,437 1,463 1,492 1,518 1,530 1,561 1,583 1,585 1,364 1,477 1,565

Net chg. -20 -14 11 16 12 8 29 -9 -100 113 87

Notes: Wafer capacity chg. for SEC and SK Hynix are based on input; net chg. for other chipmakers is based on avg. wafer capacity.

Source: DRAMeXchange, IDC, Mirae Asset Daewoo Research

Samsung Electronics


May 13, 2020

NAND market prices and earnings outlook for SEC

For 2020, we project the supply/demand ratio to fall to a six-year low of 132% based on

smartphone and SSD applications, which collectively account for 90% of NAND demand. This

figure is much lower than the off-peak average of 185% in 2015-16, but is similar to the

2017-18 level of 137% (when the market was expanding). Nevertheless, supply has not been

as tight as in 2017-18, probably due to an absence of sharp demand growth from key

applications.

In 2017, capacity growth was limited amid the transition to 3D NAND. However, demand

from mobile applications surged, with smartphone NAND bit growth spiking 211.2% YoY (vs.

the industry average of +76.6%) driven by Huawei (smartphone shipment growth) and

Xiaomi (NAND content growth). As mobile NAND prices picked up, overall earnings

improved.

In 2018, demand bit growth for smartphone/client SSD-use NAND fell below the industry

average of 46.1%. However, enterprise SSD-use NAND delivered robust bit growth of 76.6%,

aided by increased demand from server-class SSDs as well as storage-class SSDs (HDD

substitutes). Storage SSD bit growth came in at 83.2% in 2018.

Figure 97. NAND supply/demand ratio Figure 98. Supply/demand bit growth spread


Figure 99. Quarterly supply/demand bit growth spread


-20

0

20

40

60

1Q16 1Q17 1Q18 1Q19 1Q20 1Q21

(%, %p)

Bit growth spread

Bit demand growth from core NAND applications

NAND bit supply growth

19.1

-4.7

-41.9

-4.5

1.5

-4.1 -2.2

-50

0

50

100

150

2015 2016 2017 2018 2019 2020F 2021F

(%, %p)

Bit growth of core NAND applications


Bit growth spread

188.2 182.4

139.1 134.8 136.3 132.1 130.1

0

50

100

150

200

0

200

400

600

800

2015 2016 2017 2018 2019 2020F 2021F

(%)(bn GB) Bit demand from core NAND applications (L)

NAND bit supply growth (R)

Supply/demand bit ratio (R)

Samsung Electronics


May 13, 2020

For 2020, we expect demand bit growth of 33.0% for core NAND applications. Smartphone

NAND will likely deliver below-industry bit growth of 24.2%, as smartphone shipments are

projected to fall 8.3% YoY this year. In the short term, demand from enterprise SSDs is likely

to help make up for the decrease in smartphone NAND bit growth. Overall, we anticipate

NAND manufacturers to limit supply growth to a conservative 29% YoY this year to keep

inventory at appropriate levels.

From 2H20, bit growth is likely to be driven by a recovery in smartphone NAND demand. In

2021, we expect supply/demand conditions to be similar YoY, as SEC will likely ramp up

supply to take advantage of a bump in demand from the client SSD segment. For 2021, we

forecast NAND bit growth of 40.3% for the market and 42.7% for SEC. Prices are projected to

remain stable. (Sharp price hikes seem unlikely given the demand and supply dynamics.)

Table 17. Global NAND supply/demand model

2015 2016 2017 2018 2019 2020F 2021F

NAND demand by application


Smartphone 12,917 19,568 60,890 83,586 115,642 143,620 212,574

SEC 6,353 6,050 8,047 13,341 24,915 29,704 43,209

Apple 9,738 13,500 21,756 26,559 26,976 34,231 40,256

Huawei 1,397 3,293 6,656 12,678 23,008 30,007 54,735

Xiaomi 987 1,528 3,821 5,587 8,250 8,836 14,183

Oppo 559 3,124 5,447 8,185 10,961 15,039 23,977

Vivo 492 3,112 4,409 6,679 9,995 12,303 19,797

Enterprise SSD 13,224 18,704 30,634 54,112 68,959 97,791 148,518

Server-class SSD 9,784 13,005 22,073 38,429 49,671 73,102 116,047


Client SSD 22,578 37,057 41,478 56,671 95,036 130,616 168,732

Bit growth (%) 24.5 54.6 76.6 46.1 43.9 33.0 42.4

Smartphone -20.5 51.5 211.2 37.3 38.4 24.2 48.0

SEC 55.1 -4.8 33.0 65.8 86.8 19.2 45.5

Apple 65.1 38.6 61.2 22.1 1.6 26.9 17.6

Huawei 179.1 135.6 102.1 90.5 81.5 30.4 82.4

Xiaomi 34.2 54.9 150.1 46.2 47.7 7.1 60.5

Oppo 93.2 459.3 74.3 50.3 33.9 37.2 59.4

Vivo 83.5 533.1 41.7 51.5 49.6 23.1 60.9

Enterprise SSD 82.7 41.4 63.8 76.6 27.4 41.8 51.9

Server-class SSD 55.8 32.9 69.7 74.1 29.3 47.2 58.7


Client SSD 44.2 64.1 11.9 36.6 67.7 37.4 29.2

NAND supply


SEC 34,298 57,452 72,760 97,080 143,800 179,335 255,847

SK Hynix 11,293 16,441 19,269 26,316 39,749 54,085 73,873

Kioxia/Western Digital 35,415 48,922 66,627 95,319 123,578 165,155 229,459

Micron 10,608 13,502 20,221 31,846 47,040 55,518 80,040

Intel 0 1,024 6,018 11,301 26,624 34,912 42,592

Bit growth (%) 43.5 49.9 34.6 41.6 45.4 29.0 40.3

SEC 50.2 67.5 26.6 33.4 48.1 24.7 42.7

SK Hynix 64.8 45.6 17.2 36.6 51.0 36.1 36.6

Kioxia/Western Digital 37.6 38.1 36.2 43.1 29.6 33.6 38.9

Micron 26.1 27.3 49.8 57.5 47.7 18.0 44.2

Intel 487.7 87.8 135.6 31.1 22.0

Supply/demand ratio (%) 188.2 182.4 139.1 134.8 136.3 132.1 130.1

Bit growth spread (%p) 19.1 -4.7 -41.9 -4.5 1.5 -4.1 -2.2


Samsung Electronics


May 13, 2020

Price increases will likely slow toward 2H, especially for 2D NAND and NAND wafers, due to

supply growth for SSD applications (rather than for mobile applications).

We observe that even in oversupply, memory prices are determined by actual supply and

demand as well as supply and demand growth trends. In 2017, we estimate that NAND

prices were hiked not only because demand was growing faster than supply, but also

because demand growth was forecast to slow down more quickly than supply growth. In

2019, prices turned sharply downward as the supply/demand growth spread shifted from

gradual contraction to stabilization.

Currently, prices remain stable, as the slowdown in demand growth is expected to prevail

until mid-2020. Heading toward 2H, however, supply growth is forecast to outpace demand

growth, keeping prices in check despite tight supply conditions. Still, we expect prices to

remain relatively stable, as the spread between demand and supply growth is narrowing.

Figure 100. NAND market supply/demand bit growth trends


Figure 101. 2D NAND: Contract price trends and forecasts


-20

0

20

40

60

1Q16 1Q17 1Q18 1Q19 1Q20 1Q21

(%, %p)

NAND bit growth of core applications


Bit growth spread (A)

Bit growth spread accel. (dA/dT)

-50

-25

0

25

50

0.0

1.5

3.0

4.5

6.0

1/14 7/14 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 7/19 1/20 7/20 1/21 7/21

(%)(US$)

Premium

MLC spot

MLC contract

Mirae Asset Daewooforecasts

Samsung Electronics


May 13, 2020

Figure 102. Mobile storage memory: Contract price trends and forecasts


Figure 103. NAND TLC wafers: Monthly contract price trends and forecasts


-30

-15

0

15

30

0.0

3.0

6.0

9.0

12.0

1/17 7/17 1/18 7/18 1/19 7/19 1/20 7/20 1/21

(%)(US$)

128Gb MoM (R) 256Gb MoM (R) 512Gb MoM (R)

128Gb (L) 256Gb (L) 512Gb (L)

-30

-15

0

15

30

0.00

0.15

0.30

0.45

0.60

1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21

(%)(US$) Blended QoQ (R) eMMC MLC QoQ (R)

eMMC TLC QoQ (R) UFS QoQ (R)

Blended 1GB equiv. price (L) eMMC MLC 1GB equiv. price (L)

eMMC TLC 1GB equiv. price (L) UFS 1GB equiv. price (L)

Samsung Electronics


May 13, 2020

For 2Q20, we forecast SEC’s NAND unit to post revenue of W6.0tr (QoQ +9.0%) and an OP

margin of 2.3% (slight QoQ improvement). With inventory remaining at normal levels (two

weeks), we believe a 4.0% ASP hike is likely. Moreover, we expect to see bit growth of 3.0%,

driven by solid demand from server and laptop SSDs through 2Q.

Meanwhile, SEC is anticipated to continue to add wafer capacity until end-2020, bringing its

full-year capacity growth to 4.4% YoY (+81,000 wpm YoY). As the company is projected to

aggressively push out shipments to keep inventory at normal levels, price increases could

slow from 3Q20. For 4Q20, we expect to see around 15% bit shipment growth and a 1% fall

in ASP, with pent-up demand for smartphones starting to pick up. With ASP holding steady

overall, we project the firm’s OP margin to stay largely unchanged from the 2Q level.

For 2021, we forecast NAND demand bit growth to hit 42.4%, driven by smartphone

(+48.0%) and enterprise SSD (+51.9%) applications. On the supply side, SEC is likely to post

above-industry bit growth of 42.7% (vs. the industry average of 40.3%). All in all, we expect

SEC’s NAND wafer capacity to expand 16.9% YoY, ASP to decline 2.4%, and OP margin to

edge up YoY to 23.6% (which suggests that competitors will fail to break even).

Table 18. SEC: Key NAND business assumptions (mn units, ‘000 wafers, US$, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

ASP (1Gb equiv.) 0.24 0.22 0.20 0.21 0.22 0.23 0.23 0.23 0.22 0.23 0.22

QoQ/YoY -26.4 -10.3 -6.1 4.8 4.3 4.0 1.0 -1.0 -51.6 5.7 -2.4

Shipments 13,300 17,700 19,700 21,200 20,800 21,424 22,067 25,377 71,900 89,667 127,923

Bit growth (%) 4.0 33.1 11.3 7.6 -1.9 3.0 3.0 15.0 48.1 24.7 42.7

Wafer capacity 481 453 439 425 435 466 484 506 442 461 539

QoQ/YoY 3.4 -5.8 -3.1 -3.2 2.3 7.1 3.8 4.7 -7.8 4.4 16.9

Revenue 3,620 4,480 4,790 5,320 5,523 6,018 6,141 6,815 18,210 24,497 33,272

QoQ/YoY -23.6 23.8 6.9 11.1 3.8 9.0 2.0 11.0 -24.0 34.5 35.8

Operating profit 147 -69 -13 643 1,132 1,341 1,353 1,519 762 5,427 7,848

QoQ/YoY -85.9 -146.8 -80.7 -4,928.0 76.0 18.4 0.9 12.3 -92.4 612.3 44.6

OP margin 4.1 -1.5 -0.3 12.1 20.5 22.3 22.0 22.3 4.2 22.2 23.6


Figure 104. SEC: NAND earnings trends and forecasts


-20

0

20

40

60

-4,000

0

4,000

8,000

12,000

1Q18 3Q18 1Q19 3Q19 1Q20P 3Q20F 1Q21F 3Q21F

(%)(Wbn)


Samsung Electronics


May 13, 2020

[Semiconductors] DRAM outlook

DRAM supply/demand and earnings forecasts

(Demand) For 2020, we expect demand bit growth of 18.1% for core DRAM applications. In

the short term, server DRAM demand is likely to help make up for the decline in smartphone

DRAM bit growth. Looking ahead to 2H20, smartphone DRAM demand is likely to pick up,

which would have a positive knock-on effect for server DRAM demand.

As global smartphone shipment growth has reached saturation, we believe DRAM bit

growth hinges on DRAM content. Going forward, we believe additional DRAM content

growth will be driven by: 1) the iPhone models set for release in 2H20, which are expected

to have greater memory content; and 2) the introduction of 5G capabilities. Reflecting our

DRAM content estimates and the smartphone shipment outlook, we project mobile DRAM

bit growth to reach only 7.5% in 2020, due to negative shipment growth, but jump to 34.3%

in 2021, supported by a shipment recovery and DRAM content growth.

(Supply) For 2020 and 2021, we forecast DRAM market bit growth at 17.2% and 20.7%,

respectively, and SEC’s bit growth at 16.6% and 21.3%.

For 2020, we expect the DRAM market to see new capacity additions of 76,000 wpm (5.8% of

the current level) amid a conservative capex environment. However, total capacity will likely

shrink by 28,000 wpm, due to: 1) a natural reduction arising from tech migration; and 2)

conversion to CIS (from DRAM) at SEC and SK Hynix.

With demand uncertainties mounting amid the COVID-19 pandemic, we believe DRAM

suppliers will take a more conservative approach toward capacity expansion. We expect

DRAM market bit growth to reach 17.2% in 2020 and 20.6% in 2021.

(Earnings) For 2Q20, we forecast SEC’s DRAM unit to post revenue of W8.6tr (+12.5% QoQ)

and an OP margin of 40.2%. As device makers stockpiled components in 1Q despite soft

smartphone demand, we expect to see only modest bit growth in 2Q. As for server DRAM,

slight bit growth is likely despite the absence of capex expansion, thanks to new demand

related to contactless services. As inventory remains at normal levels, we forecast a 20% ASP

hike for server DRAM, a 2% rise for mobile DRAM, and an 8.8% pickup in blended ASP. With

shipments unlikely to decline, we expect to see strong profit expansion beyond the effects

of ASP hikes and cost savings.

We forecast ASP hikes to continue into 2H20. Due to robust server DRAM demand since

4Q19, wafer capacity has been reallocated from mobile to server DRAM. Against this

backdrop, we believe a recovery in mobile DRAM demand in 3Q and beyond will lead to

price stabilization for mobile DRAM and additional price hikes for server DRAM.

We anticipate margins to edge up YoY in 2020 before rising above 50% in 2021. We

anticipate profits to surge over 60% YoY in 2021 on the back of elevated price levels and

continued shipment growth.

Samsung Electronics


May 13, 2020

Mobile DRAM: Bit growth to reach 7.5% YoY in 2020, reflecting new 6GB iPhones

Mobile devices are responsible for 35% of total DRAM demand. Huawei and SEC are the

largest contributors, with each accounting for more than 20% of mobile DRAM demand.

Notably, Apple, which ships 190-200mn units annually, accounts for only 11.7% of mobile

DRAM demand in 2019, similar to that of China’s Oppo (10.4%), as the iPhone’s average

DRAM content per unit is only 3.3GB, below the market average of 3.9GB.

From 2015 to 2017, DRAM bit growth was driven by Chinese smartphone makers’

shipment/DRAM content expansion. While global volumes displayed only single-digit

gains/losses during this period, Chinese smartphone makers worked overtime to capture

market share from SEC and Apple via higher-spec devices.

When global smartphone shipments declined during 2018 and 2019, DRAM bit growth

continued on the back of shipment growth by Huawei and Xiaomi and SEC’s DRAM content

growth. In particular, mobile DRAM content increased sharply for SEC’s high-end

smartphone models released in 2019 and onwards, as the firm sought to raise ASP through

higher specifications such as 5G capabilities.

Figure 105. Mobile DRAM demand breakdown by company Figure 106. Global mobile DRAM content per unit tends


Figure 107. Huawei: DRAM content per unit by price Figure 108. SEC: DRAM content per unit by price


26.4 22.0 20.4 20.1 21.8 21.7 22.7

14.5 14.3 13.4 12.8 11.7 13.8 13.0

9.0 11.4 13.5 18.1

22.6 22.5 25.1 7.3

4.5 7.6 9.3

9.5 8.5 8.7

3.8 9.6 10.9

11.2 10.4 10.8

10.8

2015 2016 2017 2018 2019 2020F 2021F

Other

Vivo

Oppo

Xiaomi

Huawei

Apple

SEC

1.3

2.0 2.4

2.8 3.3

3.9

4.8

1.8

2.8

3.7

4.5 4.9

5.6

6.4

0.0

2.0

4.0

6.0

8.0

10.0

2015 2016 2017 2018 2019 2020F 2021F

(GB)

Total

SEC

Apple

Huawei

Xiaomi

Oppo

Vivo

0.0

2.5

5.0

7.5

10.0

1Q16 1Q17 1Q18 1Q19

(GB)

Ultra low-end (<US$100)

Low-end (US$100-200)

Mid-end (US$200-400)

High-end (US$400-600)

Ultra high-end (>US$600)

0.0

2.5

5.0

7.5

10.0

1Q16 1Q17 1Q18 1Q19

(GB)

Ultra low-end (<US$100)

Low-end (US$100-200)

Mid-end (US$200-400)

High-end (US$400-600)

Ultra high-end (>US$600)

Samsung Electronics


May 13, 2020

As global smartphone shipment growth has reached saturation, we believe DRAM bit

growth hinges on DRAM content. We expect mobile DRAM content per device to increase

gradually, in light of the smartphone market’s shift toward higher specifications. However,

given the significant DRAM content expansion of the past few years, dramatic growth is

unlikely. Nevertheless, we look for additional DRAM content growth, given that: 1) the

iPhone models scheduled to be released in 2H20 are expected to have greater memory; and

2) the introduction of 5G capabilities should lead to an increase in overall content.

1) Growing possibility that some new iPhone models (2H20) will feature 6GB

The efficiency of the iOS operating system allows iPhones to function with lower DRAM

content relative to Android smartphones. The iPhone’s DRAM content, which was upgraded

from 2GB to 3GB with the release of the iPhone 7 Plus in 4Q16, has only increased to 4GB in

the subsequent new product cycles (spanning 14 quarters). This figure is on par with the

market average of 3.9GB but less than half of the average (8.1GB) for similarly priced

Android rivals (US$600+).

However, the popularity of sophisticated camera modules, streaming services, and 5G has

increased the need for iPhone models to adopt more DRAM. Against this backdrop, we

forecast the high-end variants of the iPhone 12, to be released in 3Q20 at the earliest, to

adopt 6GB.

We expect the new 6GB iPhone models to have a meaningful impact on DRAM bit growth in

2021, when they begin to penetrate the market in full force. Assuming total iPhone

shipments at 200mn units in 2020 and 210mn units in 2021, and shipments of 6GB iPhone

models at 29mn units in 2020 and 91mn units in 2021, the average DRAM content in iPhone

devices should expand 18.7% YoY in 2020 and 23.6% YoY in 2021, outpacing the smartphone

market average.

Figure 109. DRAM content by iPhone model

Source: GSMArena, IDC, Mirae Asset Daewoo Research

Table 19. iPhone shipments by DRAM content (GB, mn units)

DRAM content per unit 2016 2017 2018 2019 2020F 2021F

1.0 37.3 13.0 7.0 0.0 0.0 0.0

2.0 150.5 112.0 67.6 36.8 6.9 9.4

3.0 27.6 90.9 98.5 60.6 10.4 14.2

4.0 35.7 93.6 69.4 100.8

6.0 28.9 91.2

iPhone shipments 215 216 209 191 204 209

YoY growth -7.0 0.2 -3.2 -8.5 7.0 2.4

Avg. DRAM content per unit 2.0 2.4 2.8 3.3 3.9 4.8

YoY (%) 52.4 20.8 17.8 18.6 18.7 23.6


0.5 0.51.0 1.0 1.0 1.0 1.0

2.0 2.0 2.0

3.0

2.0

3.0 3.0

2.0

3.0 3.0

4.0 4.0 4.0 4.0 4.0 4.0

6.0

0.0

2.0

4.0

6.0

8.0

10.0

4 4s 5 5c 5s 6 6+ 6s 6s+

7 7+ 8 (2GB

)

8 (3GB

)

8+ SE

X XR

XS

XS

Max

11 11 Pro

11 Pro M

ax

12 12 Pro

(GB)

Overall avg. smartphone DRAM content = 3.9GB

US$600+ Android smartphone DRAM content = 8.1GB

Samsung Electronics


May 13, 2020

2) Introduction of 5G capabilities to drive up overall DRAM content per smartphone

5G-enabled smartphone releases are set to accelerate from 2H20. While faster

telecommunication/data transfer speeds will certainly require more robust specifications,

there are no official guidelines for how much DRAM is required 5G.

Based on the smartphone models released in 4Q19, the average DRAM content in 5G-

enabled smartphones exceeds 8GB, nearly twice the average of 4G smartphones at 4.2GB.

When stripping away low/mid-end 4G smartphones ranging from US$300-500 (5G

smartphones are mostly positioned as high-end models), the average DRAM content in 5G

smartphones is 17-32% higher (based on Android models).

Assuming 5G smartphone shipments at 150mn units in 2020 and 400mn units in 2021, we

estimate mobile DRAM bit growth will reach 11.5% in 2020 and 40.9% in 2021, up 4.0%p and

6.6%p, respectively, from our estimates, which do not reflect 5G-related demand.

Figure 110. Avg. DRAM content by telecom technology (all

price ranges)

Figure 111. Avg. DRAM content by telecom technology

(US$300-500)


Table 20. Mobile DRAM bit growth (based on 5G smartphone shipments and DRAM content

assumptions)

2019 2020F 2021F Notes

Content per unit (GB)

Apple 3.3 3.9 4.8

Other 5G 8.4 6.2 7.4 30% higher than non-5G

Non-5G 4.0 4.8 5.7

Total 3.9 4.8 6.0

Smartphone shipments (mn units)

Apple 191 204 209

Other 5G 16 150 400 5G smartphone models

Non-5G 1,165 903 794

Total 1,372 1,258 1,403

Mobile DRAM bit shipments (mn GB)

Apple 629.6 799.8 1,011.9

Other 5G 135.5 926.4 2,954.6

Non-5G 4,631.5 4,291.2 4,509.7

Total 5,396.6 6,017.4 8,476.3

Bit growth (%) reflecting 5G demand 19.1 11.5 40.9

Bit growth (%) excluding 5G demand 19.1 7.5 34.3


8.7

7.7

6.6

0.0

2.5

5.0

7.5

10.0

mmWave Sub-6 LTE

(GB)

9.0

8.2

4.2

0.0

2.5

5.0

7.5

10.0

mmWave Sub-6 LTE

(GB)

Samsung Electronics


May 13, 2020

In our bear-case scenario, we assume 5G smartphone shipments at 100mn units in 2020

and 300mn units in 2021—below consensus levels—reflecting low visibility on smartphone

shipments and high uncertainties over the 5G road map in 2020. Even so, we project mobile

DRAM demand to sharply increase YoY in 2021.

Table 21. Mobile DRAM bit growth (bear-case scenario)

2019 2020F 2021F Note

Content per unit (GB)

Apple 3.3 3.9 4.8

Other 5G 8.4 6.2 7.4 30% higher than non-5G

Non 5G 4.0 4.8 5.7

Total 3.9 4.7 5.9

Smartphone shipments (mn units)

Apple 191 204 209

Other 5G 16 100 300 5G smartphone models

Non 5G 1,165 953 894

Total 1,372 1,258 1,403

Mobile DRAM bits (mn GB)

Apple 629.6 799.8 1,011.9

Other 5G 135.5 617.6 2,216.0

Non 5G 4,631.5 4,528.7 5,077.9

Total 5,396.6 5,946.1 8,305.8

Bit growth (%) reflecting 5G demand 19.1 10.2 39.7

Bit growth (%) excluding 5G demand 19.1 7.5 34.3


Based on our mobile DRAM demand model, we estimate DRAM content per smartphone to

increase 17.3% YoY in 2020 and 20.4% YoY in 2021, reflecting the likely releases of new 6GB

iPhone models and disregarding 5G-related upside. Reflecting our DRAM content estimates

and the smartphone shipment outlook, we project mobile DRAM bit growth to reach only

7.5% in 2020 (due to negative shipment growth), but jump to 34.3% in 2021 (supported by a

shipment recovery and DRAM content growth). Mobile DRAM bit growth is unlikely to turn

negative, as DRAM content growth should more than offset the decline in smartphone

shipments.

Table 22. Demand assumptions and mobile DRAM bit growth scenarios (%)


Smartphone shipments

Base -24.9 -2.3 23.7 10.8 -2.2 -8.3 11.6

Bear -24.9 -3.0 10.0 20.0 -2.2 -12.6 10.7

Worst -24.9 -4.0 5.0 15.0 -2.2 -16.4 13.0

DRAM content per unit 3.9 2.3 7.5 3.3 21.8 17.3 20.4

Mobile DRAM bit growth

Base -21.9 0.0 33.0 14.4 19.1 7.5 34.3

Bear -21.9 -0.8 18.3 23.9 19.1 2.6 33.3

Worst -21.9 -1.8 12.9 18.8 19.1 -1.9 36.1


Samsung Electronics


May 13, 2020

Table 23. Global mobile DRAM demand model

2015 2016 2017 2018 2019 2020F 2021F

Avg. DRAM content (GB) 1.4 2.0 2.6 3.2 3.9 4.6 5.6

SEC 1.7 2.1 2.4 3.1 4.0 5.1 6.5

Apple 1.3 2.0 2.4 2.8 3.3 3.9 4.8

Huawei 1.7 2.4 3.3 4.0 5.1 6.3 8.0

Xiaomi 2.1 2.5 3.1 3.6 4.1 4.7 5.4

Oppo 1.8 2.8 3.7 4.5 4.9 5.6 6.4

Vivo 1.3 3.0 3.6 4.3 4.6 5.2 5.9

YoY (%) 27.3 41.2 29.0 24.6 21.7 17.3 20.4

SEC 16.7 23.6 16.7 28.0 27.9 28.6 27.5

Apple 37.0 52.4 20.8 17.8 18.6 18.7 23.6

Huawei 51.5 40.4 37.8 19.8 27.1 25.1 25.9

Xiaomi 41.1 18.9 25.7 13.5 14.8 15.9 14.2

Oppo 59.0 58.2 30.7 20.1 9.5 15.0 14.1

Vivo 7.2 126.9 18.2 21.3 6.1 14.4 12.2

Shipments (mn units) 1,437.6 1,469.5 1,465.5 1,402.6 1,371.9 1,257.6 1,402.9

SEC 320.2 311.4 317.7 292.2 295.8 245.9 270.7

Apple 231.5 215.4 215.8 208.8 191.0 204.4 201.4

Huawei 107.0 139.3 154.2 206.0 240.6 206.3 244.8

Xiaomi 71.0 53.0 92.7 119.1 125.6 103.8 125.8

Oppo 42.7 99.8 111.7 113.3 114.3 111.7 130.9

Vivo 38.0 77.3 87.6 101.1 110.1 99.3 116.3

YoY (%) 10.5 2.2 -0.3 -4.3 -2.2 -8.3 11.6

SEC 1.0 -2.8 2.0 -8.0 1.2 -16.9 10.1

Apple 20.2 -7.0 0.2 -3.2 -8.5 7.0 -1.4

Huawei 44.9 30.2 10.7 33.6 16.8 -14.3 18.7

Xiaomi 23.1 -25.3 74.8 28.4 5.5 -17.4 21.2

Oppo 39.9 133.8 12.0 1.4 0.9 -2.3 17.1

Vivo 35.8 103.1 13.4 15.4 8.8 -9.8 17.1

Bit shipments (mn GB) 2,046.2 2,953.8 3,799.7 4,531.6 5,396.6 5,803.6 7,794.5

SEC 540.7 649.8 773.8 910.7 1,178.8 1,260.6 1,769.2

Apple 296.8 421.0 509.4 580.5 629.6 799.8 1,011.9

Huawei 184.1 336.6 513.2 821.4 1,219.2 1,307.1 1,953.6

Xiaomi 148.7 132.1 290.3 423.0 512.2 490.6 679.1

Oppo 76.8 284.1 415.7 506.5 559.5 628.6 839.9

Vivo 50.5 232.9 312.2 437.0 504.6 520.8 684.2

Bit growth (%) 40.6 44.4 28.6 19.3 19.1 7.5 34.3

SEC 17.8 20.2 19.1 17.7 29.4 6.9 40.3

Apple 64.6 41.8 21.0 13.9 8.5 27.0 26.5

Huawei 119.5 82.8 52.5 60.0 48.4 7.2 49.5

Xiaomi 73.7 -11.2 119.8 45.7 21.1 -4.2 38.4

Oppo 122.4 269.9 46.3 21.8 10.5 12.3 33.6

Vivo 45.5 360.8 34.1 40.0 15.5 3.2 31.4

Bit share (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0

SEC 26.4 22.0 20.4 20.1 21.8 21.7 22.7

Apple 14.5 14.3 13.4 12.8 11.7 13.8 13.0

Huawei 9.0 11.4 13.5 18.1 22.6 22.5 25.1

Xiaomi 7.3 4.5 7.6 9.3 9.5 8.5 8.7

Oppo 3.8 9.6 10.9 11.2 10.4 10.8 10.8

Vivo 2.5 7.9 8.2 9.6 9.4 9.0 8.8


Samsung Electronics


May 13, 2020

Server DRAM: Growth drivers likely to be replacement demand in 2020 and the

Whitley platform in 2021

The server market is rapidly expanding in terms of both shipment volumes and average

DRAM content, boding well for the server DRAM demand picture. DRAM content growth was

the key driver for server DRAM demand growth during 2017 and 2018. Indeed, while server

shipments increased 2.5% YoY in 2017 and 13.1% YoY in 2018, DRAM content per server

surged 42.1% YoY in 2017 and 22.6% YoY in 2018.

DRAM content per server displayed steady quarterly growth of around 30% YoY through

end-2018, supported by robust demand from cloud computing companies. However, when

the server market took a breather on a sharp downturn in demand in early 2019, server

DRAM content declined, which we attribute to a temporary decline in the share of high-

capacity models, rather than a meaningful fall in DRAM content.

Given that the average DRAM content per dual-CPU server was 194GB/CPU in 4Q19, we

estimate that, for the most part, all 12 CPU memory slots were filled with 16GB modules

(16GB module x 12 slots = 192GB). We project server DRAM content per server to continue

to increase in 2020 and beyond, helped by: 1) Intel’s introduction of the Whitley platform

and the resultant increase in DRAM channels per CPU from six to eight; and 2) an increase in

mainstream DRAM module capacity (32GB � 64GB).

Figure 112. DRAM content per server


1) Introduction of Whitley platform and resultant increase in DRAM channels per CPU

Memory manufacturers are preparing for server DRAM demand to expand, taking their

cues from Intel’s progress along its 2018-21 CPU road map. Specifically, the chipmaker’s

migration to 10nm should drive the resumption of investments in new servers, ending a

temporary server market dry spell.

Whitley, the successor to Purley, supports 38 physical cores per CPU (vs. 28 cores) and offers

PCIe 4.0 (64 lanes per CPU vs. 48 lanes for PCIe 3.0); as such, the introduction of the new

platform will likely stimulate demand for new servers. Moreover, Whitley is set to feature

eight memory channels (vs. six in previous platforms), supporting DRAM demand.

Recent media reports suggest that the release of 14nm++ Cooper Lake processers, which

were expected to be the first chips to adopt the Whitley platform with eight-channel

memory support, are being pushed back from 2Q20. Accordingly, the impact of the increase

in DRAM channel count is unlikely to be felt until late 2020, when 10nm Ice Lake server CPUs

arrive. We expect the supply of eight-channel chips to begin in earnest in 2021.

0

100

200

300

400

1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20F 3Q20F 1Q21F 3Q21F

(GB) Dual-CPU server Single-CPU server

16GB DIMM x 6 = 96GB


16GB DIMM x 16 = 32GB DIMM x 8 = 256GB


Samsung Electronics


May 13, 2020

Table 24. Intel’s road map for server CPUs

Platform Purley Whitley Eagle Stream

Processor name Sky Lake X/SP Cascade Lake X/SP (Cooper Lake) Ice Lake Sapphire Rapids Granite Rapids

Processor launch Nov. 2017 Apr. 2019 2Q20 3Q20 2021 2022

Processor node 14nm+ 14nm++ 14nm++ 10nm+ 10nm++ 7nm

DRAM support DDR4 2666Mhz DDR4 2933Mhz DDR4 3200Mhz DDR4 3200Mhz DDR5 DDR5

No. of cores per socket 18/28 max. 18/28 max. 48 max. 38 max. - -

No. of DRAM channels 6 6 8 8 8 8

No. of DIMM per socket 12 12 16 16 16 16

Max. DRAM per CPU 1TB-4.5TB

PCIe lanes 48xPCIe3.0 48xPCIe3.0 64xPCIe3.0 64xPCIe4.0


2) Increase in mainstream DRAM module capacity (32GB �� 64GB)

With the mass production of 16Gb single-die packages currently underway, the market

share of 64GB dual in-line memory module (RDIMM) equipped with 16 chipsets (16Gb) has

been increasing. Currently, 8Gb-based 32GB modules are the market standard. When 64GB

modules go mainstream, we expect DRAM content per server to expand to the extent that

CPU core capacity allows.

Figure 113. DRAM market breakdown by die capacity Figure 114. SEC’s 64GB DDR4 RDIMM

Source: DRAMeXchange, Mirae Asset Daewoo Research Source: SEC, Mirae Asset Daewoo Research

Table 25. Demand assumptions and server DRAM bit growth scenarios (%)


Server shipments

Base -15.5 6.1 1.0 5.0 -0.9 4.2 3.2

Bear -15.5 0.0 1.0 5.0 -0.9 -0.3 7.9

DRAM content per unit 5.6 3.6 0.6 4.3 24.0 35.9 22.6

Server DRAM bit growth

Base 2.4 39.3 9.8 10.8 19.7 41.6 26.5

Bear 2.4 31.3 9.8 10.8 19.7 35.4 32.2


0%

25%

50%

75%

100%

1Q18 3Q18 1Q19 3Q19

16Gb

12Gb

8Gb

6Gb

4Gb

2Gb

1Gb

512Mb

256Mb

128Mb

64Mb

16Mb

Samsung Electronics


May 13, 2020

DRAM supply outlook: Conservative across the market

For 2020, we expect the DRAM market to see new capacity additions of 76,000 wpm (5.8% of

the current level) amid a conservative capex environment. However, total capacity will likely

shrink by 28,000 wpm, due to: 1) a natural reduction arising from tech migration; and 2)

conversion to CIS (from DRAM) at SEC and SK Hynix.

For SK Hynix, we believe that shipment growth will be driven by tech migration, rather than

capacity expansion, in 2020. The company is likely to add capacity of 28,000 wpm to help

neutralize capacity losses arising from tech migration at the Wuxi fab (C2). However, we

expect capacity losses to outpace additions due to continued conversion to CIS at the M10

fab, with overall capacity likely to shrink by 15,000 wpm (-4.1% YoY). However, we forecast

supply bit growth at 14.0% YoY thanks to a higher 1Xnm/1Ynm production mix. In 2021, we

expect the company to execute capex of around 45,000 wpm in light of our 2021 demand

outlook.

We think that Micron will also deliver migration-driven shipment growth in 2020. Micron’s

major DRAM production sites are the Hiroshima fab (MMJ; formerly Elpida) in Japan and the

Taichung (MMT; formerly Rexchip) and Tao Yuan (MMTW, formerly Inotera) fabs in Taiwan.

As Micron has already expanded its Taichung and Hiroshima fabs, the company is well

positioned to offset capacity losses arising from tech migration. Although overall capacity

will likely remain unchanged YoY, we forecast supply bit growth at 19.6% thanks to tech

migration.

For SEC, we expect supply bit growth to reach 16.7%, falling slightly below overall DRAM

market bit growth (+17.2%). We project capacity additions of 10,000 wpm at P1 and 20,000

wpm at P2 this year. To meet increasing CIS demand, the company has been expanding

capacity at Line 11. Following the completion of capacity expansion for Line 11, the

company is set to add capacity at Line 13. For 20nm DRAM capacity (90,000 wpm) at Line 13,

the company appears to be reducing utilization by 40,000 wpm. Given the conversion to CIS,

we expect to see a net DRAM capacity loss of 19,000 wpm.

Figure 115. Quarterly DRAM bit growth trends: SEC vs. market Figure 116. Annual DRAM bit growth trends: SEC vs. market


-5.4

0.9

3.1

5.9

-1.4

12.5 11.7

0.0

-4.2

1.5 3.4 4.1

-1.0

11.6 11.8

2.1

-7

0

7

14

21

1Q20 3Q20 1Q21 3Q21

(%)

SEC

Market

23.1

16.6

21.3 20.5

17.2

20.7

0

10

20

30

40

2019 2020F 2021F

(%)

SEC

Market

Samsung Electronics


May 13, 2020

In 2020, with demand uncertainties mounting amid the COVID-19 pandemic, we believe

DRAM suppliers will take a more conservative approach toward capacity expansion. We

expect DRAM market bit growth to reach 17.2% in 2020 and 20.6% in 2021.

Table 26. Global DRAM wafer capacity outlook (‘000 wpm)

Company/ fab 1Q20F 2Q20F 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F 2019 2020F 2021F

SEC 470 455 470 470 485 489 504 509 483 466 497

Line 13 90 70 60 50 50 50 50 50 95 68 50

Line 15 190 195 195 200 196 192 188 184 198 195 190

Line 16 50 50 50 50 49 47 46 44 50 50 46

Line 17 80 80 80 80 80 80 80 80 80 80 80

P1 60 60 70 70 80 80 90 90 60 65 85

P2 0 0 15 20 30 40 50 60 0 9 45

Capacity additions 0 5 25 10 20 10 20 10 0 40 60

Capacity losses -5 -20 -10 -10 -6 -5 -5 -5 -51 -45 -21

Net capacity growth -5 -15 15 0 15 5 15 5 30 -19 30

SK Hynix 340 342 338 345 338 348 358 349 356 341 348

M10 20 20 15 15 12 10 8 6 52 18 9

C2 115 110 110 110 110 110 110 110 138 111 110

C2E 30 40 40 40 40 50 50 50 9 38 48

M14 175 172 173 175 166 158 150 143 158 174 154

M16 0 0 0 5 10 20 40 40 - 1 28

Capacity additions 10 10 1 7 5 20 20 0 80 28 45

Capacity losses -25 -8 -5 0 -12 -11 -10 -9 -75 -38 -41

Net capacity growth -15 2 -4 7 -7 9 10 -9 13 -15 7

Micron 353 352 351 346 353 349 355 351 350 351 352

Manassas 22 22 23 23 23 23 23 23 22 23 23

MMJ 120 117 112 109 118 116 125 123 117 115 121

MMTW 95 93 92 90 90 90 90 90 95 93 90

MMT 116 120 124 124 122 119 117 114 116 121 118

Net capacity growth -2 -1 -2 -4 6 -4 6 -4 -6 0 1

Other 59 59 59 64 64 64 64 64 60 60 64

Net capacity growth 0 0 0 5 0 0 0 0 -1 0 4

Total 1,292 1,278 1,290 1,305 1,318 1,326 1,356 1,346 1,320 1,291 1,337

Net capacity growth -20 -14 11 16 13 8 29 -10 37 -28 45

Notes: For SEC and SK Hynix, net capacity growth is based on input capacity; for other companies, net capacity growth is based on

annual average levels.

Source: DRAMeXchange, IDC, Mirae Asset Daewoo Research

Samsung Electronics


May 13, 2020

DRAM market prices and SEC earnings outlook

For 2020, we project the supply/demand ratio to reach 155% (similar to the 2018-19

average) based on mobile, server, and PC applications, which collectively account for 70% of

DRAM demand. Despite weakening demand prospects amid the COVID-19 pandemic, we

expect DRAM suppliers to defend (or even raise) prices YoY through conservative supply

expansion.

In early 2017, the DRAM market was in oversupply (similar to 2016 conditions). However,

oversupply started to ease meaningfully, and demand bit growth (+24.0%) outpaced supply

bit growth (+21.7%) over the full year, despite a 0.3% YoY fall in smartphone shipments.

Growth in DRAM content per device—led by Apple and Chinese smartphone makers—

played a significant role in demand growth. And perhaps more importantly, surging

demand from servers led to tighter supply and an overall pickup in DRAM prices.

In 2018, supply failed to keep pace with growing demand. While smartphone shipments

contracted at an accelerated pace YoY (-4.3% YoY), continued growth in DRAM content per

device (led by SEC) drove mobile DRAM demand up 19.3% YoY. Moreover, server DRAM

demand bit growth surged 40.8% YoY thanks to hyperscalers. Overall, demand bit growth

from key applications reached 22.0%. On the supply side, however, bit growth declined to

14.7% amid tech migration, with SEC and SK Hynix posting per-wafer bit growth of just 2.7%

and 5.5%, respectively. As a result, supply fell short of demand despite ongoing wafer

capacity expansion efforts.

In 2019, demand weakened across most applications. Smartphone shipments remained on

the downtrend, DRAM content growth slowed, and excessive stock at hyperscalers weighed

heavily on server DRAM bit growth (+24.7%; -16.1%p YoY). At the same time, the DRAM

market entered oversupply as tech migration progressed smoothly. However, DRAM

suppliers—which enjoy an oligopoly—managed to keep the full-year oversupply ratio at the

2018 level by minimizing wafer capacity expansion. Prices also stabilized toward 2H.

For 2020, we expect demand to continue to dwindle amid the coronavirus pandemic, with

demand bit growth falling to a six-year low of 18.1% despite a projected rise in pent-up

demand in 2H. Server DRAM inventory is anticipated to normalize, with demand bit growth

rising above 40% due to a low base of comparison. However, smartphone shipments are

projected to plunge a record 8.3% YoY. On the supply side, we expect to see annual bit

growth of 17.2% (below projected demand bit growth) amid shrinking average wafer

capacity.

Meanwhile, inventory is forecast to remain at normal levels despite lackluster demand, due

to conservative supply management. Against this backdrop, we think that a supply shortage

could occur if demand returns to growth in 2021. As such, DRAM prices are likely to remain

stable going forward.

We expect smartphone demand to start to recover in 3Q, with shipments returning to 2019

levels in 4Q. Accordingly, we assume that mobile DRAM shipments will turn around in 3Q,

and shipment growth will accelerate in 4Q. As for server DRAM, shipments are projected to

stay flat QoQ in 3Q. Hyperscalers are likely to continue to stockpile DRAM until 3Q, adjusting

the pace of their purchases depending on the direction of the mobile DRAM market.

Samsung Electronics


May 13, 2020

Figure 117. DRAM supply/demand ratio Figure 118. DRAM supply/demand bit growth spread by

application


Figure 119. SEC: Bit growth breakdown projections Figure 120. SK Hynix: Bit growth breakdown projections


Figure 121. Supply/demand bit growth spread for core applications (quarterly)


7.5

13.6

3.6

-4.1

16.3 5.5

16.3 18.9

-10

0

10

20

30

2017 2018 2019 2020F

(%)

SK Hynix bits/wafer growth

SK Hynix wafer capacity growth

3.4

9.4 6.7

-7.2

10.9 2.7

15.4 25.7

-10

0

10

20

30

2017 2018 2019 2020F

(%)

SEC bits/wafer growth

SEC wafer capacity growth

167.5 168.9 165.7

155.8 156.3 155.0

145.2

100

125

150

175

200

0

50

100

150

200

2015 2016 2017 2018 2019 2020F 2021F

(%)(bn GB) DRAM bit demand from core applications (L)

DRAM bit supply (L)

Supply/demand ratio (R)

3.0 1.1

-2.4

-7.3

0.4

-1.0

-8.2 -15

0

15

30

45

2015 2016 2017 2018 2019 2020F 2021F

(%, %p)

DRAM bit growth of core applications (L)DRAM bit supply growth (L)Bit growth spread (L)

-15

0

15

30

45

1Q16 1Q17 1Q18 1Q19 1Q20 1Q21

(%, %p)

Bit growth spread (L)

DRAM bit growth of core applications (L)

DRAM bit supply growth (L)

Samsung Electronics


May 13, 2020

Table 27. Global DRAM supply/demand model

2015 2016 2017 2018 2019 2020F 2021F

Demand from key DRAM applications

Bit shipments (mn Gb) 34,218 44,219 54,853 66,927 80,384 94,965 122,344

Mobile DRAM 16,370 23,631 30,398 36,250 43,173 46,429 62,356

SEC 4,325 5,198 6,190 7,286 9,431 10,085 14,154

Apple 2,375 3,368 4,076 4,644 5,037 6,398 8,095

Huawei 1,473 2,693 4,106 6,571 9,753 10,457 15,629

Xiaomi 1,190 1,057 2,323 3,384 4,098 3,924 5,433

Oppo 614 2,272 3,325 4,052 4,476 5,029 6,719

Vivo 404 1,863 2,498 3,496 4,037 4,167 5,474

Server DRAM 7,819 10,503 15,960 22,478 28,021 39,327 49,804

PC DRAM 10,028 10,085 8,496 8,199 9,191 9,209 10,184

Bit growth (%) 17.8 29.2 24.0 22.0 20.1 18.1 28.8

Smartphone 40.6 44.4 28.6 19.3 19.1 7.5 34.3

SEC 17.8 20.2 19.1 17.7 29.4 6.9 40.3

Apple 64.6 41.8 21.0 13.9 8.5 27.0 26.5

Huawei 119.5 82.8 52.5 60.0 48.4 7.2 49.5

Xiaomi 73.7 -11.2 119.8 45.7 21.1 -4.2 38.4

Oppo 122.4 269.9 46.3 21.8 10.5 12.3 33.6

Vivo 45.5 360.8 34.1 40.0 15.5 3.2 31.4

Server DRAM 27.0 34.3 51.9 40.8 24.7 40.4 26.6

PC DRAM -10.8 0.6 -15.8 -3.5 12.1 0.2 10.6

Supply from key DRAM foundries

Bit shipments (mn Gb) 57,317 74,708 90,902 104,262 125,642 147,262 177,530

SEC 26,283 35,685 40,920 45,970 56,580 66,039 79,955

SK Hynix 16,265 20,190 25,237 30,225 36,435 41,539 48,340

Micron 11,622 15,160 20,908 23,391 27,616 33,037 38,553

Bit growth (%) 20.8 30.3 21.7 14.7 20.5 17.2 20.6

SEC 30.1 35.8 14.7 12.3 23.1 16.7 21.1

SK Hynix 22.9 24.1 25.0 19.8 20.5 14.0 16.4

Micron 4.0 30.4 37.9 11.9 18.1 19.6 16.7

Supply/demand ratio (%) 167.5 168.9 165.7 155.8 156.3 155.1 145.1

Bit growth spread (%p) 3.0 1.1 -2.4 -7.3 0.4 -0.9 -8.3


Figure 122. Supply/demand bit growth (market)


-20

0

20

40

60

1Q16 1Q17 1Q18 1Q19 1Q20 1Q21

(%, %p)

DRAM bit growth of core applications (L)

DRAM bit supply growth (L)

Bit growth spread (A)

Bit growth spread accel. (dA/dT)

Samsung Electronics


May 13, 2020

Figure 123. PC DRAM: Monthly spot and contract prices


Figure 124. Server DRAM: Monthly contract price trends and forecasts


Figure 125. Mobile DRAM: Contract price trends and forecasts


-15

0

15

30

45

0

3

6

9

12

4/16 10/16 4/17 10/17 4/18 10/18 4/19 10/19 4/20 10/20 4/21

(%)(US$)

Premium Spot Contract


-25

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25

50

75

0

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200

300

400

1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 7/19 1/20 7/20 1/21 7/21

(%)(US$)

32GB MoM (R) 16GB MoM (R)

32GB REGDIMM (L) 16GB REGDIMM (L)


-30

-15

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3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20

(%)(US$)

LPDDR4/4X QoQ (R) LPDDR3 QoQ (R)

LPDDR4/4X 1GB equiv. (L) LPDDR3 1GB equiv. (L) Mirae Asset Daewooforecasts

Samsung Electronics


May 13, 2020

For 2Q20, we forecast SEC’s DRAM unit to post revenue of W8.6tr (+12.5% QoQ) and an OP

margin of 40.2%. As device makers stockpiled components in 1Q despite soft smartphone

demand, we expect to see only modest bit growth in 2Q. As for server DRAM, slight bit

growth is likely despite the lack of capex expansion, thanks to demand related to

contactless services. As inventory remains at normal levels, we forecast a 20% ASP hike for

server DRAM, a 2% rise for mobile DRAM, and an 8.8% pickup in blended ASP. With

shipments unlikely to decline, we expect to see strong profit expansion beyond the effects

of ASP hikes and cost savings.

We forecast ASP hikes to continue into 2H20. Due to robust server DRAM demand since

4Q19, wafer capacity has been reallocated from mobile to server DRAM. Against this

backdrop, we believe a recovery in mobile DRAM demand in 3Q and beyond will lead to

price stabilization for mobile DRAM and additional price hikes for server DRAM.

We anticipate margins to edge up YoY in 2020 before rising above 50% in 2021. We

anticipate profits to surge over 60% YoY in 2021 on the back of elevated price levels and

continued shipment growth.

Table 28. SEC: DRAM earnings forecasts and major assumptions (mn units, ‘000 sheets, Wbn, US$, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

ASP (1Gb equiv.) 0.65 0.53 0.43 0.40 0.40 0.44 0.45 0.46 0.48 0.44 0.46

QoQ/YoY -26.5 -19.2 -17.9 -8.1 1.7 9.7 2.4 1.3 -49.2 -9.1 3.9

Shipment 10,680 12,700 16,400 16,800 15,900 16,044 16,549 17,546 56,580 66,039 79,956

Bit growth (%) -0.3 18.9 29.1 2.4 -5.4 0.9 3.1 6.0 23.1 16.7 21.1

Wafer capacity 500 485 480 475 470 455 470 470 485 466 497

QoQ/YoY -4.9 -3.0 -1.0 -1.0 -1.1 -3.2 3.3 0.0 6.7 -3.9 6.5

Revenue 7,821 7,790 8,450 7,830 7,645 8,608 8,916 9,335 31,891 34,504 42,357

QoQ/YoY -26.8 -0.4 8.5 -7.3 -2.4 12.6 3.6 4.7 -33.7 8.2 22.8

Operating profit 3,688 3,226 2,640 2,525 2,325 3,457 3,743 4,011 12,078 13,536 21,048

QoQ/YoY -44.4 -12.5 -18.2 -4.3 -7.9 48.7 8.3 7.2 -63.5 12.1 55.5

OP margin 47.2 41.4 31.2 32.2 30.4 40.2 42.0 43.0 37.9 39.2 49.7


Figure 126. SEC: DRAM earnings trends and forecasts


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1Q18 3Q18 1Q19 3Q19 1Q20P 3Q20F 1Q21F 3Q21F

(%)(Wbn)


Samsung Electronics


May 13, 2020

[Semiconductors] System LSI and foundry outlook

System LSI (CIS)

CIS demand has sharply increased, driven by the increasing sophistication of smartphone

cameras. With smartphones embracing multi-camera designs, the average number of rear-

facing cameras per smartphone rose to two (+40.7% YoY) in 2019, with total CIS shipments

for rear-facing cameras reaching 2.73bn units (+37.6% YoY).

For 2020, despite an increase of 23.0% YoY in CIS content per device, we expect a temporary

slowdown (+12.8% YoY) in the growth of CIS shipments for use in rear-facing cameras, in

light of a decline in smartphone shipment volumes. Looking to 2021, we expect the average

number of rear-facing cameras per smartphone to increase to 3.1 units (+25.8% YoY) and

smartphone shipments to return to normal levels, driving strong CIS shipments growth

(+40.3% YoY).

We estimate non-SoC semiconductors (including CIS) will account for approximately 36% of

foundry and system LSI revenue. We project non-SoC semiconductor revenue at W6.4tr

(+22.2% YoY) in 2020 and W7.4tr (+16.8% YoY) in 2021.

Figure 127. No. of CIS shipments for rear-facing smartphone

cameras

Figure 128. Avg. no. of CIS units per smartphone by country

(rear-facing cameras)


Figure 129. Rear-facing cameras per smartphone Figure 130. Smartphone camera resolution trend


6.5

11.5

15.9

37.6

12.8

40.3

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2,000

3,000

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2016 2017 2018 2019 2020F 2021F

(%)(mn units)

VivoOppoXiaomiHuaweiAppleSECTotal YoY growth (R)

1.0 1.0 1.2

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YoY (R)

17.4

21.3

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24

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(%)(MP) Avg. resolution (L) YoY (R)

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China

India

US

Europe

Samsung Electronics


May 13, 2020

Table 29. Global smartphone CIS demand model (rear-facing cameras)

2016 2017 2018 2019 2020F 2021F

Avg. number of rear-facing cameras per smartphone (units)

1.0 1.2 1.4 2.0 2.3 2.7

SEC 1.0 1.0 1.2 2.0 2.4 2.9

Apple 1.1 1.4 1.5 1.7 1.9 2.3

Huawei 1.2 1.4 1.9 2.4 2.8 3.2

Xiaomi 1.0 1.1 1.4 2.1 2.6 3.0

Oppo 1.0 1.2 1.5 2.3 2.7 3.2

Vivo 1.0 1.2 1.5 2.3 2.9 3.4

%, YoY 4.2 11.8 21.1 40.7 16.3 16.0

SEC 0.0 2.8 20.9 60.6 22.2 18.6

Apple 12.8 24.6 7.9 15.4 9.3 18.8

Huawei 16.8 17.7 30.6 30.9 17.3 11.4

Xiaomi 3.7 9.0 25.7 48.6 21.0 15.6

Oppo 0.0 23.0 23.7 50.3 19.8 16.1

Vivo 0.6 17.1 27.2 56.3 22.0 19.2

Smartphone shipments (mn units) 1,469 1,465 1,403 1,372 1,258 1,403

SEC 311 318 292 296 246 271

Apple 215 216 209 191 204 201

Huawei 139 154 206 241 206 245

Xiaomi 53 93 119 126 104 126

Oppo 100 112 113 114 112 131

Vivo 77 88 101 110 99 116

%, YoY 2.2 -0.3 -4.3 -2.2 -8.3 11.6

SEC -2.8 2.0 -8.0 1.2 -16.9 10.1

Apple -7.0 0.2 -3.2 -8.5 7.0 -1.4

Huawei 30.2 10.7 33.6 16.8 -14.3 18.7

Xiaomi -25.3 74.8 28.4 5.5 -17.4 21.2

Oppo 133.8 12.0 1.4 0.9 -2.3 17.1

Vivo 103.1 13.4 15.4 8.8 -9.8 17.1

Rear-facing camera shipments (mn units) 1,537 1,714 1,986 2,733 2,914 3,772

SEC 311 327 363 591 600 783

Apple 243 303 317 334 391 458

Huawei 168 219 381 583 586 775

Xiaomi 55 105 169 265 265 371

Oppo 100 137 172 261 306 416

Vivo 78 103 151 258 284 396

%, YoY 6.5 11.5 15.9 37.6 6.6 29.4

SEC -2.8 4.9 11.2 62.6 1.6 30.5

Apple 4.9 24.8 4.4 5.5 17.0 17.1

Huawei 52.1 30.2 74.4 52.8 0.5 32.3

Xiaomi -22.5 90.5 61.4 56.8 -0.1 40.1

Oppo 133.8 37.7 25.5 51.7 17.0 36.0

Vivo 104.3 32.8 46.8 70.1 10.1 39.5


Samsung Electronics


May 13, 2020

For CIS, we believe the adoption of under-screen camera (USC) technology will be a key

variable over the medium and long term. Smartphones have been rapidly shifting from a

narrow-notch design to a punch-hole solution to accommodate larger displays. We believe

the endgame for form factor innovation is the delivery of a true full-screen experience.

Against this backdrop, mobile cameras and image sensors have continued to shrink.

Smartphone manufacturers, led by Chinese players, are pursuing USC technology over the

medium and long term to achieve a full-screen form factor. It is worth noting that USC

technology will allow image sensors to become larger. Indeed, if cameras are tucked behind

the display panel, camera size will become less of a factor; this would allow for the

installation of large image sensors to facilitate high-resolution front-facing cameras, which

should be supportive to ASP hikes.

Figure 131. Smartphone camera evolution

Source: Press materials-, Mirae Asset Daewoo Research

Figure 132. USC technology

Source: Oppo, Mirae Asset Daewoo Research

Samsung Electronics


May 13, 2020

Foundry

We estimate that foundry revenue from non-captive customers will account for 34% of non-

memory semiconductor revenue in 2020. Despite steady growth in the CIS segment, we

forecast this figure to increase to 41% in 2021, driven by growing exposure to Qualcomm

and Nvidia.

We expect foundry capacity to expand 43,000 wpm in 2020 and 53,000 wpm in 2021. With a

utilization rate at around the 90% level, we expect these capacity expansions to lead to

revenue growth. For 2020, we forecast the system LSI and foundry businesses to report

revenue of W17.2tr (+17.3% YoY) and an OP margin of 10.4%. For 2021, we forecast the

division to deliver revenue of W21.2tr (+23.3% YoY) and an OP margin of 13.4%, as foundry

supplies to Qualcomm and Nvidia should gather traction.

Table 30. SEC: System LSI and foundry earnings forecasts and key assumptions: (‘000 wafers, US$, %, Wbn)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Wafer capacity 848 848 848 848 938 953 983 1,028 848 975 1,133

QoQ/YoY 0.0 0.0 0.0 0.0 10.6 1.6 3.1 4.6 4.4 15.0 16.1

ASP 3,887 4,031 4,314 3,809 4,234 3,811 3,887 3,965 4,027 3,971 4,264

QoQ/YoY -7.2 3.7 7.0 -11.7 11.2 -10.0 2.0 2.0 -10.1 -1.4 7.4

Revenue 3,004 3,788 4,324 3,608 4,500 3,965 4,319 4,491 14,723 17,276 21,295

QoQ/YoY -13.0 8.4 16.2 11.2 49.8 4.7 -0.1 24.5 5.8 17.3 23.3

SoC (AP/modem) 961 947 1,124 902 1,575 1,190 1,080 1,123 3,934 4,967 4,996

LSI (CIS/DDI) 1,021 1,288 1,470 1,443 1,710 1,586 1,512 1,572 5,222 6,380 7,453

Non-captive foundry 1,021 1,553 1,730 1,263 1,215 1,190 1,728 1,797 5,566 5,929 8,846

Qualcomm 1,186 3,096

NVIDIA 788 2,457

Other 3,955 3,292

Operating profit 287 240 424 281 389 403 501 505 1,232 1,798 2,845

QoQ/YoY 196.8 -16.1 76.2 -33.6 38.2 3.8 24.3 0.7 -16.5 45.9 58.3

OP margin 9.5 6.3 9.8 7.8 8.6 10.2 11.6 11.2 8.4 10.4 13.4


Figure 133. SEC: Foundry capacity and utilization Figure 134. SEC: System LSI and foundry revenue


0

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1Q18 3Q18 1Q19 3Q19 1Q20P 3Q20F

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('000 wafers/quarter)

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Samsung Electronics


May 13, 2020

Table 31. SEC: Semiconductor earnings and forecasts (Wbn, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Revenue 14,472 16,088 17,587 16,792 17,640 18,556 19,422 20,742 64,939 76,361 98,026

Memory 11,469 12,300 13,263 13,184 13,140 14,591 15,103 16,251 50,216 59,085 76,731

DRAM 7,821 7,790 8,450 7,830 7,645 8,601 8,991 9,466 31,891 34,703 43,578

NAND 3,620 4,480 4,790 5,320 5,523 6,018 6,141 6,815 18,210 24,497 33,272

System LSI and foundry 3,004 3,788 4,324 3,608 4,500 3,965 4,319 4,491 14,723 17,276 21,295

%, QoQ/YoY -22.8 11.2 9.3 -4.5 5.1 5.2 4.7 6.8 -24.7 17.6 28.4

Memory -26.0 7.2 7.8 -0.6 -0.3 11.0 3.5 7.6 -30.6 17.7 29.9

DRAM -26.8 -0.4 8.5 -7.3 -2.4 12.5 4.5 5.3 -33.7 8.8 25.6

NAND -23.6 23.8 6.9 11.1 3.8 9.0 2.0 11.0 -24.0 34.5 35.8

System LSI and foundry -7.4 26.1 14.2 -16.6 24.7 -11.9 8.9 4.0 5.8 17.3 23.3

OP 4,122 3,398 3,049 3,447 3,990 5,194 5,670 6,161 14,016 21,015 32,655

Memory 3,836 3,158 2,625 3,166 3,319 4,790 5,169 5,656 12,785 18,935 29,810

DRAM 3,688 3,226 2,640 2,525 2,325 3,450 3,818 4,140 12,078 13,732 22,201

NAND 147 -69 -13 643 1,132 1,341 1,352 1,517 708 5,342 7,611

System LSI and foundry 287 240 424 281 389 403 501 505 1,232 1,798 2,845

%, QoQ/YoY -46.9 -17.6 -10.3 13.1 15.8 30.2 9.2 8.7 -68.6 49.9 55.4

Memory -50.0 -17.7 -16.9 20.6 4.9 44.3 7.9 9.4 -70.3 48.1 57.4

DRAM -44.4 -12.5 -18.2 -4.3 -7.9 48.4 10.6 8.4 -63.5 13.7 61.7

NAND -85.9 -146.8 -80.7 -4,928.0 76.0 18.4 0.8 12.2 -92.9 654.4 42.5

System LSI and foundry 196.8 -16.1 76.2 -33.6 38.2 3.8 24.3 0.7 -16.5 45.9 58.3

OP margin 28.5 21.1 17.3 20.5 22.6 28.0 29.2 29.7 21.6 27.5 33.3

Memory 33.4 25.7 19.8 24.0 25.3 32.8 34.2 34.8 25.5 32.0 38.8

DRAM 47.2 41.4 31.2 32.2 30.4 40.1 42.5 43.7 37.9 39.6 50.9

NAND 4.1 -1.5 -0.3 12.1 20.5 22.3 22.0 22.3 3.9 21.8 22.9

System LSI and foundry 9.5 6.3 9.8 7.8 8.6 10.2 11.6 11.2 8.4 10.4 13.4


Table 32. SEC: Key semiconductor earnings assumption (mn units, ‘000 wafers, US$, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

DRAM (1Gb equiv.)

Shipments 10,680 12,700 16,400 16,800 15,900 16,044 16,540 17,509 56,580 65,994 80,078

Bit growth -0.3 18.9 29.1 2.4 -5.4 0.9 3.1 5.9 23.1 16.6 21.3

ASP 0.65 0.53 0.43 0.40 0.40 0.44 0.46 0.47 0.48 0.44 0.47

QoQ/YoY -26.5 -19.2 -17.9 -8.1 1.7 9.6 3.4 2.0 -49.2 -8.6 6.1

Operating expenses 0.34 0.31 0.30 0.27 0.28 0.26 0.26 0.26 0.30 0.27 0.23

QoQ/YoY 2.2 -10.4 -3.7 -9.5 4.5 -5.7 -0.7 -0.2 1.3 -11.1 -13.9

NAND (16Gb equiv.)

Shipments 13,300 17,700 19,700 21,200 20,800 21,424 22,067 25,377 71,900 89,667 127,923

Bit growth 4.0 33.1 11.3 7.6 -1.9 3.0 3.0 15.0 48.1 24.7 42.7

ASP 0.24 0.22 0.20 0.21 0.22 0.23 0.23 0.23 0.22 0.23 0.22

QoQ/YoY -26.4 -10.3 -6.1 4.8 4.3 4.0 1.0 -1.0 -51.6 5.7 -2.4

Operating expenses 0.23 0.22 0.20 0.19 0.18 0.18 0.18 0.18 0.21 0.18 0.17

QoQ/YoY -9.5 -5.1 -7.3 -8.1 -5.7 1.7 1.3 -1.3 -20.2 -14.0 -3.8

System LSI and foundry

Shipments (12”) 848 848 848 848 938 953 983 1,028 848 975 1,133

QoQ/YoY 0.0 0.0 0.0 0.0 10.6 1.6 3.1 4.6 4.4 15.0 16.1

ASP 3,887 4,031 4,314 3,809 4,234 3,811 3,887 3,965 4,027 3,971 4,264

QoQ/YoY -7.2 3.7 7.0 -11.7 11.2 -10.0 2.0 2.0 -10.1 -1.4 7.4


Samsung Electronics


May 13, 2020

Display outlook

Looking to 2Q20, we forecast Samsung Display to post an operating loss of W646bn

(remaining in the red QoQ). The large-sized LCD panel segment should remain in negative

territory, hurt by continued top-line contraction, restructuring costs, and a heavier fixed cost

burden resulting from the shutdown of the L8 line. Meanwhile, the small/mid-sized OLED

segment should turn to a loss, with smartphone demand likely falling short of guidance.

We expect OLED shipment volumes to expand beginning in 3Q20, driven by aggressive

OLED adoption by Chinese smartphone manufacturers and Apple. OLED utilization may

increase in 2H20, supported by a strong recovery in Chinese demand and Apple’s strong 3Q

seasonality. A major customer’s failure to meet the minimum order requirements in 1H20

may lead to a one-off penalty payment of W700bn, which is likely to be recognized in 3Q20

or later. For 2020, we forecast the display division to post revenue of W27.5tr (-11.5% YoY)

and operating profit of W1.0tr (-36.5% YoY). For 2021, we forecast the division to deliver

operating profit of W3.1tr (+209% YoY) on the back of accelerating OLED adoption by Apple.

Table 33. SEC: Display earnings and forecasts (Wbn, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Revenue 6,124 7,622 9,262 8,046 6,590 5,902 7,402 7,578 31,054 27,472 29,765

Large-sized LCD 1,530 1,670 1,500 1,100 1,100 1,000 1,014 784 5,800 3,897 1,660

Small/mid-sized OLED 4,594 5,952 7,762 6,946 5,490 4,903 6,388 6,794 25,254 23,575 28,105

Revenue QoQ/YoY -33.2 24.4 21.5 -13.1 -18.1 -10.4 25.4 2.4 -4.3 -11.5 8.3

Large-sized LCD -20.3 9.2 -10.2 -26.7 0.0 -9.1 1.4 -22.7 -22.7 -32.8 -57.4

Small/mid-sized OLED -36.7 29.5 30.4 -10.5 -21.0 -10.7 30.3 6.4 1.2 -6.6 19.2

OP -561 748 1,174 220 -290 -646 886 1,054 1,581 1,005 3,108

Large-sized LCD -375 -158 -316 -518 -356 -311 -142 -166 -1,366 -975 -823

Small/mid-sized OLED -186 906 1,490 738 66 -335 1,028 1,220 2,948 1,979 3,930

OP QoQ/YoY -157.5 -233.4 57.0 -81.3 -232.1 122.7 -237.2 18.9 -39.6 -36.5 209.3

Large-sized LCD -458.6 -57.9 100.7 63.9 -31.4 -12.5 -54.5 17.3 -3,625.7 -28.7 -15.6

Small/mid-sized OLED -121.4 -586.3 64.6 -50.5 -91.1 -609.7 -407.1 18.7 14.2 -32.9 98.6

OP margin -9.2 9.8 12.7 2.7 -4.4 -10.9 12.0 13.9 5.1 3.7 10.4

Large-sized LCD -24.5 -9.4 -21.1 -47.1 -32.3 -31.1 -14.0 -21.2 -23.6 -25.0 -49.6

Small/mid-sized OLED -4.1 15.2 19.2 10.6 1.2 -6.8 16.1 18.0 11.7 8.4 14.0


Table 34. SEC: Key display earnings assumptions (‘000 m2, US$, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Large-sized LCD

Shipment area 7,956 7,287 6,936 5,685 5,197 5,008 4,932 3,799 27,864 18,937 7,366

QoQ/YoY -6.1 -8.4 -4.8 -18.0 -8.6 -3.6 -1.5 -23.0 -11.9 -32.0 -61.1

ASP 171 196 181 165 161 164 173 178 179 173 194

QoQ/YoY -15.0 14.9 -7.8 -9.1 -2.0 2.0 5.0 3.0 -17.1 -3.1 12.2

Small/mid-sized OLED

Shipment 881 1,078 1,272 1,322 1,333 1,142 1,362 1,497 4,552 5,334 5,066

QoQ/YoY -23.5 22.5 18.0 3.9 0.9 -14.3 19.3 9.9 17.7 17.2 -5.0

ASP 4,637 4,135 4,947 4,469 3,453 3,538 3,941 3,913 4,572 3,717 4,783

QoQ/YoY -17.0 -10.8 19.6 -9.7 -22.7 2.5 11.4 -0.7 -22.1 -18.7 28.7


Samsung Electronics


May 13, 2020

Figure 135. OLED vs. LCD: Big 4 Chinese smartphone

manufacturers Figure 136. OLED vs. LCD: Apple


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Samsung Electronics


May 13, 2020

IM outlook

For 2Q20, we forecast the IM division to post revenue of W19.4tr (-24.9% YoY, -25.3% QoQ)

and operating profit of W1.2tr (-24.8% YoY, -55.7% QoQ), assuming SEC’s global smartphone

shipment volumes at 500mn units (-14% QoQ; -24% QoQ in the US and -18% QoQ in India).

Although SEC is likely to post worse-than-market shipment declines in the US and India, we

expect the firm to maintain its market share levels. Assuming average marketing spend at

US$28.6 per smartphone (+37.4% QoQ), we estimate the IM division to increase total

marketing spend to W2.1tr (+22.4% QoQ) in 2Q20 to defend market share. While OP margin

should slump to 6.0% (-3.9%p QoQ) against this backdrop, we believe increased marketing

spend is inevitable amid weak demand.

Looking to the full year, we estimate SEC’s annual smartphone shipment volumes to reach

270mn units (-16.7% YoY) in 2020. We look for shipment growth throughout 2H20, as

volumes in the US, India and Europe are likely to expand QoQ from 3Q20. With the release

of high-end smartphone models (i.e., the Galaxy Fold 2 in July and the Galaxy Note 11 in

August), we expect SEC’s smartphone ASP to increase to US$265 (+8.1% QoQ) in 3Q20.

Although SEC’s marketing expenses are likely to remain flattish QoQ in 3Q20 to stimulate

demand, we estimate OP margin to improve QoQ to exceed 8%, supported by ASP hikes. For

2020, we forecast the IM division to post revenue of W94.7tr (-11.7% YoY) and operating

profit of W8.0tr (-13.7% YoY).

Table 35. SEC: IM earnings and forecasts (Wbn, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Revenue 27,200 25,860 29,254 24,951 26,000 19,424 24,151 25,170 107,266 94,745 100,617

MC 25,915 24,272 28,096 24,049 24,950 18,532 23,303 24,339 102,332 91,123 97,332

IT 1,285 1,588 1,159 902 1,050 893 848 831 4,934 3,621 3,285

Revenue QoQ/YoY 16.6 -4.9 13.1 -14.7 4.2 -25.3 24.3 4.2 6.5 -11.7 6.2

MC 16.8 -6.3 15.8 -14.4 3.7 -25.7 25.7 4.4 6.0 -11.0 6.8

IT 13.5 23.6 -27.1 -22.1 16.3 -15.0 -5.0 -2.0 18.7 -26.6 -9.3

OP 2,274 1,561 2,917 2,520 2,650 1,174 2,106 2,069 9,273 8,000 9,585

MC 2,030 1,228 2,731 2,385 2,440 1,103 2,039 2,003 8,374 7,584 9,292

IT 244 334 185 135 210 71 68 66 898 416 292

OP QoQ/YoY 50.4 -31.4 86.9 -13.6 5.1 -55.7 79.4 -1.8 -8.8 -13.7 19.8

MC 51.3 -39.5 122.5 -12.7 2.3 -54.8 84.9 -1.8 -12.0 -9.4 22.5

IT 43.8 36.6 -44.4 -27.0 55.1 -66.0 -5.0 -2.0 37.7 -53.7 -29.7

OP margin 8.4 6.0 10.0 10.1 10.2 6.0 8.7 8.2 8.6 8.4 9.5

MC 7.8 5.1 9.7 9.9 9.8 6.0 8.7 8.2 8.2 8.3 9.5

IT 19.0 21.0 16.0 15.0 20.0 8.0 8.0 8.0 18.2 11.5 8.9


Table 36.SEC: Key IM earnings assumptions (mn units, US$, %)

1Q19 2Q19 3Q19 4Q19 1Q20P 2Q20F 3Q20F 4Q20F 2019 2020F 2021F

Handset shipments 78.5 83.2 85.3 75.5 64.1 55.9 68.7 79.8 322.5 268.5 294.5

QoQ/YoY 0.6 5.9 2.6 -11.5 -15.0 -12.8 22.8 16.2 -0.5 -16.7 9.7

Smartphone shipments 71.9 76.2 78.2 69.5 58.3 50.1 62.7 74.0 295.8 245.1 271.6

QoQ/YoY 2.3 6.0 2.6 -11.1 -16.1 -14.0 25.0 18.0 1.2 -17.2 10.8

Smartphone % 91.6 91.6 91.6 92.1 90.9 89.7 91.3 92.7 91.7 91.3 92.2

Handset ASP 250.8 212.5 235.3 217.5 314.0 263.7 283.2 262.1 228.9 239.8 247.8

QoQ/YoY 14.3 -15.3 10.7 -7.5 44.4 -16.0 7.4 -7.5 -2.5 4.8 3.3

Smartphone ASP 272.1 230.7 255.5 234.5 295.0 244.9 264.6 243.6 248.1 261.0 267.2

QoQ/YoY 12.8 -15.2 10.7 -8.2 25.8 -17.0 8.1 -7.9 -4.1 5.2 2.4


Samsung Electronics


May 13, 2020

III. Valuation

Initiate coverage with Buy rating and target price of W68,000

We initiate our coverage on SEC with a Buy rating and SOTP-based target price of W68,000.

In deriving our target price, we applied a 2020F EV/EBITDA of 5.3x for semiconductors, 4.0x

for display, 10.7x for IM, and 5.5x for CE. We believe the broader multiple of roughly 6.0x is

highly reasonable, as it represents a premium of just 10.3% to the average 2020F EV/EBITDA

of pure memory names Micron and SK Hynix. We think a valuation premium is justified for

the following reasons:

1) Semiconductors: Stronger margins and market dominance vs. peers

Despite having only 69% EBITDA exposure to semiconductors, SEC boasts stronger memory

market share and margins compared to pure plays.

Memory margins tend to hinge more on cost competitiveness (backed by technological

advances and scale) than on marketing capabilities/strategic positioning. In the DRAM

segment, SEC’s margins are over 10%p higher than those of rivals thanks to the firm’s tech

migration lead. Meanwhile, in NAND, the firm accounts for 98% of the market’s overall

profits, boasting solid pricing power and ample room for capex.

SEC holds a dominant position in the global memory market (50% DRAM market share, 45%

NAND market share). Given the firm’s current output levels and room for additional capex,

we see limited downside to market share going forward. And given that market leaders

tend to benefit the most from overall semiconductor industry growth, we think the

semiconductor division’s robust profit growth alone justifies a valuation premium.

2) IM: Robust sourcing capabilities and product innovation

Thanks to successful vertical integration, SEC enjoys key advantages in sourcing necessary

components (e.g., chips). In addition, we believe that the IM division’s ability to

manufacture/launch innovative products (e.g., foldable phones) is a factor that could help

narrow the valuation gap with Apple going forward.

3) Foundry: Strong growth potential and barriers to entry:

If we separately value SEC’s foundry business using an EV/EBITDA multiple of 8.8x, in line

with the levels of TSMC and Intel, our fair value estimate for the company would see a 4.4%

boost <Table 38>.

SEC shares are now trading at a 2020F P/E of 13.8x and P/B of 1.2x. These levels do not

appear high relative to historical bottom levels and the Bloomberg consensus. Our target

price implies nearly 40% upside to the current price (W48,550).

Samsung Electronics


May 13, 2020

Table 37. SEC: SOTP valuation (Wbn, W, X, ‘000 shares)

Businesses 2020F EBITDA Fair EV/EBITDA Fair value Notes

Semiconductors 39,359 5.3 206,829 Global peers: Micron, SK Hynix

Display 5,307 4.0 21,177 Global peers: LGD, AUO, Innolux

IM 9,232 10.7 98,687 Global peers: Apple, Lenovo

CE 2,795 5.5 15,301 Global peers: LGE, Electrolux, Sony, Panasonic

Operating value A 56,693 6.0 340,158

Listed subsidiaries Market cap Stake (%) Value Closing prices as of May 12, 2020

SEMCO 8,851 23.7 2,098

Samsung SDS 13,618 22.6 3,078

Samsung BioLogics 39,170 31.5 12,338

Samsung Heavy Industries 2,583 16.0 413

Hotel Shilla 3,167 5.1 162

Cheil Worldwide 1,933 25.2

A-Tech Solution 62 15.9 10

iMarketKorea 392 1.8 7

SkyLife 403 0.5 2

Samsung SDI 19,529 19.6 3,828

Wonik IPS 1,627 3.8 62

Wonik Holdings 334 2.3 8

Dongjin Semichem 900 4.8 43

Soulbrain 1,287 4.8 62

Yongpyong Resort 228 0.8 2

ASML 158,270 1.5 2,374

Wacom 913 5.0 46

BYD 18,508 1.9 352

Market value of listed subsidiaries

B 25,370

Unlisted subsidiaries Book value Stake (%) Value 4Q19 book value

SEMES 72 29.8 21

Samsung Medison 352 99.3 349

Book value of unlisted

subsidiaries C 371

Non-operating value D=B+C 21,861 15% discount to market value for listed subsidiaries; 20% discount to book value for unlisted subsidiaries

Net debt E -97,837

Fair market cap F=A+D-E 461,693

No. of shares J 6,792,669

TP I=F/J 68,000 2020F P/E of 19.4x; 2020F P/B of 1.6x


Samsung Electronics


May 13, 2020

Table 38. SEC: SOTP valuation scenario (separately valuing foundry business) (Wbn, W, x, ‘000 shares)

Businesses 2020F EBITDA Fair EV/EBITDA Fair value Notes

Semiconductors 32,565 5.3 171,126 Global peers: Micron, SK Hynix

System LSI and foundry 6,794 8.8 59,754 Global peers: TSMC, Intel

Display 5,307 4.0 21,177 Global peers: LGD, AUO, Innolux

IM 9,232 10.7 98,687 Global peers: Apple, Lenovo

CE 2,795 5.5 15,301 Global peers: LGE, Electrolux, Sony, Panasonic

Operating value A 56,693 6.5 366,046

Value of listed subsidiaries B 25,370

Value of unlisted subsidiaries

C 371

Non-operating value D=B+C 21,861

15% discount to market value for listed

subsidiaries; 20% discount to book value for unlisted subsidiaries

Net debt E -97,837

Fair market cap F=A+D-E 485,744

No. of shares J 6,792,669

Fair price I=F/J 72,000 2020F P/E of 20.5x; 2020F P/B of 1.7x


Samsung Electronics


May 13, 2020

IV. Shareholder returns

In October 2017, SEC announced that it would return 50% of free cash flow (FCF) to

shareholders for the 2018-20 period. Moreover, the company announced that future M&A

investments would not be deducted from FCF. Since the announcement, SEC has delivered

returns of W9.6tr in both 2018 and 2019 (including a W9.3tr share buyback/retirement

program). Notably, actual FCF has far outpaced the company’s three-year assumption of

W59.9tr, with 2018-19 FCF standing at around W57tr. Based on our 2020 outlook and

assumptions, we estimate that the actual shareholder return base for 2018-20 will be

around W9tr greater than the company’s assumption ([2018-20F FCF – W59.9tr] x 50%).

We believe that SEC will pay out solid dividends going forward. Share buybacks and

cancellations would drive up financial affiliates’ stakes in SEC, raising the need for disposals

to meet regulatory requirements. Assuming that the company pays out dividends on FCF of

W60tr, we estimate dividend yield at 3.4% based on the current share price. If SEC returns

additional cash to shareholders, ROE would see a boost, which could set the stage for P/B

expansion.

At end-2020, SEC will announce a new dividend policy for 2021 and beyond. Despite high

uncertainties arising from the COVID-19 pandemic, we expect to see a more shareholder-

friendly approach, which should help the stock defend against downside risk.

Table 39. SEC: Shareholder return forecasts (Wbn)

2015 2016 2017 2018 2019 2020F 2021F Note

Net cash 212,547 268,430 64,428 81,640 84,744 104,955 126,906

Operating cash flow A 40,062 47,386 62,162 67,032 45,383 49,520 57,370

Capex B 25,880 24,143 42,792 29,556 25,368 28,523 33,021

Cash outflow from M&As C 411 622 8,754 2018-20 shareholder return program: M&A

investments not to be deducted from FCF

FCF D=A-B-C 13,770 22,621 10,616 37,475 20,015 20,997 24,349

Shareholder return target (% of FCF) E 50% 50% 50% 50% 50% 50% 50%

Shareholder return target (Wbn) F=DxE 6,885 11,310 5,308 18,738 10,008 10,499 12,174 2018-20 shareholder return program: FCF

assumption of W59.9tr

DPS (W) G 420 570 850 1,416 1,416 1,416 1,600 Quarterly dividend payouts started in 2017

No. of shares outstanding (mn) H 7,290 6,999 6,810 6,793 6,793 6,793 6,793

Dividends I=GxH 3,062 3,989 5,789 9,618 9,618 9,618 10,868

FCF after dividend payout J=F-I 10,708 18,631 4,827 27,857 10,397 11,379 13,481

FCF after previous year’s dividend payout K (-1 year) 10,708 18,631 4,827

Excess cash after previous year’s share buyback L -3,000 -10,281 -3,952

Total share buybacks M=K+L 5,015 7,708 8,350 875 0 0 0

Total shareholder returns N=I+M (+1 year) 10,770 12,340 6,664 9,618 9,618 9,618 10,868

Total shareholder returns as % of FCF O=N/D 78% 55% 63% 26% 48% 46% 45%

EPS (W) P 2,241 2,773 5,530 6,086 3,200 3,507 5,050

Payout ratio Q=G/P 19% 21% 15% 23% 44% 40% 32%

Annual avg. market cap R 214,860 230,416 344,999 334,336 309,359 286,848 286,848 Based on current market cap (May 12, 2020)

for 2020 and 2021

Dividend yield S=I/R 1.4% 1.7% 1.7% 2.9% 3.1% 3.4% 3.8%

Shareholder return ratio T=N/R 5.0% 5.4% 1.9% 2.9% 3.1% 3.4% 3.8%


Samsung Electronics


May 13, 2020

Samsung Electronics (005930 KS/Buy/TP: W68,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/19 12/20F 12/21F 12/22F (Wbn) 12/19 12/20F 12/21F 12/22F

Revenue 230,401 218,366 255,586 299,150 Current Assets 181,385 193,482 214,117 272,397

Cost of Sales 147,240 130,892 140,572 164,533 Cash and Cash Equivalents 26,886 41,226 43,775 74,278

Gross Profit 83,161 87,474 115,014 134,617 AR & Other Receivables 39,310 38,718 43,494 50,611

SG&A Expenses 55,393 56,666 69,605 80,976 Inventories 26,766 26,363 29,615 34,663

Operating Profit (Adj) 27,769 30,807 45,409 53,642 Other Current Assets 88,423 87,175 97,233 112,845

Operating Profit 27,769 30,807 45,409 53,642 Non-Current Assets 171,179 173,924 184,599 166,866

Non-Operating Profit 2,663 2,939 3,427 2,953 Investments in Associates 7,592 7,477 8,400 9,831

Net Financial Income 1,974 2,030 2,281 2,953 Property, Plant and Equipment 119,825 123,742 134,499 116,264

Net Gain from Inv in Associates 413 -17 -4 0 Intangible Assets 20,704 19,647 18,642 17,712

Pretax Profit 30,432 33,746 48,836 56,595 Total Assets 352,564 367,406 398,717 439,262

Income Tax 8,693 9,847 14,297 16,417 Current Liabilities 63,783 63,051 68,949 77,258

Profit from Continuing Operations 21,739 23,899 34,539 40,178 AP & Other Payables 20,721 20,409 22,926 26,834

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 15,240 15,240 15,240 14,393

Net Profit 21,739 23,899 34,539 40,178 Other Current Liabilities 27,822 27,402 30,783 36,031

Controlling Interests 21,505 23,903 34,545 40,186 Non-Current Liabilities 25,901 25,559 28,320 32,607

Non-Controlling Interests 234 -4 -6 -7 Long-Term Financial Liabilities 3,172 3,172 3,172 3,172

Total Comprehensive Profit 24,755 23,899 34,539 40,178 Other Non-Current Liabilities 22,729 22,387 25,148 29,435

Controlling Interests 24,467 24,929 36,027 41,910 Total Liabilities 89,684 88,610 97,270 109,865

Non-Controlling Interests 288 -1,030 -1,489 -1,732 Controlling Interests 254,915 270,835 293,493 321,450

EBITDA 57,366 56,471 68,677 72,807 Capital Stock 898 898 898 898

FCF (Free Cash Flow) 20,015 21,076 24,628 59,389 Capital Surplus 4,404 4,404 4,404 4,404

EBITDA Margin (%) 24.9 25.9 26.9 24.3 Retained Earnings 254,583 267,929 290,586 318,544

Operating Profit Margin (%) 12.1 14.1 17.8 17.9 Non-Controlling Interests 7,965 7,961 7,954 7,947

Net Profit Margin (%) 9.3 10.9 13.5 13.4 Stockholders' Equity 262,880 278,796 301,447 329,397

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/19 12/20F 12/21F 12/22F 12/19 12/20F 12/21F 12/22F

Cash Flows from Op Activities 45,383 49,599 57,649 59,389 P/E (x) 17.6 13.8 9.5 8.2

Net Profit 21,739 23,899 34,539 40,178 P/CF (x) 6.4 5.8 4.7 4.5

Non-Cash Income and Expense 37,443 33,344 35,135 32,476 P/B (x) 1.5 1.2 1.1 1.0

Depreciation 26,574 24,607 22,263 18,236 EV/EBITDA (x) 5.1 4.0 3.1 2.3

Amortization 3,024 1,057 1,005 930 EPS (W) 3,166 3,519 5,086 5,916

Others 7,845 7,680 11,867 13,310 CFPS (W) 8,713 8,427 10,257 10,696

Chg in Working Capital -2,546 20 -162 46 BPS (W) 37,528 39,872 43,207 47,323

Chg in AR & Other Receivables 1,829 529 -4,269 -6,625 DPS (W) 1,416 1,600 1,800 1,800

Chg in Inventories 2,135 403 -3,252 -5,048 Payout ratio (%) 38.9 40.0 31.1 26.7

Chg in AP & Other Payables -1,305 -131 1,059 1,644 Dividend Yield (%) 2.5 3.3 3.7 3.7

Income Tax Paid -13,221 -9,847 -14,297 -16,417 Revenue Growth (%) -5.5 -5.2 17.0 17.0

Cash Flows from Inv Activities -39,948 -27,374 -42,286 -14,380 EBITDA Growth (%) -32.8 -1.6 21.6 6.0

Chg in PP&E -24,854 -28,523 -33,021 0 Operating Profit Growth (%) -52.8 10.9 47.4 18.1

Chg in Intangible Assets -3,243 0 0 0 EPS Growth (%) -47.4 11.1 44.5 16.3

Chg in Financial Assets -10,358 1,149 -9,265 -14,380 Accounts Receivable Turnover (x) 6.7 6.3 7.0 7.1

Others -1,493 0 0 0 Inventory Turnover (x) 8.3 8.2 9.1 9.3

Cash Flows from Fin Activities -9,485 -10,557 -11,888 -13,074 Accounts Payable Turnover (x) 17.1 15.1 15.4 15.7

Chg in Financial Liabilities 3,745 0 0 -846 ROA (%) 6.3 6.6 9.0 9.6

Chg in Equity 0 0 0 0 ROE (%) 8.7 9.1 12.2 13.1

Dividends Paid -9,639 -10,557 -11,888 -12,228 ROIC (%) 11.5 12.1 18.4 22.2

Others -3,591 0 0 0 Liability to Equity Ratio (%) 34.1 31.8 32.3 33.4

Increase (Decrease) in Cash -3,455 14,340 2,549 30,503 Current Ratio (%) 284.4 306.9 310.5 352.6

Beginning Balance 30,341 26,886 41,226 43,775 Net Debt to Equity Ratio (%) -32.2 -37.1 -38.3 -48.9

Ending Balance 26,886 41,226 43,775 74,278 Interest Coverage Ratio (x) 40.5 45.3 66.8 80.8


Samsung Electronics


May 13, 2020

APPENDIX 1

Important Disclosures & Disclaimers

2-Year Rating and Target Price History

Company (Code) Date Rating Target Price

Samsung Electronics(005930) 05/13/2020 Buy 68,000

12/26/2019 Buy 70,000

10/01/2019 Buy 60,000

03/18/2019 Buy 56,000

02/01/2019 Buy 57,000

01/01/2019 Buy 50,800

09/21/2018 Buy 63,000

07/31/2018 Buy 64,000

07/01/2018 Buy 70,000

05/03/2018 Buy 73,000

Equity Ratings Distribution & Investment Banking Services

Buy Trading Buy Hold Sell

Equity Ratings Distribution 82.04% 12.57% 5.39% 0.00%

Investment Banking Services 80.77% 11.54% 7.69% 0.00%

* Based on recommendations in the last 12-months (as of March 31, 2020)

Disclosures

As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Samsung Electronics as an

underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

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Stock Ratings Industry Ratings

Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving

Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes

Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening

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Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))

* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.

* Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material

development.

* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future

earnings.

* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic

conditions.

0

20,000

40,000

60,000

80,000

May 18 May 19 May 20

(W) Samsung Electronics

Samsung Electronics


May 13, 2020

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Samsung Electronics


May 13, 2020

Mirae Asset Daewoo International Network

Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd.

Global Equity Sales Team

Mirae Asset Center 1 Building

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