Will semiconductor boom continue?

By Jhoo Dong-chan

The debate about the future course of the nation’s semiconductors is intensifying.

Believing the supercycle of semiconductor shares has come to an end, global investment banks (IBs) have claimed since the second quarter that their share prices will soon plunge and underperform the market.

Domestic analysts, however, protest their pessimism, insisting the nation’s semiconductor makers will post solid sales in the second half of the year.

Of the foreign IBs, Morgan Stanley leads the skepticism.

On Aug 6, the IB giant lowered its outlook on chipmaker SK hynix’s shares into the “underweight” grade, down by two levels from its previous rating.

It also downgraded its outlook on the global semiconductor industry to “cautious” from “in-line,” highlighting rising inventory levels three days later.

The “cautious” grade is Morgan Stanley’s lowest rating meaning its analysts believe the sector will underperform the market over the next 12 to 18 months.

Following the Morgan Stanley report, shares of SK hynix, which peaked at nearly 90,000 won ($80.29) per share in July, immediately plunged 4.7 percent on Aug. 9, failing to withstand the 80,000 won level. Shares of the nation’s largest chipmaker Samsung Electronics were also down 3.72 percent the next day.

Morgan Stanley also released another report this month highlighting the decline in demand for DRAM chips.

Another IB powerhouse Goldman Sachs shared the pessimism by lowering its outlook on the semiconductor capital equipment sector into “neutral” from “attractive” on Sept. 12. It also excluded SK hynix shares from its “purchase” list while Samsung Electronics was also delisted from the “purchase first.”

“Supply and price turbulence haven’t eased yet,” a Goldman Sachs analyst said in the report. “Things could get worse next year.”

Following the report, shares of Samsung Electronics and SK hynix suffered 1.12 percent and 0.8 percent declines, respectively, in the benchmark KOSPI on Sept. 13, reaching the lowest level of the year.

Domestic analysts, however, said such pessimism is overhyped, maintaining their previous outlook of “purchase” on shares of chipmakers.

“Samsung Electronics is expected to post 67.04 trillion won in sales in the third quarter, up 14.6 percent from the previous quarter. The operating profit will also reach 17.2 trillion won in the quarter, also up 16.1 percent from the previous quarter,” IBK Securities researcher Kim Un-ho said.

“The semiconductor sector will maintain solid numbers in the second half. The DRAM prices will decline a bit by the end of this year, but the supply chain will be good enough to withstand the demand. I believe shares of the nation’s chipmakers are underrated at the moment.”

Meritz Securities analyst Kim Sun-woo partly agreed with the outlooks of the foreign IBs, but claimed shares of the nation’s chipmakers won’t clash as they forecasted.

“The industry is passing through the supercycle period, and will reach its peak during the third quarter,” Kim said. “It will then start a soft landing from the fourth quarter.”

Eugene Investment & Securities analyst Lee Seung-woo said the market has recently only reflected negative factors.

“There are also a number of favorable factors such as growing demand in building big data centers, but it seems like foreign IBs only highlight negative factors,” he told the local daily Chosun Ilbo.

Separate from their reports, LG Economic Research Institute released a report on Sept. 20 siding with the foreign IBs’ skepticisms.

“Chipmakers’ exports have been the backbone of the nation’s economy in the first half, but they aren’t expected to maintain the momentum next year,” the report said.

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