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Technology Sector Summary

Core Content

This document provides an analysis of the technology sector, focusing on the hardware and device market trends, particularly in smartphones, automotive, and industrial applications, as of early March 2022. The analysis is based on channel checks conducted in Korea, Taiwan, and China, with the team working remotely from Japan due to the pandemic.

Main Points

1. Smartphone Demand and Production

• Chinese Smartphone Demand:

  • No signs of demand recovery as of late February to early March 2022.
  • Chinese smartphone makers have already lowered 2022 production plans from 1.6 billion units (+14% YoY) to 1.5 billion units (+9% YoY).
  • Production is skewed toward the second half of the year, with just over 40% in 1H and just under 60% in 2H, compared to a more balanced distribution in a typical year.
  • 5G production volume at Chinese smartphone makers is expected to decline slightly YoY in 2022.

• iPhone Production:

  • Expected to reach 270mn–280mn units (+11% YoY) for 2022.
  • Production in 1H 2022 is around 130mn units, above the historical average of ~90mn units.
  • The Galaxy S22 production fell short of plan due to slow 4nm chipset yield improvements, but Ultra model weighting is expected to rise from 30% to 50%.
  • Foldable smartphone production is set to increase from ~8mn units in 2021 to 17mn units in 2022.
  • iPhone 14 is expected to have a four-model lineup with 6GB LP DDR5 DRAM for all models, and Pro models may include 48MP CIS components and AF actuators.

• Market Outlook:

  • Recovery in orders is expected from May–Jun 2022.
  • A rebound in end-product production is anticipated in June–July 2022.
  • Smartphone chipset supply (especially PMICs, analog semiconductors, and discrete components) remains tight, with no signs of easing.

2. Other Hardware Applications

• Automotive and Industrial Equipment:

  • Demand remains strong and shows no signs of decline.
  • MLCCs (Multilayer Ceramic Capacitors) had a BB ratio recovery to 1 in Dec 2021–Jan 2022, with a full recovery expected in May–Jun 2022.

• EV Market:

  • NEV sales volume in China is estimated at 5mn–6mn units for 2022.
  • BYD forecasts 6.0mn units, which is higher than the government target.
  • SiC (Silicon Carbide) supply remains a concern for Chinese EV makers.

• Inventory Adjustments:

  • Continued in non-chipset devices since May–Jun 2021.
  • No recovery observed after the Lunar New Year.
  • Orders are expected to recover in May–Jun 2022.

3. Component Supply and Demand

• Supply Tightness:

  • Smartphone chipsets (especially PMICs, analog semiconductors, power discrete components, and small-signal discrete components) remain tight.
  • Crystal devices (excluding TCXO) such as SPXO, RTC, and 32KHz also face tight supply.
  • ABF substrates, PBGA substrates, and leadframes are in high demand and face tight supply.

• BB Ratio:

  • For MLCCs, the BB ratio bottomed in Sep-Nov 2021 and has recovered to 1 in Dec 2021–Jan 2022.
  • The BB ratio for passive components has bottomed in Sep-Nov 2021, and is expected to bottom in March 2022, with positive YoY growth anticipated from mid-Jul–Sep 2022.

4. Market Outlook and Stock Preference

• Market Conditions:

  • Geopolitical risk, rising logistics costs, and inflation are concerns for end-user demand.
  • Valuations in the electronic components sector have fallen to historical 10-year lows.

• Stock Recommendations:

  • Top picks: Murata Manufacturing (6981) and Taiyo Yuden (6976).
  • Other favorites:
    • Rohm (6963) for growth in analog, power semiconductors, and SiC devices.
    • Ibiden (4062) and Shinko Electric Industries (6967) for medium-term growth in ABF substrates.

Key Information

• Smartphone Production Trends:

  • 2022 production targets for Chinese smartphone makers are lower than 2021.
  • iPhone production is on track for 270mn–280mn units, with higher-than-usual demand in 1H 2022.
  • Foldable smartphones are expected to increase significantly in 2022.

• Component Supply:

  • Chipset supply is tight, especially for PMICs, analog semiconductors, and discrete components.
  • MLCCs are expected to see a recovery in demand from May–Jun 2022.
  • ABF substrates are expected to see medium-term growth.

• Market Outlook:

  • No full recovery in Chinese smartphone demand yet.
  • Recovery in orders expected in May–Jun 2022.
  • Rebound in smartphone production expected in June–July 2022.
  • EV demand remains strong, but SiC supply is a concern for Chinese manufacturers.

• Investment Strategy:

  • Avoid short-term entry due to unfavorable external conditions.
  • Focus on long-term growth stocks.

Summary

• The smartphone market in China is underperforming, with lower production plans and no signs of recovery.
• iPhone production is on track for growth, with a higher-than-average 1H 2022 output.
• Automotive and industrial applications show strong demand.
• MLCCs and analog semiconductors are expected to see recovery in demand from May–Jun 2022.
• Component supply remains tight, especially for chipsets and substrates.
• Stock recommendations focus on long-term growth in the electronic components and semiconductor sectors.