20131202-大和证券-Three_themes_for_2014_14页_612kb

2014 Asia Semiconductor Sector Summary

Core Content and Key Trends

Global Semiconductor Revenue Growth

• The global semiconductor revenue is forecasted to increase by 7% YoY in 2014, slightly higher than the 6% YoY growth in 2013E.
• The main drivers for this growth are:
  • Smartphone/Tablet ICs: Increased usage of application processors (AP), mobile DRAM/Nand-flash, and sensor ICs.
  • Broadband/Server-related ICs: Rising demand due to the expansion of 4G services and cloud computing adoption.
  • MEMS/Sensor Chips: Enhanced Android OS support for more sensors and the emergence of wearable devices and applications in autos and medical care.

Sector Themes for 2014

• Smartphone and Tablet ICs: Expected to see the most shipment growth due to rising content value and increased demand from China.
• 4G Licensing: Expected to boost available bandwidth and cloud computing usage, driving demand for related semiconductors.
• MEMS/Sensor Demand: Growth will be driven by new Android features and new device categories.
• Industry Consolidation: Mediatek's acquisition of MStar and potential consolidation in China's fabless sector.

Industry Segments

Foundry Industry

• Main Themes:
  • 28nm Wafer Price Competition: Intensified due to multiple foundries offering 28nm Poly SiON technology.
  • Capex Competition: Concentrated among TSMC, Samsung, and Intel.
  • China's Support for SMIC: Government-backed geometry migration and fab construction in Beijing.
  • MEMS Segment Expansion: Leading foundries are likely to enter this segment.
• TSMC Outlook: Face increased competition at 28nm, with limited upside due to rivals' aggressive pricing. Recommend a Hold with a six-month target price of TWD107.
• Capex Growth: TSMC's capex is expected to grow steadily, while UMC and SMIC show more conservative trends.

Back-End Industry

• Challenges:
  • TSMC's expansion into back-end services will put pressure on existing players.
  • Shipment growth will be centered on orders from Qualcomm and Mediatek.
  • Capex will be more conservative, leading to slower revenue growth.
  • SiP business potential may fall short of expectations.
• Recommendations:
  • ASE, SPIL, Kinsus: Likely to underperform due to competition and slower growth.
  • ASE and SPIL: May see some upside based on market share gains from Qualcomm and Mediatek.

Fabless Industry

• Key Developments:
  • Consolidation in the fabless segment, especially in Taiwan (Mediatek-MStar) and China (Spreadtrum-RDA).
  • Strong demand for smartphone/tablet ICs in China.
  • Emerging demand for 4K2K panel TVs.
  • Intensified competition in 64bit and octacore APs among Qualcomm, Mediatek, and Apple.
• Performance Outlook:
  • Leading fabless companies are expected to outperform back-end players due to strong demand and industry consolidation.

Top Stock Picks

• Mediatek (2454 TT):
  • Rating: Buy
  • Target Price: TWD480
  • Upside: Potential growth from octa-core IC shipments, which are expected to make up around 10% of total shipments in 2014.
  • Risk: Lower-than-expected smartphone-IC shipments in 2013-2015.
• SK Hynix (000660 KS):
  • Rating: Buy
  • Target Price: KRW40,000
  • Upside: Strong demand for mobile DRAM from Chinese smartphone makers, expected to grow by 200% YoY.
  • Risk: Weaker demand for core IT products.

Key Financial Metrics

Additional Insights

• Semiconductor Revenue Cycle: Becoming shorter due to efficient supply chains and capex-driven growth.
• Inventory Days: Varies across companies, with fabless companies showing an average of 63 days and communication companies around 59 days.
• Industry Outlook: The leading fabless and foundry companies are expected to outperform back-end players in 2014 due to strong demand and industry consolidation.

Contact Information

• Eric Chen (Pan-Asia/Regional Head of IT/Electronics): (852) 2773 8702 | eric.chen@hk.daiwacm.com
• Jae H. Lee (Head of IT/Electronics, South Korea): (82) 27879173 | jhlee@kr.daiwacm.com
• Lynn Cheng (Head of IT/Electronics, Taiwan): (886) 287586253 | lynn.cheng@daiwacm-cathay.com.tw