Memory Suppliers’ Earnings: Price Decline To Narrow in Late 2023 and Turn to Recovery in 2024

The March-quarter earnings results of South Korean memory suppliers, Samsung Electronics and SK Hynix 000660, were largely in line with our expectations, supporting our view that memory prices will bottom out in the second half of this year and then rise throughout 2024.

After fine-tuning our earnings forecasts, while we maintain our fair value estimate of KRW 120,000 for SK Hynix, we raise our fair value estimate for Samsung Electronics to KRW 78,000 from KRW 72,000 per share and to USD 1,470 from USD 1,380 per GDR as we factor in a slight increase in Samsung’s market share, as Samsung, unlike its peers, is maintaining the capital spending for infrastructure and clean room, which is necessary for long-term growth. We believe that both Samsung Electronics and SK Hynix are undervalued, as the recovery, especially in 2024, is not fully priced in.

We expect the demand-supply balance to tighten, and inventories will start to decline from the June quarter. On the demand side, we expect component/device orders to gradually recover. Although the timing of a full recovery in demand for smartphones and PCs remains difficult to predict, we believe that the inventory digestion for smartphones has made significant progress in recent quarters, and therefore orders will gradually approach previous levels. On the supply side, we expect the utilization cut implemented by all major suppliers to take effect, contributing to tight supply in the near term. We expect tight supply to continue into 2024, as SK Hynix and Micron significantly reduce this year’s capital spending to protect their cash and profitability.