Will Semiconductor Stocks Overcome COVID-19 and Rise?

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] As the spread of the novel coronavirus infection (COVID-19) expands uncertainty in the domestic and international economy, negatively affecting investment sentiment in the semiconductor sector, demand for expanding computing infrastructure has emerged, leading to forecasts that server semiconductor prices will show a stronger trend than previously expected.

According to the Korea Exchange on the 12th, foreign investors have net sold 4.6535 trillion KRW in the KOSPI market so far this month until the previous day. Of this, 3.2255 trillion KRW was in the electrical and electronics sector. The stocks most heavily sold by foreigners during this period were Samsung Electronics and SK Hynix, with net sales of 2.0725 trillion KRW and 588 billion KRW, respectively.

As COVID-19 spreads to North America and Europe, concerns about a decline in demand across the IT industry due to global economic slowdown appear to be impacting investment sentiment in the semiconductor sector. With production disruptions in China causing value chain paralysis and consumption contraction in developed countries, the semiconductor industry inevitably falls under the negative influence of COVID-19. In particular, a short-term slump in smartphone demand is considered unavoidable.

However, despite the deteriorated external environment and investment sentiment, experts generally agree that the existing outlook on the semiconductor industry has not turned negative. The recent net selling by foreigners and stock price declines in the semiconductor and electrical/electronics sectors are more likely the result of emerging market stock sell-offs rather than a change in perception toward the semiconductor sector. Donggil Roh, a researcher at NH Investment & Securities, analyzed, “Since last month, the net buying trends of foreigners in the domestic and Taiwanese stock markets have been consistent,” adding, “This is likely due to a preference for safe assets rather than a change in the IT sector outlook, so a rebound is possible.”

On the contrary, demand for server semiconductors remains strong due to the expansion of non-face-to-face interactions. Dongwon Kim, a researcher at KB Securities, explained, “Demand is increasing due to environmental changes such as the expansion of non-face-to-face contact, video conferencing, and home entertainment caused by COVID-19,” adding, “Given the difficulty in predicting the end of COVID-19, these environmental changes are likely to continue for some time, acting as a catalyst for future server semiconductor demand.” Seongsun Park, a researcher at Cape Investment & Securities, also analyzed, “Server demand is strong, centered on U.S. hyperscale data center customers, and the impact of COVID-19 on Chinese server customers is minimal compared to mobile.”

It is also explained that price declines can be controlled through flexible supply adjustments by semiconductor companies. Doyeon Choi, a researcher at Shinhan Financial Investment, evaluated, “Despite negative demand trends such as last year’s U.S.-China trade dispute and Huawei sanctions, DRAM companies responded flexibly to supply and succeeded in reducing inventory from the fourth quarter of last year,” adding, “DRAM companies have sufficient power to adjust supply.” Since what DRAM companies want is inventory reduction, price increases, and profit growth, conservatively forecasting demand and responding with lagging supply is advantageous for inventory reduction and market recovery.

This content was produced with the assistance of AI translation services.