System Semiconductor 'Production Disruption'... Challenging Outlook for IT Components in the Second Half

[Asia Economy Reporter Lee Seon-ae] The business conditions of IT components are challenging. The aftershock of system semiconductor supply shortages causing production disruptions in sets is intensifying. As production disruptions among set manufacturers have led to a confirmed decrease in orders for some component groups since March, the second-quarter performance of many component companies is also expected to be inevitably affected. Accordingly, after the component demand bottom in May, improvement is expected in the second half of the year, necessitating an investment strategy that takes this into account.

According to the Korea Exchange on the 22nd, the stock price fluctuation rate of IT component stock Isu Petasys this year (January 4 to April 21) is -4.49%. Korea Circuit’s fluctuation rate is -8.27%, and BH’s is -17.3%, showing a larger decline. This contrasts with the Kospi breaking through 3200 to set a record high and the KOSDAQ index also surpassing 1000, asserting the power of the "Cheonsdak" (thousand-point KOSDAQ).

This is due to exposure to production disruption trends among set manufacturers. However, in the second half of the year when production normalizes, delayed component orders are expected to surge, generating demand. Although it is difficult to pinpoint the exact time for the complete normalization of the system semiconductor shortage, semiconductor factories that had stopped production at the beginning of the year are gradually resuming operations. The industry expects semiconductor supply and set production disruptions to bottom out in May and improve from June onward. Accordingly, securities firms recommend focusing on the improvement trend in the second half rather than concerns about uncertainties when investing in IT component stocks.

Researchers Park Hyung-woo and Go Young-min of Shinhan Financial Investment emphasized three key keywords for IT component investment strategy in preparation for the second half: low price-to-sales ratio (PSR), general-purpose components, and Apple. First, in a turnaround environment in the second half, stocks with low PSR are suggested as those with more potential for performance rebound and stock price appreciation. Additionally, three conditions must be met: presence or absence of technological changes or new items, possibility of profitability turnaround, and irreplaceability within the value chain. Companies meeting these criteria include Hansol Technics, Isu Petasys, Namuga, and Korea Circuit.

General-purpose component companies are also a focus. Despite smartphone production disruptions, orders for general-purpose components are expected to remain robust. Manufacturers are likely to proactively accumulate inventory of general-purpose components to stabilize SCM (Supply Chain Management). During the unstable production periods of Q2 and Q3 in 2020 due to COVID-19, manufacturers increased orders for general-purpose components. Particularly, passive components and packaging substrates are promising, with companies such as Symtek, Samsung Electro-Mechanics, and Abico Electronics highlighted.

Lastly, attention should be paid to the fact that iPhone production may minimize damage in the system semiconductor shortage environment compared to competing manufacturers’ smartphones. Shinhan Financial Investment recommends LG Innotek and BH as related companies.

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