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Micron Zooms as Samsung Signals Tight DRAM, NAND Supply in 2018

As many have noted, investment in chips by Samsung seems to be taking a back seat to the dividend, which is expected to double next year.

Stifel Nicolaus’s semiconductor equipment analyst, Patrick Ho, notes that out of $26.2 billion Samsung is planning to spend on production for the semiconductor division, 70% to 75% is to be spent on memory chips.

Writes Ho, "While there may be investor concern over the significant capex targeting memory, we believe that at this time and into at least 1H18, both memory segments (NAND and DRAM) will remain in short supply versus demand trends."

In fact, for 3D NAND, we believe that despite the significant amount of industry 3D NAND capacity that is likely coming on board in 2017 and 2018, demand will continue to outweigh supply through all of 2018 and possibly through 2019 as well. Management noted that 3D NAND capacity continues to be added in its Pyeongtaek campus, while we were somewhat surprised at the new capacity additions Samsung has planned on the DRAM end (2nd floor in Pyeongtaek; transition of Line 16 to DRAM). Additionally, the company noted that it was spending a large portion of its December capex on infrastructure and clean room build outs, which we believe could be targeting some of the DRAM capacity additions management suggested. On the logic end, the company continues to add 10/7nm capacity for the leading edge, while also transitioning lines for other devices like image sensors (at more mature technology nodes).

Ho thinks your best bet, by the way, in equipment, is Applied Materials (AMAT): “We believe Applied Materials has the best exposure to both Samsung’s semi and display capex trends."

"We believe that Applied has strong exposure in Samsung’s 3D NAND build out and is a key supplier to its flexible OLED build out."

Tim Long of BMO Capital notes that “management appears committed to making shareholder return both higher and more predictable."

His take on the semi outlook:

Key takeaways from the call include: 1) a substantial amount of the implied KRW 9.8 trillion in Semi CapEx for 4Q17 will largely be used for clean room expansion; 2) priorities for spending, in order, are continued ramp for 3D NAND at Pyeongtaek, DRAM process migration, and DRAM conversion to supplement capacity loss stemming from migration, 3) the company has pared down expectations for planar NAND to DRAM conversion on higher-than-anticipated conversion costs.

Mehdi Hosseini with Susquehanna Financial concludes that "All in all, memory remains in balance through 1H18."

There’s lots of uncertainty for Samsung’s output of NAND, despite a commitment to spend more:

Lower NAND bit shipment (due to challenges associated with 3D NAND ramps) is something that we have been discussing for several months now and not a surprise, nor is Samsung's 2017 capex guide of KRW45t, up 75% Y/Y, which also includes the cost associated with the number of new clean rooms the company is currently building. The company remains nimble, evident by its decision to use part (or perhaps all) of the second floor of Pyeongtaek fab for DRAM manufacturing as it tries to figure how to fix its 3D NAND architecture. Our checks suggest that Samsung still has not finalized plans for its 92L 3D NAND, and it is still not clear how many stacks it will be based on. Additionally, as we have noted before, the Xian (NAND) fab remains at 48L, and it is not clear whether Xian would move to 64L or wait for 92L manufacturing recipe to be finalized in 2018. However, we do think that Samsung will introduce its flagship GS9 earlier than expected (sometime in 1Q18), though it will have to compete fiercely with Chinese OEMs that are also planning to introduce their new high end models.


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