SEC announced preliminary 1Q21 OP of W9.3tn (+3% q-q). Despite being a traditional off-season, SEC delivered sound earnings growth thanks to solid performances at the IM and CE divisions.

1Q21 results: Sluggish semiconductor versus sound IM and CE 

On Apr 7, SEC announced preliminary 1Q21 results, with sales and OP reaching a respective W65.0tn (+6% q-q) and W9.3tn (+3% q-q). By division, OP came in at W3.5tn for semicon (-10% q-q), W0.4tn for display (-78% q-q), W4.3tn for IM (+77% q-q), and W1.0tn for CE (+17% q-q).

Despite weak seasonality, the IM and CE divisions achieved solid earnings, spearheading overall earnings growth. It shows that sales of the Galaxy S21 series came to a sound 11mn units, with reduced cost burden for the model adding to the IM division’s earnings expansion. Meanwhile, Covid-19-driven non-face-to-face demand drove up TV and home appliance sales. As for semiconductors, despite an improvement in DRAM prices, earnings were sapped by increased investment costs for the Pyeongtaek #2 and Xian #2 fabs and losses at the foundry business incurred from a power outage in Austin.

2Q21 earnings improvement led by semicon arm

In 2Q21, SEC’s overall OP is projected to climb to W10.2tn (+10% q-q), backed by healthy earnings at the semicon arm, whose OP is anticipated to reach W5.9tn (+71% q-q). Helped by improving memory market conditions, we expect ASP to increase 10% for DRAM and 2% for NAND. In addition, with impacts from the Austin energy outage fading, the foundry business is likely to return to the black.

Currently, PC and server demand is greatly exceeding supply amid strong non-face-to-face demand (eg, e-learning and remote working) and fierce competition among Intel, AMD, and ARM. PC demand will pick up further upon the launch of new products, including Intel’s Alder Lake CPU (which features 3D packaging technology called Foveros), AMD’s Ryzen 5000 series, and Apple’s M1 follow-up in 2021. Demand growth for data center chips should also accelerate with the slated launch in 2Q21 of products using Intel’s next-generation Whitley platform.