Expectations for Differentiated Performance of Apple Components Despite IT Industry Pressure

Expected Operating Profit Improvement for Apple Value Chain Compared to Samsung Value Chain in H1
KB Securities: Positive Investment Outlook for ITM Semiconductor, BH, LG Innotek

[Asia Economy Reporter Minji Lee] As Apple’s new product is expected to be released in the second half of the year as scheduled, there is a forecast that the investment sentiment of related component suppliers will improve. On the 5th, KB Securities gave a positive investment outlook for component suppliers including semiconductors such as Samsung Electronics, SK Hynix, LG Innotek, ITM Semiconductor, and BH.

According to Bloomberg recently, Foxconn, the iPhone manufacturer, plans to unveil the new iPhone (iPhone 12) in September this year. Even considering market uncertainties in the second half, the iPhone 12 is expected to proceed similarly to the launch situation of the iPhone X in 2017.

Dongwon Kim, a researcher at KB Securities, said, “Even considering the demand decrease caused by COVID-19, the first half performance of Apple’s value chain (component suppliers) is expected to be better than Samsung’s value chain.” The sales and operating profit of Apple component suppliers LG Innotek, ITM Semiconductor, and BH in the first half of this year are expected to increase by 11% and 228% respectively compared to last year. Meanwhile, the sales and operating profit of Samsung component suppliers Samsung SDI, Samsung Electro-Mechanics, Daeduck Electronics, Partron, and WiSol are expected to decrease by 7% and 37% respectively compared to the previous year.

The reason why the performance of Apple and Samsung’s value chains is differentiated despite COVID-19 is that the production disruption in Apple’s value chain has a greater impact than the demand decrease, resulting in relatively less inventory burden. Samsung’s value chain is directly affected by COVID-19 on actual demand right after the Galaxy S20 launch, so there is a high possibility of order decrease in the second quarter.

Researcher Dongwon Kim explained, “It is true that both Apple and Samsung value chains are under the influence of demand decrease due to COVID-19 in the first half of this year. However, Apple’s value chain will show relative performance differentiation compared to Samsung’s value chain as parts production for preparing new product launches in the second half will start from the end of the second quarter.”

Apple’s component purchases are expected to show an increasing trend. On an annual basis this year, Apple ranked first in purchases (44 trillion KRW) in the semiconductor market worth 514 trillion KRW. The iPhone 12, scheduled to be unveiled in September this year, will be the first to adopt 5G, and is expected to increase memory capacity, enhance camera and battery functions, and see strong wearable sales.