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IT Parts/electronics: Comments on Samsung’s Smartphone Production Cuts

The authors are analysts of Shinhan Investment Corp. They can be reached at and, respectively. — Ed.


Concerns over a slowdown in global demand for tech products

Global tech demand and sales are slowing down in earnest. With the high base created over the past two years during the pandemic seen as a burden on growth, investors have already lowered their qualitative expectations for tech product demand in 2022. However, we believe quantitative market forecasts have yet to be sufficiently adjusted to reflect slowing demand. Major market research firms expect sales of tech products to fall by 2%-10% YoY in 2022. We believe such expectations are still quite bullish considering that tech products recorded 20%-40% growth in sales over the past two years.

Comments on Samsung’s smartphone production cuts

We are starting to pick up signs that Samsung Electronics is scaling down its production of Galaxy smartphones this year, marking a change from initial plans set at end-2021 to increase production volume in a bid to recover global market share.

1) After producing roughly 270mn units of smartphones in 2021, Samsung Electronics (in November 2021) set its production target for full-year 2022 at around 300mn units, indicating a 20% increase from a year earlier.

2) We now expect Samsung Electronics to produce 270mn units of smartphones in 2022, down roughly 10% from our previous projection in reflection of slowing global demand and negative impact of the Game Optimizing Service (GOS) fiasco. Production cutbacks are likely to be carried out for both flagship and budget models. As a result, we believe Samsung’s demand for smartphone parts will fall short of initial expectations in 2022, remaining near levels recorded in 2021.

3) With aggressive inventory correction carried out during the month, May smartphone production volume is expected to come in around 35% lower than the January-April average. Smartphone production in 2Q22 is also projected to fall by 10% QoQ. As a result, we believe 2Q22 earnings forecasts for companies relying on Samsung Electronics for a large portion of sales will need to be downward adjusted.

4) Meanwhile, we note an increase in production of foldable devices at Samsung Electronics despite cutbacks in smartphone output as a whole, with the order volume projections of parts suppliers now pointing toward annual production of 18mn foldable smartphones in 2022 vs. the November 2021 forecast of 13.5mn units. Companies supplying parts for foldable devices thus have a clearer growth outlook than peers.

Focus on beneficiaries of technological advancements

Amid the slowdown in overall demand for tech products, sector stocks as a whole are unlikely to see strong momentum in the near term. Instead, we recommend focusing on companies likely to enjoy solid earnings despite slowing demand in the market as a whole, backed by the supply of new items to clients, growth in market share, or limited market supply for key products. Investors should take a selective approach on parts suppliers likely to benefit from technological advancements or the sharp rebound in orders from Chinese clients expected upon the easing or lifting of lockdown measures.

In our view, major momentum drivers for 2H22 include foldable smartphones, DDR5, and AR/VR devices. In addition, substrate companies are projected to deliver decent earnings vs. sector peers in 2022. We also recommend taking a short-term approach on companies generating a large portion of sales from Chinese clients given growing expectations for the lifting of pandemic restrictions in China.


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