Analysts turn sanguine on Korean chip stocks and market outlook

[Graphics by Song Ji-yoon]

Analysts are shifting to buy recommendation on South Korean chip stocks, projecting them to bottom out in the fourth quarter and a positive momentum in the chip cycle next year.

Shares of South Korea’s chip majors – Samsung Electronics Co. and SK hynix Inc.- have lost nearly 30 percent from their peak at 96,800 won ($82.3) and 150,500 won, respectively, this year. On Monday, Samsung Electronics closed up 0.29 percent at 70,000 won and SK hynix gained 2.91 percent to 106,000 won.

The stocks of memory majors have skidded in line with softening in DRAM prices and supply chain disruptions. Analysts predict the softening trend to ease in the coming months as suppliers tend to make a conservative estimation while customers want cheaper prices, leading to weak prices. Indeed, memory chip prices in the second and third quarter turned out stronger than expected.

Experts believe that the global chip supply shortage that has heavily weighed down chip stocks would be eased next year. “The memory chip industry’s correction which is expected to come in the fourth quarter is related to supply chain disruptions of tech companies in the second to fourth quarter this year,” said Choi Do-yeon, an analyst from Shinhan Financial Investment.

Choi added that the chip market is expected to rebound starting the second quarter when the supply shortage caused by power outages in China becomes relieved in the fourth quarter.

As stock prices tend to reflect market outlook three to six months in advance, the semiconductor stocks are likely to bottom out in the fourth quarter, market watchers expect.

DRAM prices could be buoyed by shortage of supplies caused by China’s power outages, some experts suggest. The temporary production halt of chip plants for memory modules and solid-state drives (SSD) could lead to overall chip supply shortage, according to Noh Geun-chang from Hyundai Motor Securities.

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