Global semiconductor industry - the implications of Apple’s new product strategies
* What is new - Apple introduced its new iPad Air, iPhone SE3, Mac Studio, 27” Studio Display this morning.
* A strong growth outlook of ARM-based M-series CPU in 2022/26 - Apple implemented M1 for iPad Air and M1 Ultra for Mac Studio (workstation-level PC). We expect the company to introduce M2-based MacBook Air with new form factor, Mac, iPad Pro, and 13” MacBook Pro (a cost-down version of MacBook Pro without a 120Hz promotion screen; a <US$1,500 retail price) in 2Q22. In addition, we expect the company to roll out M2 Pro/Max-based 14"/16” MacBook Pro as well as M-series CPU-based MR (mixed reality) glasses in 2023 (please see table 1 for details). Apple could enter the gaming PC market in 2023 or 2024, driven by strong ARM-based CPU performance and improved gaming software engines for the Mac operating system. Notably, as we highlighted in our previous note (“the implications of Semicon Taiwan 2021”, dated on 2022/1/2), Apple could replace Intel’s x86 server CPU in its iCloud by its own M-series server CPU in 2024 or 2025. ARM-based M-series PC/server CPUs could continue to have better price performance and power efficiency than x86 PC/server CPUs in the long term. Our industry study suggests that Apple appears to be urging the semiconductor foundry/OSAT industry to build up annual production capacity for more than 300m units of M-series CPUs in 2022/26 vs. current capacity of less than 100m units. We believe Apple may target 30-40% PC market share and 100% of its iCloud with M-series server CPUs in the long term. This should benefit TSMC (5/4/3/2nm wafer fabrication), Amkor/ASE (M-series CPU packaging/testing), SG Micro (PMICs for iPad and Mac), and BESI (flip-chip bonders) in 2022/26. This could be negative to x86 vendors (Intel/AMD) in 2022/26 given Apple’s continuous market share expansion in PCs and a growing iCloud scale.
* The improved price performance of iPhone SE series could be challenging to Android smartphone supply chain in 2022/26 - Apple launched 4.7” iPhone SE3 with A15 CPU with 4 GPU cores (the same CPU for iPhone 13) and a US$429 retail price. iPhone SE3 has strong price performance, which could be attractive to consumers. We expect Apple to introduce 5.3"-5.7” iPhone SE3+ in 2024, which could enable the company to gain more share from Android smartphone manufacturers in the mid-end smartphones. In our view, this could be negative to Android smartphone supply chain players including MediaTek/Qualcomm (smartphone chip vendors for Android smartphones), Samsung/Xiaomi/Oppo/Vivo/Honor (Android smartphone makers). However, this could benefit SG Micro (PMIC for iPhones) in 2022/24.
* Selective stock re-rating stories in 2022/26 - we believe the market may prefer TSMC, SG Micro, and BESI in the semiconductor supply chain and expect more re-rating for these names in 2022/26. However, we remain conservative on Amkor/ASE due to their key customers’ (MediaTek and Qualcomm) shift to TSMC’s InFO (integrated fan out packaging) for smartphone chips in 2H23 and 2024. In addition, Intel/AMD could encounter more challenges in 2022/26 given Apple’s market share gain from x86 CPU-based PC and system houses’ increasing adoptions of ARM-based server CPUs in data centers. The ARM-based server CPU uptake could include 1) Amazon’s plan of 100% internal ARM-based CPU for its data centers, 2) Apple’s shift to its internal ARM-based server CPU, 3) OEMs’ adoption of Nvidia’s ARM-based server CPUs, and 4) more systems’ introduction of ARM-based servers in 2023/25.
Silergy (6415 TT) - weak 4Q21 results; secular growth drivers in 2022/26
* 4Q21 result below expectations - EPS reached NT$14.73 in 4Q21, +25% YoY and -25% QoQ; below consensus estimates of NT$17-19. This stemmed from lower-than-expected GM of 54%, -2.2 ppts QoQ and 9.8 ppts YoY in 4Q21, below consensus estimates of 55-56%. Product mix shift and rising wafer cost led to QoQ GM contraction in 4Q21.
* 2022 guidance on track - management guided for 20-30% YoY sales growth and YoY GM expansion in 2022, in line with consensus estimates. Management highlighted that products for consumer (market share expansion), automotive (the infotainment system for cockpit), and computing segments could be the main growth drivers in 2022.
* Strong 2026 guidance - management guided for US$2bn sales in 2026, implying 21-22% sales CAGR in 2021/26. Management expected growth drivers to come from share gain in the consumer segment, electronic vehicles (EV), industrial applications, and the computing segment (servers and AI) in 2022/26.
* Upside from automotive applications in the long term - management expected automotive sales portion to rise to 25% of sales in 2026 (higher than our previous estimate of 15%) with sales of US$0.3bn. The company could introduce more new products for on board charging (OBC), battery management system (BMS), inverter, and electronic control in an EV during 2022/26. We now expect its global automotive PMIC sales market share to rise to 6%/23% in 2025/30 (5%/16% previously).
* Potential bottom-out for the stock in 1H22 - the stock traded at 45x/38x of our 2022/23 EPS estimates. We believe the market may view the stock as attractive once the stock traded at 20-24x 2023E PE. This implies the stock may bottom out at low NT$2,000, implying 30%+ downside risks in 1H22. We attribute this to 1) current high 2021/26 PEG of 1.6-1.8x given 23-27% EPS CAGR in 2021/26, and 2) rising demand uncertainty for the consumer segment amid growing macro risks and the company’s high consumer exposure (40%+ of sales in 2022/23).
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