How upgrading smartphones are benefitting emerging market memory chipmakers
The unprecedented rise in the usage and demand for smartphones globally has led to an increase in demand for smartphone components. Higher storage needs coupled with the urge to outperform competitors has led to rising demand for upgraded memory content. The demand for memory chips has been following a rising trend, benefitting prominent players from the global memory semiconductor market (SMH) (SOXX). Currently, emerging market (EEM) (VWO) (IEMG) memory chipmakers dominate the space with South Korea-based companies Samsung (005930.KS) (SSNLF) and SK Hynix (000660.KS) alone commanding nearly 70% of the global memory semiconductor market.
These two global giants have been rising with the tide and are poised to record upwards of $42 billion in profits for 2017. At the South Korean Exchange, electronics are up 68% YTD, while SK Hynix has climbed 85% so far this year.
Increased demand and price should bode well for these chipmakers
For emerging markets baron Mark Mobius, executive chairman of the Templeton Emerging Market Group, technology is a major investment theme currently. From the memory segment, he sees upgrading smartphones driving the demand and pricing of dynamic random access memory (DRAM) chips. DRAM chips brought about a revolution in the IC (integrated circuits) market. These chips have gained popularity on the back of their structural simplicity, which requires only one transistor and one capacitor per bit, to fit billions on a single memory chip. The source of demand for DRAM chips currently ranges from smartphone manufacturers to data centers. Moreover, prices have been rising, spurred by rising demand, leading to increased revenues for DRAM manufacturers. The chart above depicts the trend in DRAM producer revenues worldwide over the past 6 years. Emerging market memory chipmakers such as Samsung Electronics and SK Hynix clearly lead the pack, with US-based Micron (MU) at number 3 in terms of DRAM revenues.
5 of the Top 7 DRAM chip manufacturers are based in emerging markets
Here’s a list of the top 7 DRAM manufacturers along with their financials:
| Ticker | Company | Country | YTD % (Sep 20) | P/E | EPS Growth rate (1Y) | Operating Margin |
| 005930.KS, SSNLF | Samsung Electronics | South Korea | 46.28%, 68% | 12.41 | 25.1% | 14.5% |
| 000660.KS | SK Hynix | South Korea | 84.79% | 8.86 | -30.3% | 19.1% |
| MU | Micron Technology | US | 64.1% | 14.91 | NA | NA |
| 2408.TW | Nanya (2408.TW) | Taiwan | 76.81% | 7.51 | 22.6% | 20.5% |
| 2344.TW | Winbond (2344.TW) | Taiwan | 181.34% | 31.9 | -10% | 8.8% |
| Private company | Powerchip | Taiwan | NA | NA | NA | NA |
| Acquired by Micron | Elpida | Japan | NA | NA | NA | NA |
Samsung and SK Hynix stocks sport favorable valuations
Samsung Electronics and SK Hynix, the top two DRAM chip producers, have delivered good price returns to investors so far this year. These stocks are currently trading at a P/E of 12.41 and 8.86, respectively. Forward valuations for these companies also look favorable:
Poised to grow with the market
Given the fact that the DRAM market is expected to at least double over a decade (according to a SEMI whitepaper, chart below), these emerging market memory chipmakers should see brighter days ahead.
