ICT integration to accelerate: The smartphone revolution of 2007-2012 was unquestionably disruptive: Smartphones supplanted offline devices (TVs, PCs) and analog media (newspapers, advertising), and their value chain realigned around parts, social network services (SNS) and games, and advertising. Over the next two to three years, we expect integration within the information and communication technology (ICT) environment to accelerate as smartphones/tablet PCs go mass market and hardware innovation continues. Korean players have responded well to changes in the market and should continue gaining presence and growing earnings.
Korean firms to lead: Innovating in operating systems is becoming more difficult, but smartphone value-chain leaders Samsung Electronics (SEC) and LG Electronics (LGE) should do so in hardware, differentiating themselves with flexible displays and lighter, more durable smartphones, and leveraging global distribution networks and cost competitiveness to overwhelm rivals with volume growth in emerging markets.
A parts revolution: Korean parts makers have had to innovate to keep up with quantitative growth at SEC and LGE, and we expect them to enjoy qualitative growth by moving to greater precision processes, displays that are flexible and unbreakable, and lighter PCB substrates and cases. SK Hynix and Soulbrain should benefit most.
Dilemma facing telcos: The introduction of LTE-advanced technology should enable wireless networks to offer a user experience comparable to that of 100Mbps fixed line (FTTH), blurring wireless-fixed line experiences. Such developments need time to spark reratings at telcos, however, given: 1) the likelihood of such firms engaging in pricing wars; and 2) the lack so far of increased data usage. Moreover, content usage patterns have hardly differed between 3G and LTE users, which we attribute to a lack of LTE-suitable killer content.
Eoin Treacy's view The evolution of the handheld devices sector
remains a growth market and content providers are responding. Some of the greatest
beneficiaries of this development have been the hardware producers and those
that supply them with chips. As internet access becomes an increasingly indispensible
part of the user experience, providers of wifi are also likely to benefit.
In the devices sector, Samsung Electronics remains in a consistent, step sequence, medium-term uptrend as it continues to pause above the 200-day MA. A sustained move below KRW1.6million would be required to question the medium-term pattern of demand dominance.
In the chip sector, ARM Holdings eased back from the 1000p level from early March in a relatively gradual reversion towards the mean. It surged higher on April 23 rd and a sustained move below 850p would be required to question medium-term scope for additional upside.
In the wifi infrastructure sector Verizon hit a peak last week near $54 and appears to have entered a process of mean reversion.