CMBI Credit Commentary Fixed Income Credit Commentary 25 Mar 2026 Glenn Ko, CFA 高志和 (852) 3657 6235 glennko@cmbi.com.hk Cyrena Ng, CPA 吳蒨瑩 (852) 3900 0801 cyrenang@cmbi.com.hk Trading desk comments 交易台市场观点 Yesterday, WESCHI 28-29 leaked 0.7-1.0pt. West China Cement reported a 15.3% yoy increase in revenue in FY25 yet weaker 2H25 results. See our comments yesterday. In Chinese IG space, XIAOMI 30-51 closed 1-4bps wider. Xiaomi's FY25 revenue was up 25% yoy to RMB457.3bn. See comments below. 5-10yr MEITUA tra ...

Market Indexes Open Under Pressure Amid Expiration VolatilityThe U.S. stock market opened Friday, March 20, 2026, with a sense of trepidation as investors navigated the first "Triple Witching" day of the year. This quarterly event, characterized by the simultaneous expiration of stock options, stock index futures, and stock index options, typically brings heightened volume and intraday price swings. As the opening bell rang, the major indexes showed a mixed to downward bias. The S&P 500 (SPX) opened lower, ...

Smartphone Industry - Global smartphone production is projected to reach 1.25 billion units by 2025, with Apple and Samsung both expected to produce approximately 240 million units each, ranking them first globally [2][3] - In Q4 2025, global smartphone production is estimated at 337 million units, reflecting a quarter-over-quarter increase of 2.7% [2] Laptop Market - The global laptop market is facing dual pressures of weak demand and rising costs, with memory and CPU prices increasing significantly [2] - It is estimated that the retail price of mainstream laptops, originally priced at $900, may rise by nearly 40% to maintain existing profit margins [2] Semiconductor Industry - The global revenue of the top ten foundries is expected to increase by 2.6% in Q4 2025, reaching approximately $46.3 billion, driven by demand from AI server GPUs and smartphone chip production [6][7] - TSMC remains the market leader with a revenue of $33.7 billion in Q4 2025, holding a market share of 70.4% [7] SSD Market - The revenue of the top five enterprise SSD manufacturers is projected to increase by 51.7% in Q4 2025, surpassing $9.9 billion, due to the growing demand for AI inference applications and server upgrades [11][12] - Samsung leads the enterprise SSD market with a revenue of $3.66 billion, accounting for 33.8% market share [12] Display Panel Industry - The panel industry is undergoing a shift towards higher generation production lines, with the 8.6 generation expected to account for 26% of global LCD capacity by 2026 [14]

Summary of Global Tech Hardware Conference Call Industry Overview - The conference call focuses on the global smartphone industry, highlighting shipment forecasts and market dynamics for the upcoming years. Key Points Shipment Forecasts - Global smartphone shipments are revised down to **1.04 billion** units for 2026, reflecting a **17% YoY decline**, and projected to increase to **1.17 billion** in 2027 (+12% YoY) and **1.25 billion** in 2028 (+7% YoY) [1][2] - The decline in shipments is attributed to demand weakness due to memory price hikes and rising inflation, with average selling prices (ASP) expected to increase by **7%** in 2026, **2%** in 2027, and **3%** in 2028 [1][2] Regional Impact - Significant declines in smartphone shipments are expected across various regions in 2026: - **China**: -12% - **Japan**: -11% - **North America**: -10% - **Western Europe**: -16% - **CEMA**: -18% - **India**: -30% - **Latin America**: -21% [2] Market Dynamics - Emerging markets are anticipated to be more affected due to a higher mix of lower-end models [2] - Apple and Samsung are expected to remain resilient in shipments, while Xiaomi is forecasted to decline by **13% YoY** to **144 million** units [2] Recent Shipment Performance - In **4Q25**, smartphone shipments rose by **2.5% YoY** to **336.9 million**, exceeding expectations by **5%** [3] - The highest growth was recorded in CEMA (+7.2%), North America (+6.2%), and Latin America (+5.8%) [3] - In China, the ASP increased by **9%** to **US$558**, with models priced above **US$200** making up **80%** of shipments [3] Vendor Performance - Top vendors in 4Q25: - **Samsung**: Shipments increased by **18% YoY** to **61.2 million** - **Apple**: Shipments increased by **9% YoY** to **84.6 million** - **Xiaomi**: Shipments decreased by **11% YoY** to **37.8 million** [3] Foldable Smartphone Market - **2025** foldable smartphone shipments were reported at **20.3 million**, up **9% YoY**, with Huawei leading at **7.2 million** units [8] - Forecasts for foldable smartphone shipments are **29 million** in 2026 and **45 million** in 2027, driven by iPhone foldable models [8] Component Supplier Preferences - Preferred suppliers include: - **Memory**: SK Hynix, Sandisk, Kioxia, Samsung - **iPhone Foldable**: Lens Tech, Luxshare, Amphenol, ZDT, DSBJ, TDK - **Camera Upgrades**: LG Innotek, Cowell [9] Risks and Challenges - Qualcomm and Mediatek experienced market share losses in 4Q25, with Qualcomm's share dropping by **0.1ppt YoY** and Mediatek by **2.4ppt YoY** [7] - The smartphone industry faces challenges from rising costs and inventory issues, particularly in the mid-to-low-end segments [9] Conclusion - The global smartphone market is facing a downturn in shipments due to economic pressures, but certain players like Apple and Samsung are expected to maintain their positions. The foldable smartphone segment shows promise for growth, and selective investment in key suppliers is recommended.

Summary of Samsung Electronics Conference Call Company Overview - **Company**: Samsung Electronics (005930.KS) - **Market Cap**: W1,275.6 trillion / $868.2 billion - **Enterprise Value**: W1,151.3 trillion / $783.6 billion - **12-Month Price Target**: W260,000 (up from W205,000) with a current price of W190,000, indicating a potential upside of 36.8% [1][41] Key Industry Insights - **Memory Pricing**: - Significant increases in conventional DRAM and NAND pricing are expected starting from 1Q26, with projections of +88% QoQ for 1Q26 and +40% for 2Q26 [17] - 2026E average conventional DRAM pricing is expected to rise by 251% YoY, while NAND pricing is projected to increase by 164% YoY [17][29] - Operating margins for DRAM are forecasted to remain high at 71% in 2026 and 69% in 2027, marking historical highs [21] - **HBM Business**: - Anticipated significant growth in HBM revenue, expected to reach US$15 billion in 2026, up from US$6 billion in 2025, driven by demand from ASIC customers and increased market share in Nvidia [30] Financial Performance - **Operating Profit Estimates**: - 1Q26E OP estimate raised to W40.3 trillion (from W38.1 trillion) and 2026E OP estimate raised to W239 trillion (from W181 trillion) [41] - EPS estimates revised up by 25-36% [43] - **Revenue Growth**: - Total revenue for 2026E projected at W590.9 trillion, with a significant increase from previous estimates [6] R&D and Strategic Focus - **R&D Spending**: - R&D expenditure reached W37.7 trillion in 2025, an 8% YoY increase, indicating a strong commitment to technology leadership, particularly in semiconductors [35][36] - **Customer Mix**: - Shift in customer base with Alphabet added and Verizon removed from the top 5 customers, reflecting a growing focus on server and AI markets [40] Risks and Considerations - **Market Risks**: - Key risks include potential deterioration in memory supply/demand, contraction in smartphone margins, and loss of market share in mobile OLED [45] - **Smartphone Margins**: - Smartphone operating margins are expected to decline to 4% in 2026 from 11% in 2025 due to rising component costs [31] Conclusion - **Investment Recommendation**: - The company is reiterated as a "Buy" with a target price of W260,000, supported by strong earnings growth potential driven by memory pricing increases and strategic positioning in high-demand markets [44]

Core Insights - Global PC shipments are projected to decline by 12% in 2026, reaching 245 million units, primarily due to significant increases in memory and storage prices, with a minimum expected rise of 60% in Q1 2026 [1][1][1] Summary by Category Shipment Forecasts - Desktops are expected to decline by 10% to 53.2 million units, while laptops will see a 12% decline to 192.2 million units [1][1][1] Price Impact - Since Q1 2025, mainstream memory and storage costs have increased by US$90 to US$165, leading PC vendors to reduce promotions, raise prices, and adjust configurations [1][1][1] - PCs priced below US$500 are anticipated to be the hardest hit, declining by 28% to approximately 62.1 million units shipped, while high-end PCs priced at US$900 and above may maintain modest growth [1][1][1] Platform Analysis - Windows PCs, which represent 83% of shipments, are forecasted to decline by 12% in 2026 due to memory and storage constraints [1][1][1] - Chrome devices are expected to face the steepest decline at 28%, while Macs are projected to have a modest 5% decline, supported by Apple's supply chain [1][1][1] - HarmonyOS-based PCs are emerging as a growth segment, expected to expand tenfold year on year from a small base as Huawei develops its PC ecosystem in China [1][1][1]

Core Viewpoint - Apple is better positioned than its peers to handle rising memory costs in the global smartphone market, which is expected to face challenges due to skyrocketing memory prices [1]. Group 1: Company Positioning - Analysts from Citi believe that Apple has a stronger ability to navigate the increasing memory costs compared to its competitors [1].

Core Insights - IDC has significantly revised down its forecast for global smartphone shipments in 2026 to approximately 1.1 billion units, a decrease from 1.26 billion units in the previous year, indicating a rare year-on-year decline of nearly 13% in the smartphone market [1] Group 1: Smartphone Market Outlook - The smartphone market is expected to decline by 12.9% in 2026, with a slight revenue decrease of 0.5%. A modest growth of 1.9% is anticipated in 2027, followed by a strong rebound of 5.2% in 2028 [4] - The ongoing memory supply challenges are projected to persist until at least 2026, potentially extending into 2027, with memory prices expected to remain elevated and not return to 2025 levels [4][5] Group 2: Memory Supply Crisis - The structural factors causing the memory shortage include surging demand for AI infrastructure and competition for DRAM and NAND flash capacity from consumer electronics [5] - IDC's Senior Research Director, Nabila Popal, emphasized that the current memory crisis is more significant than previous challenges such as tariffs and pandemic impacts, predicting a dramatic transformation in the smartphone market's scale, average selling price, and competitive landscape by mid-2027 [5] Group 3: Broader Market Implications - The crisis is expected to reshape not only the smartphone market but also the personal computer market, as well as the competitive dynamics of tablets, XR headsets, wearables, and gaming consoles [6]

Core Insights - The global smartphone shipment is expected to decline significantly to approximately 1.1 billion units this year, down from 1.26 billion units last year due to a shortage of storage chips [1] - The surge in demand for high-end storage to support artificial intelligence tasks has consumed a large portion of global supply, and this supply tightness is anticipated to persist until 2027 [1] - The impact of the storage chip shortage is particularly severe on low-cost smartphones, with rising storage chip prices squeezing the already thin margins of Android brands [1] - It is projected that the contract prices for DRAM chips will increase by 90% to 95% quarter-on-quarter in the first quarter of this year, while NAND flash prices are expected to rise by 55% to 60% [1]

Summary of the Earnings Call Transcript Industry Overview - **Industry**: IT Hardware in North America - **Current Sentiment**: Cautious outlook due to memory price inflation and supply concerns [1][3][7] Key Points Memory Price Inflation - **Price Increase Expectations**: NAND and DRAM contract prices are projected to rise by 100-150% from C4Q25 to C1Q26, nearly double the initial downgrade estimates from November 2025 [3][20] - **Impact on Companies**: A broader range of IT Hardware vendors are expressing concerns about demand and margins due to memory price inflation and supply scarcity [3][10] Earnings Performance - **Recent Earnings Results**: Companies that explicitly referenced memory in their earnings reports beat December quarter revenue by over 1% but have underperformed the market post-earnings, indicating investor caution regarding future earnings risks [3][24] - **Market Reaction**: Despite positive earnings results, stocks of memory-exposed companies have seen a de-rating of 3x P/E [4][26] Demand Concerns - **PC Demand**: The notebook ODM build miss was the largest in four years, indicating weaker-than-expected demand for PCs at the start of the year [3] - **Consumer vs. Enterprise**: Quant analysis suggests that consumer markets (smartphones and PCs) are more at risk from pricing hikes compared to enterprise infrastructure markets [10][32] Company-Specific Insights - **Dell Technologies (DELL)**: Expected to report above-guide January quarter results but faces downside risk to FY27 Street EPS due to memory market headwinds [11][13] - **Hewlett Packard Enterprise (HPE)**: Quarterly checks align with expectations, but concerns remain regarding memory impacts on the 'Cloud and AI' segment [11][13] - **HP Inc. (HPQ)**: Anticipated to lower FY26 EPS guidance due to extreme memory price inflation [11][13] - **NetApp (NTAP)**: Expected to provide in-line guidance, but macro and company-specific factors remain tepid [11][13] - **Pure Storage (PSTG)**: Potential for modest upside in FY27 revenue estimates, but management's caution on reinvestment raises concerns [11][13] Market Valuation and Estimates - **Valuation Compression**: Tech hardware stocks are trading at 11x P/E, down 3x from November 2025, despite being at 15+ year earnings highs [26] - **Earnings Revisions**: Earnings revision breadth has fallen from +53% in October 2025 to -6% currently, indicating a shift in market sentiment [29] Risks and Future Outlook - **Earnings Setup**: The upcoming earnings for DELL, HPE, HPQ, NTAP, and PSTG are expected to be cautious, with significant downside risks embedded in EPS estimates [11][12] - **Memory Supercycle Risks**: The potential for increased memory capacity from Chinese manufacturers is not expected to alleviate current supply constraints significantly [41] Additional Insights - **Global Impact**: A broader array of global stocks in the hardware and semiconductor sectors face challenges due to rising memory prices and supply scarcity [9][35] - **Investor Sentiment**: Investors are increasingly cautious, with many seeking clarity on how companies will navigate the memory price inflation and its implications for future earnings [9][40] This summary encapsulates the critical insights and data points from the earnings call, highlighting the cautious sentiment surrounding the IT Hardware industry, particularly in relation to memory price inflation and its impact on company performance and market valuations.