■ Summary: As in September, we are still unable to travel to South Korea, Taiwan, and China due to COVID-19. Instead, we conducted market research from Japan. For the tech supply chain as a whole, there has been no negative talk about core sets and equipment recently, except for a slowdown in base station-related demand in China. However, smartphone makers in particular have made production plans for CY21 that are far higher than actual demand, and we understand that orders based on these plans have started to come in after National Day in China. Accordingly, we see a risk of inventory adjustments as early as Apr–Jun after the Chinese New Year. We also note the risk of inventory adjustments for the iPhone 12 from Jan–Mar 2021.

■ Focal points related to hardware and devices: (1) The gap with final demand has widened further, with smartphone production plans for CY21 set to increase at Oppo, Vivo, and Xiaomi as well as for the iPhone. This comes in addition to a recovery in 4G smartphone production at Huawei and the spinning off of the Honor brand. Production plans call for an 18% YoY increase to 1,550–1,600mn units. Chinese makers have begun to place orders for late October through next year. We get the impression that more and more device makers are concerned about the risk of inventory corrections after the Lunar New Year holiday or in Apr–Jun. (2) iPhone production plans for CY20 involves 240mn units (+18% YoY), including 92mn iPhone 12s. By quarter, production plans for the iPhone are 41mn units in Jul–Sep (−12% QoQ, −26% YoY, including 2mn iPhone 12s), 115mn units in Oct–Dec (+181%, +53%, 90mn), and 73mn units in Jan–Mar 2021 (−37%, +98%, 53mn). In the model mix, the iPhone 12 was down slightly while the iPhone 12 Pro was up slightly. With production plans at record highs, there is a risk of a major inventory correction depending on sales trends. (3) PC makers appear to have started expecting positive YoY growth in CY21. Production of tablets was slightly lower than expected due to tight supply-demand for parts and materials. (4) Supply is tight for PMICs, DDIs, LTE/5G chipsets for smartphones, AMD CPUs, LCD panels, crystal devices, MLCCs, power inductors, and QFN lead frames.

■ Stock calls: Our top picks in the electronic components sector are Murata Manufacturing (6981), Taiyo Yuden (6976), and Nidec (6594) over the longer term. For the sector as a whole, however, we must caution that any negative news may dent favorable performance in short-term share prices. In electronic components overall, we expect strong earnings in Oct–Dec driven by a recovery in automotive demand and increased iPhone 12 production. However, we see both upside and downside risks for share prices in Jan–Mar 2021 and after, depending on iPhone 12 sales. We also note the risk of a correction in demand from Chinese smartphone makers after the Lunar New Year. Our latest survey points to an increasing risk of correction within an overheated semiconductor market. Our assumptions for 1H CY2021 include an inventory correction for foundry-produced chips and the risk of further DRAM price erosion. We continue to rate the major SPE stocks (Tokyo Electron (8035), SCREEN (7735), Disco (6146), Advantest (6857)) as Underperform.