22 May 2023 | 5:33PM JST

Asia Pacific Technology: Implications for Asia stocks from potential

Apple announcement on VR/AR headsets

Our US analyst covering Apple (AAPL), Michael Ng, published his thoughts (link) Daiki Takayama
+81(3)6437-9870 |
ahead of the company’s Worldwide Developers Conference (WWDC) on June 5-9. [email protected]
Goldman Sachs Japan Co., Ltd.
Our analyst believes one of the focuses at this year’s event will be on a potential
Allen Chang
announcement regarding Apple’s first virtual reality/augmented reality (VR/AR) +852-2978-2930 |
[email protected]
device (reportedly a mixed-reality headset known as “Reality Pro”). Our analyst Goldman Sachs (Asia) L.L.C.

assumes the Reality Pro would be priced at around US$3,000, and shipment volume Bruce Lu
+852-2978-6368 | [email protected]
Goldman Sachs (Asia) L.L.C., Taipei
in 2023 could be up to 1 mn units (5 mn units over the full fiscal year from launch in Branch
our base case), largely in line with press reports. Our analyst recognizes that the James Wang
+886(2)2730-4191 |
VR/AR industry has proved to be largely disappointing to-date, and based on their [email protected]
Goldman Sachs (Asia) L.L.C., Taipei
price assumption, the Reality Pro would be expensive compared with the average Branch
price for VR/AR headsets already on the market (US$400-500). We believe any
For the exclusive use of [email protected]

Atsushi Ikeda
+81(3)6437-9940 |
impact on Asian tech companies in 2023 would be limited. However, the strength of [email protected]
Goldman Sachs Japan Co., Ltd.
Apple’s ecosystem cannot be taken lightly, including the potential to create engaging
Minami Munakata
content for more than 1.1 bn iPhone users. Below, we discuss the potential +81(3)6437-9830 |
[email protected]
read-across for our Asia tech stocks. Goldman Sachs Japan Co., Ltd.

Giuni Lee
We see two main implications for Asian tech companies (1) from the standpoint of +82(2)3788-1177 | [email protected]
Goldman Sachs (Asia) L.L.C., Seoul
component and materials supply, and (2) from the perspective of Apple’s Branch

competitors and market formation. In terms of parts/material supply, we think the Verena Jeng
+852-2978-1681 | [email protected]
discussion could focus on potential tailwinds for companies like Sony (OLED Goldman Sachs (Asia) L.L.C.

microdisplay), Nitto Denko (optical films), Mitsubishi Gas Chemical (optical resin Mitsuhiro Icho
+81(3)6437-9836 |
polymers), Unimicron (ABF substrate), Luxshare (modules/assembly), Hon Hai [email protected]
Goldman Sachs Japan Co., Ltd.

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(Lens lamination), TSMC (processor) and LG Innotek (3D sensing). From the
perspective of competition and market growth, we generally think positive impact
(expanding market) could be bigger than negative impact (increased competition).
We discuss our view on Sony, HTC, and Samsung Electronics.

Japan

Japan Electronic components/Semiconductor : Nitto Denko (Daiki Takyama)

While it is difficult to gauge the extent to which VR/AR applications are factored into
each company’s plans, given the limited market scale at present, we believe Nitto
Denko’s optical film business is developing new VR/AR applications (we estimate

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
 Goldman Sachs Asia Pacific Technology

its business scale at between ¥5-10 bn). The company has a strong focus on developing
new value-added applications, and we believe it has the potential to become an Apple
supplier.

On the other hand, although we assume JDI is also looking at VR applications as a

factor driving growth in non-mobile business applications in 2H, we think it is unlikely to
be involved in supplying Apple with VR/AR displays, mainly as these are LCD rather than
OLED displays, and the company’s focus has been as a supplier to existing major
customers (we assume Meta).

If product specifications are as widely reported, we believe companies likely to benefit

include TDK, as a supplier of batteries for external connections

Japan Chemical: Mitsubishi Gas Chemical (Atsushi Ikeda)

Mitsubishi Gas Chemical: MGC has close to 90% share of the global market for
optical resin polymers used in concave lenses, and is highly regarded worldwide as a
lens module manufacturer. The company’s current focus includes the VR/AR field in
addition to its core mobile lens applications. VR devices typically comprise a wide-range
For the exclusive use of [email protected]

of applications, including eyepieces and external lenses, and we see potential for this
business to support earnings if it leads to increased sales volume. We will be closely
monitoring MGC’s initiatives in this area going forward.

Japan Games & Internet : Sony (Minami Munakata)

Potential tailwind in terms of growth in Sony’s metaverse business if Apple’s
potential launch drives expansion in the overall VR/AR market: We have previously
suggested that innovations such as VR/AR provide a more immersive gaming
experience, contribute to increased consumption per user, and are likely to generate
ARPU that will drive future growth in the gaming market. Given Sony’s existing track
record of R&D in the VR/AR field and in incorporating this into the gaming experience

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since before the PSVR release in 2016, we think the potential launch of Apple’s VR/AR
headsets could provide Sony with an opportunity to expand its business in the
metaverse domain if it were to (1) accelerate the adoption of both hardware and
software and contribute to market expansion, and (2) make VR/AR headsets a more
mainstream entertainment option.

Current status of PSVR2: If Apple’s VR/AR headset is released with a retail price in line
with our Apple team’s estimate (US$3,000), this would put it in a much higher price
range than that for Sony’s PSVR2 (US$550). We also think Apple’s VR/AR headset is
unlikely to have a direct impact on PSVR2 shipment volume in the near term, as the
PSVR2 is basically positioned as a PS5 hardware accessory. On the other hand, the
number of iPhone users (more than 1.1 bn per team estimate) is well above the number
of users on Sony’s PS platform, and as a result the speed of PSVR2 market penetration
may be slower than we have assumed if Apple launches cheaper VR/AR headset models
in the future (we have not revised our earnings estimates for the Sony Group since its
FY3/23 results announcement; we currently assume annual PSVR2 shipment volume of
1 mn units in FY3/24, rising to 2 mn units from FY3/25 to FY3/27). The PSVR2 was
launched on February 22, and while Sony has not disclosed shipment volume data, it

22 May 2023 2
 Goldman Sachs Asia Pacific Technology

has said that the actual number of shipments has been slightly weaker than its
assumptions, but the hardware itself has still generated a profit on a GPM basis.

Sony (as a component supplier): We assume that Apple’s VR/AR headsets would use
OLED microdisplays provided by Sony Semiconductor Solutions. This is because in
addition to the high image-quality characteristics of OLED products, Sony’s OLED
microdisplays feature ultra-high resolutions of around 4,000 ppi via the use of
high-mobility monocrystalline silicon wafers as the backplane, and are being increasingly
adopted for use in products and applications that require ultra-compact and ultra-high
definition displays (including camera EVF, AR/VR glass, drones, and medical care
products). Sony is focused on strengthening creativity and innovation (“creation”) in
each business area, and we believe expanding the business portfolio into the
entertainment field at Sony Semiconductor Solutions would align with this strategic
direction. That said, we assume that any impact on the Sony Group’s earnings at this
stage would be limited given (1) CMOS image sensors account for 90% of sales in the
I&SS business (as of FY3/23), and (2) based on our shipment volume assumption for
Apple’s VR/AR headsets (1 mn units in FY9/23, 5 mn units in FY9/24).
For the exclusive use of [email protected]

Greater China

Greater China Technology: HTC, Hon Hai (Allen Chang), Luxshare (Verena Jeng), TSMC
(Bruce Lu), Unimicron (James Wang)
Read across to HTC (2498.TW, Neutral): We are positive on Apple’s potential
announcement of an AR/VR headset, which could attract more first-time users and
accelerate the adoption of virtual reality/ mixed reality technology. For now, we do not
expect a head-to-head competition between HTC and Apple, given different price tags
(We expect HTC’s ASP at US$937 in 2023E, vs. Apple’s new MR priced at US$3,000 per
Apple team’s estimate). As an early mover, HTC also launched its first MR model Vive

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XR Elite in Jan-23 (Read more) with a premium price of US$1,099. The company looks to
broaden VR/ MR use cases, providing contents and software solutions across virtual
concerts (Beatday), movies (Vive Originals), exhibitions (Vive Arts), meetings and training
(Vive Sync). With comprehensive product and software offerings, we believe HTC is
well-positioned to capture the increasing user base of VR/ MR.

Read across to supply chain: We expect Greater China supply chain to benefit from
Apple’s potential MR launch. Luxshare (002475.SZ, Buy) should help in MR assembly
and provide related modules, per management, which we expect to add Rmb36bn
revenues in 2024E (based on Apple MR hypothetical model: 5m shipment in 2024E,
selling price at US$2.5k, and retailers’ / Apple’s GM at 30% / 40%; Luxshare as sole
supplier in assembly), or 13% of our 2024E revenues. Hon Hai (2317.TW, Buy on CL)
could also participate in lens lamination according to Taiwan Media (Link), a high margin
business given complexity in the manufacturing process. Genius (3406.TW, Not
Covered) and Young Optics (3504.TW, Not Covered) could supply the pancake lens per
news flow (Link), given their experience in mass-producing pancake lens for several
existing VR/XR players.

22 May 2023 3
 Goldman Sachs Asia Pacific Technology

Implication to Taiwan semiconductor: TSMC (2330.TW, Buy) as the key processor

manufacturer: For Apple’s potential launch of a new mixed-reality headset (MR), our
check suggests that the device is likely to feature Apple’s self-designed M series
processor utilizing TSMC’s N5 family technology. However, based on our estimate, the
revenue contribution to TSMC should be minimal from this project, if assuming 1) one
CPU per device with headset shipment of around 1mn in 2023 and 5mn units in 2024
(per our Apple team’s estimate), and 2) die per wafer at around 400 units, the CPU
revenue contribution to TSMC would be c.0.05% in 2023 and c.0.22% in 2024. While
some press reports have claimed the device could potentially equip with
dual-processors, the overall revenue would still be small to TSMC in either case.

Implication to Taiwan technology component industry: Unimicron the key

beneficiary with up to 28% ABF rev upside in coming years: We believe the ABF
substrates for Apple’s potential MR headset could be solely supplied by Unimicron,
given Unimicron’s close relationship with AAPL and TSMC, which could drive
Unimicron’s ABF revenue by 0-7/0-18/0-28% in 2023/24/25E, all else equal (see
Unimicron report here). Based on supply chain checks, the MR device IC could be
packaged by the new thin core ABF substrate with substrate content per IC close to the
For the exclusive use of [email protected]

M2 processors (for Macbook; which is also supplied by Unimicron) with similar ABF
ASP/content. Moreover, we believe the new MR headset could also drive more MR
related applications in the long term, with possibly increasing investment in cloud
infrastructure which we would expect to further drive ABF market demand (on more
server CPU/GPU/FPGA/ASIC demand) in the long term.

Korea

Korea Technology : Samsung Electronics, LG Innotek (Analyst: Giuni Lee, Daiki

Takayama)

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For Korea tech companies, we expect overall limited financial impact from Apple’s
potential VR. On the competition front, Samsung Electronics (SEC) has launched
several VR products but the last Gear VR product was launched in 2019 and the
company has since not been relatively active in the space. SEC is in the process of
developing VR device together with Qualcomm and Google, but we believe it will
unlikely be launched in the near-term and initial shipment volume may be small. On the
display side, we believe Samsung Display and LG Display are unlikely to be supplying
OLED panels for Apple’s potential VR headset this time based on our industry checks
which currently suggest that Sony will be supplying most of the OLED panel. However,
we expect some positive impact to LG Innotek (LGI) as they could supply 3D sensors
for the VR headset. We assume 3 3D sensors per device supplied by LGI in our model,
and expect revenue contribution to LGI will be small in the near-term.

22 May 2023 4
 Goldman Sachs Asia Pacific Technology

Disclosure Appendix
Reg AC
We, Daiki Takayama, Allen Chang, Bruce Lu, James Wang, Atsushi Ikeda, Minami Munakata, Giuni Lee, Verena Jeng and Mitsuhiro Icho, hereby certify
that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities.
We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in
this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.

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sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
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Disclosures
Rating and pricing information
Nitto Denko (Neutral, ¥10,100), Mitsubishi Gas Chemical (Buy, ¥1,950), Sony Group (Neutral, ¥13,590), HTC Corp. (Neutral, NT$59.00), Luxshare (Buy,
Rmb28.12), Hon Hai (Buy, NT$103.00), TSMC (ADR) (Buy, $92.58), Unimicron Technology (Buy, NT$170.00), LG Innotek Co. (Neutral, W293,000),
Samsung Electronics (Buy, W68,400), and Samsung Electronics (Pref) (Buy, W58,100)

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The rating(s) for Nitto Denko is/are relative to the other companies in its/their coverage universe: Alps Alpine, Hirose Electric, IRISO Electronics,
Ibiden, Japan Aviation Electronics Industry, Japan Display Inc., Kyocera, Mabuchi Motor, Maxell Ltd., MinebeaMitsumi Inc., Murata Mfg., NGK
Insulators, Nichicon, Nidec, Nippon Ceramic, Niterra, Nitto Denko, Pacific Industrial, Renesas Electronics, Rohm, Shinko Electric Industries, TDK, Taiyo
Yuden
The rating(s) for LG Innotek Co., Samsung Electronics and Samsung Electronics (Pref) is/are relative to the other companies in its/their
coverage universe: Hansol Chemical, LG Display, LG Electronics, LG Innotek Co., SK Hynix Inc., Samsung Electro-Mechanics, Samsung Electronics,
Samsung Electronics (Pref), Samsung SDI Co., Samsung SDS Co.
The rating(s) for Mitsubishi Gas Chemical is/are relative to the other companies in its/their coverage universe: Asahi Kasei, Daicel, Denka,
Fujimi Inc., JSR, Kansai Paint, Kuraray, Mitsubishi Gas Chemical, Nippon Paint Holdings, Nippon Shokubai, SUMCO, Shin-Etsu Chemical, Tokyo Ohka
Kogyo, Toray Industries, Zeon
The rating(s) for Unimicron Technology is/are relative to the other companies in its/their coverage universe: Advantech Corp., Airtac
International Group, BizLink Holding, Chroma ATE, Delta Electronics, Elite Material, Flexium Interconnect, GCE, Hiwin Corp., ITEQ Corp, Kinsus, Lotes,
NYPCB, Taiwan Union Technology Corp., Unimicron Technology, Win Semiconductors Corp., Yageo Corp., Zhen Ding Technology Holding
The rating(s) for HTC Corp. and Luxshare is/are relative to the other companies in its/their coverage universe: 3PEAK, AAC, ACM Research,
AMEC, ASMPT, ASR Micro, AccoTest, Actions Technology, Amlogic, Anji Micro, Anlogic, Arcsoft, Awinic, BOE, BYDE, Bestechnic, Bomin, CCore, CFME,
CR Micro, Cambricon, Cellwise, China Mobile (HK), China Telecom, China Tower Corp., China Unicom, China United Network Comm, Chinasoft Intl,
Chipown, Comba, Dahua, Desay SV, EHang, Empyrean, Espressif, Etek, Everbright Photonics, FIT Hon Teng, Fiberhome, Foxconn Industrial Internet,
GalaxyCore, Gigadevice, Glodon Co., Goodix, HTC Corp., Hengtong, Hikvision, Hirain, Hon Hai, Hua Hong, Huatian, ISoftStone, JCET, Jingce, KFMI,
Kingdee, Kingsemi, Kingsoft Office, Largan, Lenovo, Lianchuang, Longsys, Luxshare, Maxscend, Montage, NAURA, NSIG, NavInfo Co., Novosense,
O-film, Primarius, Rockchip, Ruijie, SG Micro, SICC, SMIC (A), SMIC (H), Sanan, Sangfor, Shennan Circuits, Silan, SinoWealth, StarPower, Sunny
Optical, Thundersoft, Thunisoft, Tongfu, Transsion, USI, Vanchip, Venustech, VeriSilicon, Will Semi, Wingtech, YJK, YOFC (A), YOFC (H), Yonyou, ZTE (A),
ZTE (H), ZWSOFT, iFlytek
The rating(s) for TSMC and TSMC (ADR) is/are relative to the other companies in its/their coverage universe: ASE Technology Holding, ASE
Technology Holding (ADR), Chipbond Technology Corp., GlobalWafers Co., King Yuan Electronics Co., MediaTek, Novatek Microelectronics, Parade
Technologies Ltd., Realtek Semiconductor Corp., Silergy Corp., TSMC, TSMC (ADR), United Microelectronics Corp., United Microelectronics Corp.
(ADR), Vanguard International Corp., uPI

22 May 2023 5
 Goldman Sachs Asia Pacific Technology

The rating(s) for Sony Group is/are relative to the other companies in its/their coverage universe: Bandai Namco Holdings, Capcom,
CyberAgent, Konami Group, Nexon, Nintendo, Oriental Land, Recruit Holdings, Sony Group, Square Enix Holdings, Z Holdings

Company-specific regulatory disclosures

Compendium report: please see disclosures at https://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this
compendium can be found in the latest relevant published research

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global Equity coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell
Global 48% 36% 16% 63% 56% 47%

As of April 1, 2023, Goldman Sachs Global Investment Research had investment ratings on 3,026 equity securities. Goldman Sachs assigns stocks as
Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by the FINRA Rules. See ‘Ratings, Coverage universe and related definitions’ below. The Investment
Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided
investment banking services within the previous twelve months.

Price target and rating history chart(s)

Compendium report: please see disclosures at https://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this
compendium can be found in the latest relevant published research

Target price history table(s)

LG Innotek Co. (011070.KS) Samsung Electronics (Pref) (005935.KS)
For the exclusive use of [email protected]

Date of report Target price (W) Date of report Target price (W)
26-Apr-23 290,000 27-Apr-23 67,000
26-Jan-23 300,000 07-Apr-23 65,000
13-Jan-23 310,000 15-Mar-23 63,000
31-Oct-22 340,000 31-Jan-23 65,000
31-Jul-22 360,000 19-Dec-22 63,000
19-Apr-22 320,000 09-Oct-22 64,000
27-Jan-22 300,000 25-Sep-22 65,000
18-Jan-22 280,000 07-Jul-22 74,000
28-Oct-21 245,000 21-Jun-22 78,000
14-Oct-21 240,000 28-Apr-22 89,000
01-Aug-21 250,000 07-Apr-22 91,000
19-Jul-21 240,000 10-Mar-22 94,000
10-Jan-22 93,000
30-Sep-21 91,000

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Samsung Electronics (005930.KS)
Date of report Target price (W)
27-Apr-23 80,000
07-Apr-23 77,000
15-Mar-23 74,000
31-Jan-23 75,000
12-Jan-23 70,000
19-Dec-22 72,000
09-Oct-22 73,000
25-Sep-22 75,000
07-Jul-22 85,000
21-Jun-22 90,000
28-Apr-22 103,000
07-Apr-22 105,000
10-Mar-22 108,000
10-Jan-22 107,000
30-Sep-21 100,000

Regulatory disclosures
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See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or
co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed

22 May 2023 6
 Goldman Sachs Asia Pacific Technology

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b2517faa3a7e11e094d300215ad26546
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products mentioned that are inconsistent with the views expressed by analysts named in this report.
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