Samsung Electronics Updates And What’s Driving Our $1,350 Price Estimate

SSNLF: Samsung Electronics logo
SSNLF
Samsung Electronics

Consumer electronics behemoth Samsung Electronics (PINK:SSNLF) published a lackluster set of Q1 2015 numbers late last month, as quarterly revenues fell by 12% year-over-year to about $43 billion, while operating profits fell 30% to around $5.49 billion, marking the sixth straight year-over-year drop in quarterly profit. [1] However, profitability improved by 13% on a sequential basis, driven by sales of higher-value semiconductor products and lower marketing expenses for the smartphone division. We believe that things are only likely to get better going forward for Samsung, as it ramps up availability of its well-reviewed new flagship handsets – the Galaxy S6 and S6 Edge – and also as it benefits from some early-mover advantages in the memory and microprocessor space. Here’s a quick overview of some of the developments for Samsung Electronics during Q1 and what to expect from the company in the near term.

Trefis has a $1,350 price estimate for Samsung Electronics, which is slightly ahead of the current market price.

See our full analysis for Samsung Electronics


Smartphone Sales Stabilize, Expect Margin Expansion Going Forward

Relevant Articles
  1. Beating S&P500 BY 11% YTD, What To Expect From Travelers Stock?
  2. Up 50% Over The Last 12 Months, Is Hyatt Stock Still Attractive?
  3. Capital One Stock Gained 44% In The Last 6 Months, What’s Next?
  4. Up 8% Year To Date As 5G Gains Traction, What’s Next For Verizon Stock?
  5. Up 32% In The Last 12 Months, Where Is BNY Mellon Stock Headed?
  6. Rallying 30% YTD, What’s Spurring The Rally In Applied Materials’ Stock?

Samsung’s smartphone business has been facing headwinds over the past year, challenged by Apple’s (NASDAQ:AAPL) hot-selling large-screen iPhone 6 and 6 Plus and increasing competition from value Chinese manufacturers such as Xiaomi and Lenovo. However, we believe that the division could be close to turning the corner, as revenues remained almost flat sequentially at about $23 billion, while operating margins rose to about 10.5%, up from around 7.5% in Q4. The company held about 24.5% of the smartphone market as of Q1, with shipments standing at around 82 million units according to IDC. [2] The company’s new mid-range handsets such as the metal-bodied Galaxy A series (A3, A5, and A7) – which are designed to take on offerings from Chinese players – have been seeing a reasonably strong uptake. The firm also benefited from lower marketing expenses that were brought about by better inventory management, unlike some previous quarters when it had to run promotions to reduce stocks. We believe that Q2 2015 will be a stronger quarter for the mobile division, driven by the ramp up of shipments of the new flagship Galaxy S6 and S6 Edge, which hit stores in early April. If the largely positive first reviews of the S6 are any indicator, Samsung may well have a hit device on its hands. While the company didn’t provide early sales numbers for the S6, it noted that the phone was doing better than the S5 and also expressed hopes that the device would eventually outsell the popular Galaxy S3 and S4 handsets. However, the positive effects of the S6 ramp could be partially offset by higher marketing costs related to the launch, and intensifying competition from low-cost smartphone makers, which could put pressure on sales of Samsung’s mid and low-end devices. [1]

Process Technology Advantages, Value-Added Offerings Will Help Semiconductor Business

We believe that Samsung will increasingly refocus its growth strategy towards semiconductors, where it has competitive advantages owing to its technology and massive scale. The semiconductor division saw sales grow by 9% year over year to about $9.44 billion, while operating margins rose to 28.5% from about 21%. The memory business, which primarily produces NAND and DRAM chips, saw sequential revenue growth owing to increased sales of differentiated DRAM products such as DDR4/LPDDR4 and strong demand for NAND products such server and PC solid-state drives (SSD) and Universal Flash Storage. Samsung has also been increasingly transitioning its DRAM manufacturing to a more cost competitive 20-nm process, which allows for higher-performance and higher-density memory. The company is expected to adopt the node technology for over 50% of its overall DRAM output this year, in a move that should help to improve semiconductor margins. [3] Samsung’s logic-chip unit, which primarily manufactures advanced microprocessors for third-parties and for Samsung’s own mobile unit, saw a sequential decline in sales owing to seasonality, although profitability improved led by a ramp-up in production of the company’s much-touted 14-nm FinFET process. The 14nm process is among the most advanced logic process technologies in the industry and enables vendors to offer smaller, faster and more energy-efficient processors. Intel is the only other company that currently has a 14-nm offering. Samsung expects about 30% of the division’s total chip production for this year to come from the 14-nm process. This technology is expected to help Samsung win business from Apple (for the next iteration of its iPhone) as well as other semiconductor companies such as Nvidia and Qualcomm (related: Trends That Will Drive Samsung’s Semiconductor Business In 2015). The company is also working on a next-generation chip, using technology based on 10nm process, with plans to begin mass production by the end of 2016.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap

More Trefis Research

Notes:
  1. Samsung Electronics Earnings Release Q1 2015 [] []
  2. Samsung Reasserts Its Global Lead in Smartphone Shipments with a Renewed Focus on Lower-Cost Smartphones in the First Quarter of 2015, Says IDC, IDC, April 2015 []
  3. Samsung to adopt 20nm process for over 50% of its DRAM output in 2015, say sources, Digitimes, February 2015 []