What Drove Samsung’s Record Quarter?

by Trefis Team
-16.35%
Downside
2400
Market
2008
Trefis
SSNLF
Samsung Electronics
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Samsung Electronics (OTC:SSNLF) recently published its Q3 2017 earnings guidance, projecting record operating profits for the second straight quarter, likely driven by soaring memory prices, strong demand for its display components and potentially higher smartphone shipments. The company is projecting operating profits of about 14.5 trillion won (about $12.8 billion) up by 178% year-over-year, with revenues projected to come in at about 62 trillion won (about $54.7 billion) up by about 29% year-over-year. Below we take a look at some of the factors that likely drove Samsung’s business over the quarter.

Trefis has a $1,900 price estimate for Samsung, which is 10% below the current market price.

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Memory Division Will Account Much Of The Gains

Samsung’s memory business was likely responsible for a bulk of the growth over Q3, amid strong DRAM and NAND demand and pricing. Global DRAM prices have been on the uptrend since June 2016, due to higher DRAM content in mobile devices and a significant under-supply of PC DRAM, as vendors reduced their production mixes in favor of mobile DRAM. Moreover, global DRAM supply is being slowed temporarily, as major producers transition their fabs to ≤20nm process technologies this year. Prices for NAND memory have been trending upwards since Q3’16, driven by higher memory content in mobile devices, strong demand from the cloud computing market as well as technology migrations to 3D NAND, which has been impacting supply. Samsung likely benefited from the broader market trends as well as its focus on more advanced and differentiated products.

Display Unit Could Benefit From New Apple Device 

Samsung’s display panel segment is also likely to have performed well over Q3, amid strong demand for mobile OLED displays. Samsung dominates the small-format OLED market, with a market share that is estimated to stand at over 90%, making the company the biggest beneficiary of the demand growth. Samsung is the sole supplier of OLED displays for Apple’s upcoming iPhone X and it’s possible that this could drive the division’s results over Q3, although there have been reports that production of the device is seeing a slower than expected ramp-up. Margins on the supply agreement could also be thick, as Samsung is reported to charge Apple over $100 per display.

Mobile Unit Could Benefit From New Premium Launches

Samsung’s smartphone division is also likely to be faring well, driven by the company’s premium Galaxy S8 and S8 Plus devices as well as the new Galaxy Note 8, which launched in mid-September. Samsung said that initial pre-orders for the Note 8 were the highest ever for the Note brand. Mobile ASPs could also trend higher, as the new phones are priced higher compared to their predecessors. (related: Did Samsung Overprice The Note 8?) Moreover, Samsung may be able to capitalize on Apple’s delayed launch of its super-premium iPhone X, which is only expected to hit stores in early November, possibly in limited quantities.

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