Why Samsung Is Projecting Another Record Quarter

Samsung Electronics (OTC:SSNLF) recently published its earnings guidance for Q1 2018, indicating that it is likely to post its largest-ever quarterly operating profit. The company expects operating profits to grow by about 58% year-over-year to 15.6 trillion won (about $14.7 billion), with revenues rising by about 19% to 60 trillion won. While the company is expected to break out its detailed performance when it files its final results later this month, we believe that the DRAM business and the smartphone business were likely the biggest drivers of the company’s year-over-year growth.

We have created an interactive dashboard analysis, which outlines how Samsung’s key segments are likely to perform this year. You can modify these drivers to arrive at your own price estimate for Samsung.

Key Trends Driving Results

Prices for DRAM chips have been rising, driven by strong demand from the mobile and server space and limited manufacturing capacity expansions, which have created a supply-demand imbalance in the market. Although the rate of growth in DRAM prices is slowing down, the pricing gains and Samsung’s focus on higher-value products are likely to have driven its year-over-year growth. The performance of Samsung’s NAND business is likely to have been less impressive, as prices began falling late last year as more 3D NAND capacity came online. Samsung’s other components, such as OLED displays –  which are seeing increasing uptake in high-end and mid-range smartphones  – are also likely to have driven some year-over-year growth.

Samsung’s smartphone business also likely performed well, despite a reportedly lackluster start for its latest flagship the Galaxy S9. The company began selling the Galaxy S9 smartphone in March (which falls in the first quarter), unlike last year’s S8, which only went on sale during the second quarter, resulting in a favorable comparison for the smartphone segment. Moreover, Samsung is likely to have seen strong demand for older models including the S8, which has been witnessing some discounting.

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