How Long Can Samsung Count On Its DRAM Business To Drive Results?

by Trefis Team
-98.06%
Downside
2210
Market
42.85
Trefis
SSNLF
Samsung Electronics
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Samsung Electronics (OTC:SSNLF) published its Q1 2018 results on Thursday, reporting robust revenue and profit growth, driven primarily by demand for the company’s memory chips. The company’s Q1 net profit rose by 52% year-over-year to 11.69 trillion won (~$10.8 billion), while revenues grew by almost 20% to 60.56 trillion ($56 billion). While the first quarter results were robust, it’s possible that Samsung could face some challenges in the interim, amid sluggish smartphone sales and potentially weaker results from the Display business. Below, we take a look at some of the key factors that are impacting the company.

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.

Samsung’s Memory business continued to perform well, with revenues rising by about 42% year-over-year to 17.33 trillion won ($16 billion), while operating profits rose by 83% driven by continued favorable pricing conditions in the DRAM markets and the company’s focus on higher-value products such as high-density server DRAM. The company expects DRAM demand to remain solid, and major players have also been relatively disciplined about their capacity expansions with investments focused on improving technologies, rather than just outright capacity growth. However, things could be more mixed in the NAND market, where the market is shifting towards a phase of oversupply, with more 3D NAND capacity coming online and pricing seeing declines.

Samsung’s outlook for two of its other major business remains mixed. For one, the company has indicated that the profitability of its mobile business could come under pressure, on account of higher competition in the high-end segment and higher marketing costs. The company reportedly scaled back production of its Galaxy S9 production from an initial target of 40 million devices to between 32 and 34 million, per Susquehanna. Samsung also said that demand for its flexible OLED panels was also weak, amid some headwinds in the high end of the smartphone market and potentially lower demand from Apple, for which Samsung is the exclusive OLED panel supplier.

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