Samsung Had A Solid Q3, But There Are Signs Of A Slowdown

by Trefis Team
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Samsung Electronics (OTC:SSNLF) recently published its Q3 2018 results, posting a record operating profit of 17.57 trillion won (about $15.5 billion), which was up by about 21% year-over-year. This was driven by a continued strong performance of the company’s semiconductor operations, which more than offset weakness in the mobile division. However, there are signs that the company’s performance may be peaking, as the outlook for memory components – which account for close to three-quarters of its profits – appears to be weakening. Below, we take a look at some of the factors that are likely to drive the memory business going forward.

Our interactive dashboard analysis outlines our expectations for Samsung in 2018. You can modify any of our key drivers or forecasts to gauge the impact of changes on its earnings and valuation.

The DRAM Cycle Could Turn

Samsung’s semiconductor revenue grew by 24% year-over-year to 24.77 trillion won ($22 billion) while operating margins expanded by about 500 bps to 55%. The growth was driven primarily by relatively robust demand and pricing for DRAM chips, which more than offset the declines in the NAND memory business, where prices have taken a beating as the market entered a phase of oversupply. DRAM prices have seen growth over nine consecutive quarters, amid cautious capacity expansion by major manufacturers and soaring demand from the mobile and cloud computing markets. However, things could take a turn for the worse going forward, with market research firm Trendforce indicating that DRAM prices could decline by 5% sequentially over Q4, due to higher bit supply and limited demand growth. Moreover, Chinese companies could also play a larger role in the DRAM market going forward, although it could take time for them to scale up their technology and processes. Samsung for its part is looking to beat the downturn by strengthening its cost competitiveness by improving yields, while also expanding sales of differentiated products such as high-density server and mobile products. The company is also looking to manage the flexibility of its product mix, considering market conditions. Samsung has also indicated that it was scaling back on its capital spending, which is expected to drop by 27% to 31.8 trillion won ($28 billion) this year.


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