How Has Samsung’s DRAM Business Trended & How Does It Compare With Its Peers?
The DRAM market entered a phase of oversupply in Q4 2018, amid cooling demand from the mobile and PC markets as well as increasing capacity, with prices falling by about 30% in Q1 2019, per DRAMeXchange. Samsung Electronics (OTC:SSNLF), the largest DRAM manufacturer, is likely to be significantly impacted by the current downturn, as the DRAM price increase was responsible for much of the company’s profit growth over the last two years. For perspective, about 75% of the company’s operating profits came from Semiconductors in 2018 and Trefis estimates that the Semiconductor division accounts for about 43% of the company’s stock price. Semiconductor operating margins expanded from 27% in 2016 to about 52% in 2018, driven largely by DRAM. To cope with the current downturn, Samsung has been cutting back on CapEx, while doubling down on more differentiated DRAM products such as LPDDR4X for mobile applications, and focusing on widening its lead with respect to manufacturing technology. Below, we take a look at how the DRAM business has performed relative to its peers and how it impacts Samsung’s valuation.
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How Has Samsung’s DRAM Business Fared Compared To Rivals?
While Samsung’s DRAM revenues expanded ~ 48% CAGR over the last two years, it was outpaced by SK Hynix and Micron, which benefited from capacity expansions.
DRAM Revenue 2 Year CAGR
- Samsung 48%
- SK Hynix 68%
- Micron 70%
- Nanya 45%
How Do Samsung’s DRAM Revenues Impact Its Valuation?
Estimating Samsung’s Total Revenues
Calculating Net Income
- Soaring memory prices helped Samsung’s net margins expand from around 10% in 2016 to about 18% in 2018.
- However, the current decline could hurt margins significantly in the near-term
Calculating Samsung’s EPS
Calculating Samsung’s Price Estimate
- We are valuing Samsung at about 13x its projected 2019 EPS.
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