Samsung seeks new direction as semiconductor peak nears
Samsung Electronics has projected another quarter of record profits on firmer memory chip prices even as analysts revised down expectations for the group’s fourth quarter.
Analysts say memory chips are the main driver of Samsung’s earnings, accounting for about two-thirds of its operating profit. They expect the boom in prices to continue this year despite some concerns the industry cycle has peaked. But the strengthening of the Korean won, which appreciated about 13 per cent last year to a three-year high, will weigh on earnings this year.
Samsung estimated operating profit for the last three months of 2017 at Won15.1tn ($14.1bn), up 63.8 per cent from a year earlier. The figure, while lower than the Won15.9tn forecast by analysts polled by Reuters, would still mark another record quarter for the group, which reported a Won14.53tn operating profit in the third quarter.
The company projected sales of Won66tn for the fourth quarter, up 23.8 per cent from a year earlier. But the group’s shares were down 2 per cent on Tuesday morning in Seoul as the earnings guidance fell short of market estimates.
For the full year, Samsung estimated operating profit had jumped 83.3 per cent to Won53.6tn as sales grew 18.7 per cent to Won239.6tn.
The company will disclose detailed results later this month.
$14.1bn
Projected operating profit for Samsung Electronics in the last quarter, a record
The global semiconductor market started soaring last year on booming demand for Dram, a memory chip, for mobile devices and computer servers. But some analysts have cautioned that chip prices could fall this year as chipmakers raise output to match this demand.
Such fears have weighed on Samsung stock in recent weeks, with its share price falling about 12 per cent since hitting its all-time high of Won2.88m in early November. Samsung shares rose more than 40 per cent last year, riding on the memory boom.
“There is some controversy over the chip industry’s outlook but things will be good this year too,” said CW Chung, head of research at Nomura. “We expect Samsung’s record-breaking earnings to continue, despite the stronger won and falling Nand chip prices.” Nand is also a memory chip.
Average prices of server Dram and mobile Dram surged 45 per cent and 20 per cent respectively over 2017, with further gains expected in the current quarter, according to market researcher DRAMeXchange.
But Samsung’s stock price dropped in late November after a downbeat report from Morgan Stanley said the industry had topped out, citing falling flash memory chip prices. Shawn Kim, analyst at Morgan Stanley, forecast Dram prices to peak in mid-2018 although he was more bullish on Dram’s outlook than that of flash memory chips.
However, Mr Chung said such concerns were overblown, pointing to the industry’s cost reduction and firm demand. “Samsung’s semiconductor margins will be maintained even if chip prices fall this year, because lower prices will spark more demand while production costs keep falling,” he said.
The global Dram market expanded 74 per cent to $72.2bn last year and is expected to grow 16.9 per cent to $84.4bn this year, according to IHS Markit, while the Nand flash memory market is forecast to expand 10 per cent this year to $59.2bn after growing 46 per cent last year.
But Mr Chung is less positive about Samsung’s mobile phone business as the industry’s replacement cycle is getting longer. Samsung is expected to have sold a healthy 10m Galaxy Note 8 phones since the model’s launch in September but the strong sales were offset by higher marketing costs.
The company’s display business is likely to remain strong as Samsung dominates the lucrative small-size OLED screen market. Samsung is the exclusive supplier of OLED screens for Apple’s iPhone X smartphones.
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