Samsung seeks new direction as semiconductor peak nears
Samsung Electronics on Tuesday doubled down on its ambitions in autonomous driving and connected technologies, unveiling a batch of products it hopes will drive growth amid concerns its lucrative memory chip business may have peaked.
The developments came as the South Korean group projected another quarter of record profits while it continues to reap the rewards of booming demand — and prices — for semiconductors.
Despite forecasting a 63 per cent year-on-year jump in operating profits for the last three months of 2017, the earnings guidance prompted Samsung’s shares to fall 2 per cent in early Tuesday trade in Seoul, underscoring the market’s lofty expectations for the technology group.
“There is some controversy over the chip industry’s outlook but things will be good [for Samsung] this year,” said CW Chung, head of research at Nomura in Seoul.
The earnings guidance was quickly followed by a flurry of announcements from Samsung at the Consumer Electronics Show in Las Vegas that flaunted the company’s cutting-edge offerings.
Front and centre was DRVLINE, an open platform that would allow carmakers to create customised autonomous vehicles by swapping hardware and software components. This will enable vendors to build autonomous vehicles to their specification — a departure from what Samsung calls the current “all-or-nothing black-box package”.
The South Korean group proclaimed its ambitions in the field of autonomous and connected car technologies late in 2016 with the acquisition of US component supplier Harman International. It followed the move in September last year with the establishment of a $300m fund to invest in automotive start-ups and autonomous driving technologies.
At the global tech showcase in Las Vegas on Tuesday, Samsung announced it aimed to make all its products internet-connected by 2020.
These include “a digital cockpit” for cars that integrates voice — using artificial intelligence assistant Bixby — gesture and physical controls in a single centralised panel.
“A greater Internet of Things ecosystem . . . not only improves connectivity, but helps lower costs and overall vehicle weight,” the company said.
Samsung is also keen to diversify away from memory chips, which analysts say account for about two-thirds of its operating profit.
The global semiconductor market started soaring last year on booming demand for Dram and Nand memory chips 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 ($2,707) in early November. Samsung shares rose more than 40 per cent last year, riding on the memory boom.
In late November, a report by Morgan Stanley said the industry had topped out, citing falling flash memory chip prices. Shawn Kim, an analyst at Morgan Stanley, forecast Dram prices would peak in mid-2018 although he was more bullish on the outlook for Dram than for flash memory chips.
“We believe the Nand cycle is entering a downturn for the first time since the first quarter of 2016. We expect Dram prices to stay strong throughout the first quarter of 2018, although not as strong as in 2017,” Mr Kim said in the report.
$14.1bn
Projected operating profit for Samsung Electronics in the last quarter, a record
There is also some scepticism as to whether Samsung will be able to compete with more established names in autonomous driving and artificial intelligence.
“It will be difficult for Samsung to differentiate its offerings in this area, given its weakness in algorithm know-how and application processor design,” said Kim Young-woo, an analyst at SK Securities, adding this would require huge investment and large-scale M&A.
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 strengthening of the Korean won, which appreciated about 13 per cent last year to a three-year high, is also set to weigh on earnings in Korean currency. The group will disclose in detail the impact of this later this month.
“We expect Samsung’s record-breaking earnings to continue, despite the stronger won and falling Nand chip prices,” said Mr Chung of Nomura.
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.
Mr Chung said concerns about falling chip prices were overblown, pointing to the potential for cost reduction and still firm demand, which should support profitability. “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.
Post a Comment