Memory Chip Earnings Still on Growth Path
Samaung Electronics is forecast to show overall earnings improvement in the third quarter of 2018. NH Investment & Securities said in a research report that with the exception of the IT & Mobile Communications (IM) domain, earnings should remain robust across all of the company's businesses, including the semiconductor, display, and TV arms.
The brokerage expects Samsung Electronics to register third-quarter sales of 64.3 trillion won (US$56.6 billion), up 10% from the previous quarter, and operating profit of 17.2 trillion won (US$15.3 billion), a 15% jump from the previous quarter. The brokerage's operating profit estimates for each division are: semiconductor 13.8 trillion won (up 15% quarter over quarter), display 0.6 trillion won (+331% q-q), IM 2.3 trillion won (-13.0% q-q), and consumer electronics 0.7 trillion won (+33% q-q).
Backed by the start of production on the second floor of its new Pyeongtaek facility, the IT giant’s DRAM and NAND shipments in the third quarter should show sharp rises from the second quarter, according to the brokeage. The average selling price of DRAMs in the third quarter is forecast to climb 1 percent from the second quarter. But, with global players’ 3D NAND shipments continuing to expand, the average selling price NAND chips is projected to show a 15% drop.
Utilization rates at the display division’s flexible OLED panel facilities are likely increasing substantially on the launch of new smartphones by major clients. The IM division is projected to report Galaxy Note 9 shipments of 5 million units in the third quarter, meeting the brokerage's established estimate. In line with expected higher QLED TV sales volume, the CE division will likely record a rise in operating profits in the third quarter.
Despite some market fears, the research report says semiconductor supply-demand conditions should continue improving. In particular, operating profits of the company's DRAM business is primed to expand from next year. While orders from certain data center customers have been cut back, strengthening demand from other clients will translate into further server DRAM demand growth. Looking beyond traditional data traffic processing, new server DRAM demand generated by machine learning, speech recognition, and cloud services is to continue expanding rapidly going forward, the brokerage says.
Although overall DRAM prices will likely decline, server DRAM prices should continue to climb in the fourth quarter of 2018. Given ongoing competition between suppliers, the brokerage expects NAND prices to continue sliding at a double-digit pace through the fourth quartet. However, demand for certain products (eg, SSDs) has been picking up as of late.
In recent years, the quality of smartphone models from some Chinese rivals (especially Huawei) has been improving. Moreover, Huawei has become a globally competitive force in the component parts market. However, Samsung's plans to launch (the world’s first) foldable smartphone model early next year bode well for its earnings in the second half of 2019, the brokerage says.