4Q20 OP Estimated at W10.1tn
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
Sales of smartphones and TVs were strong in 3Q20. In 4Q20, we expect OP to decline to W10.1tn (-18% q-q) due to the arrival of a low season. Memory industry conditions should improve in earnest from 1Q21.
3Q20 review: Earnings led by smartphones and TVs
Samsung Electronics (SEC) registered 3Q20 sales of W67.0tn (+26% q-q), OP 12.4tn (+52% q-q), and NP (excluding minority interests) of W9.27tn (+69% q-q). By division, OP came to W5.5tn for the semicon division (+2% q-q), W0.5tn for display (+55% q-q), W4.5tn for IM (+128% q-q), W1.6tn for CE (+114% q-q), and W0.2tn for Harman (TTP q-q).
Despite declining memory prices, shipments were solid on benefits stemming from US sanctions on Huawei. OP at the semicon division rose thanks to cost savings caused by tech migration. DRAM shipments grew 5% q-q and ASP slid 7% q-q, while NAND shipments jumped 17% q-q and ASP slid 10% q-q. Sales of IT sets (eg, smartphones and TVs) were strong thanks to Covid-19 subsidies and economic recovery. In detail, smartphone sales climbed 54% q-q and TV sales increased 72% q-q. As sales volume soared without a jump in marketing costs, set margins expanded.
4Q20 preview: OP to decrease q-q
We forecast 4Q20 OP of W10.1tn (-18% q-q). By division, OP should arrive at W4.9tn for the semicon division (-12% q-q), W0.7tn for display (+57% q-q), W3.3tn for IM (-27% q-q), W1.2tn for CE (-26% q-q), and W0.2tn for Harman (+4% q-q). Memory price decline is inevitable until 4Q20 owing to sluggish data center investment. At the IM division, sales of smartphones will likely slide to 78mn units (-11% q-q) due to the arrival of a low season. As for TVs, earnings are expected to slow in 4Q20 as: 1) peak season effects shifted from 4Q to 3Q amid Covid-19-related demand; and 2) costs have increased due to a recent LCD panel price hike.
The memory industry should rebound from 1H21 on the back of shrinking DRAM investment. Demand for game consoles and notebook PCs has been booming. From 1H21, investments by data center players are also expected to resume. Recently, the foundry utilization rate has remained at 100%, and the lead time for major vendors’ products has increased to over six months. Some customers are paying premiums to secure foundry capacity. SEC’s foundry, which attracts clients such as Nvidia and Qualcomm, should book market-exceeding growth in 2021.