Semicon Division Seeing Slower Earnings Growth than Peers
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
In 1Q21, SEC’s earnings improvement was led by the IM and CE divisions. While semicon earnings fell due to the firm’s ineffective business strategy, the CE division enjoyed strong earnings momentum thanks to effective cost management and a well-adapted response to greater contactless demand.
Semicon division seeing slower earnings improvement than peers
We reiterate a Buy rating for Samsung Electronics (SEC) and a TP of W110,000. Recently, the semicon division has seen slower earnings improvement than competitors. In 1Q21, earnings at the foundry division worsened due to a blackout at its Austin fab and low production yields for some products. SEC has also lagged behind peers in the development of new products such as 1anm DRAM and 176-layer 3D NAND and missed the ideal timing for investment in capacity expansion.
At the IM and CE divisions, sales volume and OPM have both improved thanks to effective cost management and a well-adapted response to greater contactless demand. Having driven SEC’s recent earnings improvement, the CE business is likely to enjoy stronger momentum upon the launch of low-end foldable smartphones and micro LED TVs.
PC and server demand to drive profit growth in 2Q21
In 2Q21, SEC is projected to book sales of W61.9tn (-3% q-q) and OP of W10.2tn (+9% q-q), fueled by a robust memory price upsurge led by PC and server DRAM. By division, SEC’s 2Q21 OP is estimated at W5.7tn for semicon (+69% q-q), W0.3tn for display (-17% q-q), W3.2tn for IM (-28% q-q), and W0.8tn for CE (-25% q-q).
In 2Q21, DRAM ASP is likely to climb 13% q-q, backed by higher server demand thanks to the launch of Intel’s 10nm Ice Lake SP. Mobile demand, which has recently improved, should also contribute to DRAM price hikes. Meanwhile, NAND prices are predicted to rise for the first time in four quarters, buoyed by conservative capacity investment. Elsewhere, we believe that the IM division will see q-q profit decline due to reduced Galaxy S21 launch effects.