"Semiconductor Tunnel Passage... 5G Boom Expected" Samsung Electronics Earnings Rapid Improvement Forecast (Comprehensive)

Samsung Electronics, Crying and Laughing with Semiconductors, Expected to Significantly Improve Performance This Year

[Asia Economy Reporter Changhwan Lee] Samsung Electronics' operating profit last year was halved compared to the previous year due to a significant downturn in the semiconductor sector, its core business. Above all, a drop of more than 60% in DRAM prices dragged down Samsung Electronics' overall performance. However, recent semiconductor price declines have stopped, and there is a high possibility of a rebound in the first half of this year, leading to a prevailing forecast that Samsung Electronics' performance will improve significantly this year.

◆ Sharp decline in operating profit last year due to semiconductor price drop = According to Samsung Electronics' preliminary earnings announced on the 8th, last year's operating profit was 27.71 trillion KRW, down 53% from the previous year's 58.8867 trillion KRW, and sales decreased by 5.8% from 243.7714 trillion KRW to 229.52 trillion KRW. This deterioration in performance is attributed to a significant increase in semiconductor supply last year, which caused prices of key products such as DRAM and NAND flash to fall.

According to market research firm DRAMeXchange, the contract price of DDR4 8-gigabit (Gb) DRAM products mainly used in PCs was an average of $2.81 at the end of last year. This is a 66% drop compared to $8.19 recorded in September 2018. During the same period, the price of 128Gb MLC (Multi-Level Cell) NAND flash products fell 13% from $5.07 to $4.42.

With semiconductor prices falling, Samsung Electronics' semiconductor business operating profit last year was limited to the 14 trillion KRW range, a sharp 69% drop from the previous year's 45 trillion KRW.

The poor performance of the display sector alongside semiconductors also deserves attention. The display division's operating profit last year is estimated at around 1.6 trillion KRW, down 38% from 2.6 trillion KRW the previous year. This is attributed to the decline in LCD panel prices due to China's low-price offensive and poor OLED panel profitability.

However, the consumer electronics (CE) division's operating profit last year is estimated to have increased by 30% to 2.6 trillion KRW from 2 trillion KRW the previous year. This is due to overall improvement in key home appliances such as TVs, refrigerators, and dryers.

Song Myungseop, a researcher at Hi Investment & Securities, said, "Overall, except for consumer electronics, most business units including semiconductors, displays, and smartphones performed worse than the previous year," adding, "In particular, the profit decline due to the drop in semiconductor unit prices had a significant impact."

◆ Semiconductor market improvement expected this year, operating profit rebound anticipated = The market expects Samsung Electronics' performance to rebound significantly in the first half of this year as the semiconductor market improves. The earliest is expected in the first quarter, and at the latest by the second quarter.

This outlook is based on the fact that semiconductor price declines have stopped recently or are showing a slight upward trend. The price of DDR4 8Gb DRAM stopped falling at around $2.8 in the second half of last year, and NAND flash prices have slightly increased.

DRAMeXchange recently analyzed in a report, "Since the price of DRAM fell in October last year compared to the previous month, it has remained stable," adding, "PC DRAM transaction volumes have also increased significantly." The report predicted that prices of specific products such as server DRAM and graphics DRAM will turn upward from the first quarter of this year, entering a recovery phase relatively early.

Global market research firm IC Insights also projected in its semiconductor outlook released last month that NAND flash and DRAM growth rates will be 19% and 12%, respectively. IC Insights forecasts semiconductor production to grow at an average annual rate of 5.9% through 2024.

This is slightly higher than the average annual growth rate of 5.1% in semiconductor production over the past five years (2014?2019). According to a survey by the Korea International Trade Association, domestic exporters also expect semiconductor exports to improve significantly starting from the first quarter of this year.

DRAM prices have shown signs of rebound as global major IT customers such as Amazon, Apple, and Google are expanding data centers, increasing server DRAM demand, and the full-scale launch of 5G smartphones is boosting mobile DRAM demand, pushing spot prices upward.

Samsung Electronics and SK Hynix, leading the global memory semiconductor market, have also taken supply control measures by converting some DRAM production volumes to image sensors (CIS). Choi Doyeon, a researcher at Shinhan Financial Investment, explained, "Server DRAM demand has clearly increased recently, and supply constraints from Samsung Electronics and SK Hynix are expected to intensify," adding, "The current DRAM market is at the early stage of a turnaround."

Lee Jaeyoon, a researcher at Yuanta Securities, also forecasted, "This year, suppliers like Samsung Electronics and SK Hynix are expected to reduce production capacity, while demand growth rates are expected to increase compared to the previous year, raising the possibility of supply shortages."

With the semiconductor market improving, Samsung Electronics' performance is also likely to rebound this year. According to FnGuide, a financial information provider, domestic securities firms forecast Samsung Electronics' sales this year to reach 255.67 trillion KRW and operating profit to 38.21 trillion KRW, up 11% and 38%, respectively, from the previous year.

Besides semiconductors, the wireless business is expected to improve performance through expanded sales of new products such as foldable smartphones and 5G smartphones, and the display sector is expected to improve performance due to increased sales of small OLEDs for China. The home appliance division is also expected to continue strong sales of premium TVs and new appliances like dryers this year, following last year's trend.

DB Financial Investment researcher Oh Gyujin emphasized, "Samsung Electronics is leading the opening of the 5G and foldable smartphone markets this year, so the performance improvement due to early technology preemption will be clear," adding, "Also, starting this year, the speed of the memory market rebound is accelerating, so the growth in performance is likely to be more rapid than expected."

This content was produced with the assistance of AI translation services.