Samsung Electronics, 4Q Slows Down... Memory Market Recovery Within 'Visible Range'

Samsung Electronics' Galaxy Z Fold2 (Provided by Samsung Electronics) [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Samsung Electronics' fourth-quarter earnings are expected to slow somewhat due to inventory adjustments. However, signs of a rebound in the memory market suggest that 2021 earnings will improve.

On the 20th, Hanwha Investment & Securities forecast that Samsung Electronics will record consolidated sales of KRW 59.106 trillion and operating profit of KRW 9.258 trillion in the fourth quarter of this year. This operating profit figure is 5.5% below the market consensus. This is attributed to smartphone inventory adjustments, an expanded price decline in DRAM and NAND flash, and a drop in the KRW-USD exchange rate.

In particular, smartphone sales are expected to decrease by 23.9% quarter-on-quarter to 61 million units, and the average selling price (ASP) is projected to fall by 9.4%. For the display business, which was in its peak season, OLED shipments met expectations, but the LCD loss margin did not shrink. However, the bit growth (production increase per bit) of DRAM and NAND exceeded expectations, suggesting that year-end inventory will reach a normal range.

The key to future earnings improvement lies in memory price changes in the first quarter. Suppliers increased bit growth in the fourth quarter to create a healthy inventory situation, limiting supply increases in the first half of next year. Amid this, a power outage occurred at Micron Technology's factory in Taiwan, creating a variable. The possibility of supply disruptions has increased. Researcher Soonhak Lee of Hanwha Investment & Securities said, "Additionally, the mid-to-low-end smartphone brand 'Honor,' which Huawei sold, has set aggressive sales targets, so short-term purchase demand from Chinese manufacturers will rise. Also, due to foundry supply shortages, NAND controller supply is not smooth, which will affect NAND prices."

Against this backdrop, Hanwha Investment & Securities expects DRAM ASP to rise by 3.0% and NAND ASP to fall by only 6.0% in the first quarter of next year. Accordingly, Samsung Electronics' 2021 earnings forecast was raised to KRW 250.075 trillion in sales and KRW 47.555 trillion in operating profit.

They issued an investment opinion of 'overweight' and raised the target stock price by 21.1% to KRW 92,000. The researcher explained, "The slowdown in fourth-quarter earnings has already been reflected in the stock price, and the rebound in memory prices will contribute to overall earnings improvement. The growth of the foundry business will bring a mid-to-long-term revaluation of corporate valuation. Compared to the KOSPI and competitor Taiwan's TSMC, there is relatively more valuation merit."

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