Samsung Electronics had a relatively good 2018, driven primarily by continued strong pricing for DRAM, which helped to more than offset weakness in the company’s mobile and NAND memory business. In this note, we take a look at the year that was for Samsung’s smartphone and semiconductor operations – which together account for over 85% of its profits- and what could lie ahead for the company in 2019.
Our interactive dashboard analysis outlines our expectations for Samsung in 2019. You can modify any of our key drivers or forecasts to gauge the impact of changes on its earnings and valuation.
DRAM Business Could See Headwinds After A Stellar Run
Operating profits from Samsung’s semiconductor division grew by about 51% year-over-year over the first nine months of 2018, coming in at about 37 trillion won ($33 billion). Although NAND prices have seen significant declines this year, as major vendors largely completed the transition from planar NAND to 3D NAND, thereby boosting bit supply, DRAM prices remained robust. DRAM pricing increased over nine consecutive quarters, driven by cautious capacity expansion by major manufacturers and soaring demand from the mobile and cloud computing markets, helping Samsung’s margins and revenues. However, this bull run appears to be coming to an end, with DRAMeXchange projecting that the price of DRAM could decline by 5% or more in Q4 2018, with prices likely to fall by 15% to 20% year-over-year in 2019. That said, we believe Samsung should fare better than the broader industry, on account of its more advanced process technology as well as its focus on higher value high-density server and mobile products.
Smartphone Business Could See Major Launches In 2019
Samsung’s smartphone business had a relatively challenging year, with revenues declining by about 6% year-over-year during the first nine months to 74.32 trillion. This was largely due to a fairly lackluster performance of the Galaxy S9 flagship – which was perceived as being too similar to its predecessor, the S8 – and also due to mounting competition from Chinese vendors, who have been offering high-end devices at affordable prices. As of Q3’18, Samsung’s smartphone market share declined to 18.9% from 22.3% in the year-ago quarter, per Gartner. 2019 could prove to be an interesting year for the business. Samsung is slated to launch the Galaxy S10 device, which is expected to feature a significant redesign compared to the S9. While the company is also likely to launch its first 5G device as well as a foldable smartphone, it’s unlikely that either of these products will drive meaningful growth in 2019, due to potentially high prices which could limit their uptake to just early adopters.