Samsung Electronics: Guidance in Line; Tight Supply-Demand to Drive Memory Price Rebound

Narrow-moat Samsung Electronics’ 005930 preliminary numbers for the September quarter were slightly below our July forecasts, which we believe was due to the weaker memory price and capacity utilization assumptions, but were largely in line with what we expected from Micron Technology’s August-quarter earnings results reported in late September. As a result, we maintain our view that memory prices will rise in 2024 due to the tight supply-demand as memory suppliers will remain disciplined in reducing excess inventory in the supply chain. We believe Samsung’s stock is undervalued, and favorable memory prices and news flow on generative AI server investments could drive the stock price in the near term.

As we’d expected, memory prices are likely to rebound in the December quarter based on market data and Micron’s conference call. According to Micron, DRAM ASP declined in the high-single digits and NAND ASP declined in the midteens in the August quarter, a slight improvement from the 10% decline for DRAM and the midteens decline for NAND in the May quarter. The improvement was not as significant as we expected due to the special offers, but management confirmed that memory prices are starting to rebound.

We will review our earnings forecasts and fair values for Samsung and SK Hynix after their earnings conferences held in late October. The focus will continue to be on 1) the outlook for utilization cuts and capital expenditure in 2024; 2) the outlook for memory prices; and 3) Samsung’s efforts to catch up with SK Hynix in the high bandwidth memory 3 (HBM3) market.

Samsung Electronics guided September quarter revenue of KRW 67 trillion, down 12% from the previous year but up 12.6% sequentially, and operating income of KRW 2.4 trillion or 3.6% operating margin, up from KRW 669 billion or 1.1% operating margin in the June quarter. Although the firm doesn’t disclose the segment breakdown, we believe the margin expansion is due to the seasonality of display panels and memories.