[Click eStock] "Samsung Electronics, Memory Semiconductor Downtrend Starting from Q4"

Semiconductor Division Led Q3 Performance
KB Securities Lowers Samsung Electronics Target Price from 105,000 KRW to 100,000 KRW

Samsung Electronics announced on the 8th that it recorded third-quarter sales of 73 trillion won and an operating profit of 15.7 trillion won. This is the first time quarterly sales have exceeded 70 trillion won. On the same day, employees were seen moving around at Samsung Electronics' Seocho building. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Gong Byung-sun] Samsung Electronics' semiconductor division showed strong performance in the third quarter of this year. However, a long-term downward trend is expected from the fourth quarter onward.

According to KB Securities on the 12th, Samsung Electronics' sales in the third quarter of this year increased by 8.9% year-on-year to 73 trillion KRW, and operating profit rose by 27.4% during the same period to 15.8 trillion KRW. The operating profit matched the market consensus of 15.8 trillion KRW, and sales marked a record high on a quarterly basis.

(Provided by KB Securities)

Samsung Electronics' strong performance appears to be driven by the semiconductor division. Operating profit in the semiconductor division alone increased by about 3.2 trillion KRW compared to the previous quarter in the third quarter of this year. Estimated operating profits by division for the third quarter are 10 trillion KRW for semiconductors, 3.4 trillion KRW for mobile (IM), 1.5 trillion KRW for display (DP), 800 billion KRW for consumer electronics (CE), and 100 billion KRW for Harman related to audio.

However, from the fourth quarter onward, the semiconductor division is expected to show a long-term downward trend. The decline in memory semiconductors seems to be caused more by production disruptions at set manufacturers such as PCs, smartphones, and servers due to IT component supply shortages rather than a decrease in final demand.

KB Securities researcher Yoo Woo-hyung explained, “Due to power shortages in China, production disruptions of post-process components such as printed circuit boards (PCBs) and supply shortages of non-memory semiconductors are becoming prolonged,” adding, “Set manufacturers are simultaneously facing demand forecast uncertainties and production disruptions.” Accordingly, set manufacturers that have secured memory inventory above appropriate levels are adopting conservative memory inventory policies while demanding price reductions.

However, volatility is expected to be limited. This year's semiconductor downturn differs from 2018 in that supply increases are restricted. Currently, the inventory maintained by memory suppliers is only half of the appropriate level, so there is not much memory that needs to be supplied. Researcher Yoo forecasted, “Due to limited supply increases, the amplitude and cycle will be shorter compared to past cycles, resulting in lower volatility.”

Accordingly, KB Securities maintained a ‘Buy’ investment rating on Samsung Electronics but lowered the target price from the previous 105,000 KRW to 100,000 KRW. The closing price on the 8th was 71,500 KRW.