DRAM Has Accounted For Much Of Samsung's Growth
The DRAM market entered a phase of oversupply in Q4 2018, amid cooling demand from the mobile and PC markets as well as increasing capacity, with prices falling by about 30% in Q1 2019, per DRAMeXchange. Samsung Electronics, the largest DRAM manufacturer, is likely to be significantly impacted by the current downturn, as the DRAM price increase was responsible for much of the company's profit growth over the last two years.For perspective, about 75% of the company's operating profits came from Semiconductors in 2018, with semiconductor operating margins expanding from 27% in 2016 to about 52% in 2018, driven largely by DRAM. To cope with the current downturn, Samsung has been cutting back on CapEx, while focusing on more differentiated DRAM products such as LPDDR4X for mobile applications, while focusing on widening its lead with respect to manufacturing technology. In this note, we take a look at how the DRAM business has performed relative to its peers and how it impacts Samsung's valuation.
How Has Samsung's DRAM Business Fared Compared To Rivals?
While Samsung's DRAM revenues expanded ~ 48% CAGR over the last two years, it was outpaced by SK Hynix and Micron, which benefited from capacity expansions.
DRAM Revenue 2 Year CAGR
Samsung 48% SK Hynix 68%Micron 70%Nanya 45%