Samsung Analysts are bullish on Samsung after the company unveiled a foldable phone on Tuesday and U.S. semiconductor company Nvidia said its next-generation gaming chip will be manufactured by the South Korean electronics giant.
Some analysts are even more bullish on Samsung. Daiwa Capital Markets’ SK Kim has a 12-month price target of 82,000 Korean won, a more than 50% rise from Wednesday’s trading price.
New orders for Samsung’s chip manufacturing operations or foundry, next-generation smartphone launches and a recovery in memory pricing next year are factors behind the analysts’ optimism.
“For SEC (Samsung Electronics), we maintain our positive view as we expect a favourable memory market environment in 2021, new foundry opportunities and attractive valuation compared with its peers such as TSMC,” Kim told CNBC in an email.
Nvidia chose Samsung to manufacture the chips using a so-called 8 nanometer process customized for these semiconductors.
The move was seen as positive for Samsung. Daiwa’s Kim told CNBC he expects the Nvidia deal to be worth $1 billion in revenue for Samsung.
Samsung’s semiconductor business is very important for the company. It includes the foundry business as well as the sales of so-called NAND and DRAM chips Samsung produces, which are used in devices such as laptops and smartphones, through to data centers. Semiconductors accounted for two-thirds of Samsung’s operating profit in the second quarter of this year.
But the start of 2021 could bring a recovery.
“First, we continue to expect DRAM pricing to start to recover in 1H21 as industry supply growth will not match demand when smartphones demand is closer to normalized levels,” UBS said, referring to the first half of next year.
Foldable phones to drive earnings
While foldable phones remain a “niche” product for now, according to Sanjeev Rana, senior analyst at CLSA, who sees the number of these devices Samsung sells increasing each year.
“From 2022, foldable phones will become mainstream and given Samsung’s positioning in this business ... Samsung is the first mover in this important product category. We expect foldable to become a major earnings driver for its smartphone business in the coming years,” Rana said.
Samsung to gain from Huawei woes
However, in May, Washington amended the foreign-produced direct product rule (FDPR) requiring foreign manufacturers using American chipmaking equipment to get a license before they’re able to sell semiconductors to Huawei. The move threatens to cut Huawei off from the key chips it requires for its products.
Even though Huawei managed to become the number one smartphone player by market share in the second quarter, that was driven by increased shipments in China, even as its international markets declined.
“We think Samsung is also a big beneficiary of U.S. sanction on Huawei and resulting decline in its smartphone market share globally. We believe Huawei’s weakness will present significant opportunities to Samsung next year,” Rana said.
Rana has an above average price target of 72,000 Korean won on Samsung’s stock, representing over 31% upside.
“Our view is that Samsung stock offers great value, it’s undervalued right now ... but given its positioning in global semiconductors and smartphones and looking at what other semiconductor stocks have done globally year-to-date we think market is being too conservative in valuing the company,” said CLSA’s Rana.