Samsung Woes: Impact on MU, AMD, AAPL
An article in Digitimes highlights large-scale problems in Samsung logic foundry operations, not very surprising given the negative outlook from ASML last month. This piles on top of the series of negative comments outlined in Samsung’s earnings call last week – DRAM/NAND capacity adjustments to normalize inventory, ongoing slowdown in smartphones, lackluster progress in HBM3e.
We have been highlighting the widening impact of Samsung’s woes to companies in our coverage. A severe drop in overall profitability, as reported at the 3Q earnings call, we believe is having an impact on Samsung’s ability to carry out core functions, regardless of the tenor of end demand. In this note, we briefly highlight the Samsung-related calls we made last week to companies in our coverage.
Positive for Micron: We wrote in a note last week, our checks showing at least one DRAM wafer fab at Samsung has been taken offline since early last month (link). Into MU’s earnings in September, we wrote Samsung had begun to cut back packaging of DRAM dies (link). Furthermore, continued delays in Samsung’s HBM3e qualification holds in check HBM supply into the channel. Samsung’s actions curtailing the supply of DRAM and ongoing delays in HBM3e are clearly beneficial to MU. While we have no expectation for MU stock to head for its highs for the year, we think Samsung’s woes are a tailwind to MU. We think there is upside to our $110 PT., but likely no more than $120.
Negative for AMD: We made a negative call into AMD print last week. We wrote in our preview, Samsung’s inability to deliver HBM3e as a key reason why AMD may be unable to provide upside surprise to its MI300X outlook (link). Samsung is a key supplier of HBM to AMD. Management raised 2024 outlook only inline with consensus and disappointed the Street by not providing a peek into 2025. The stock is down ~15% since the earnings event and near the lows of the year, as we had called out in the preview. We do not expect buyers to step in, as there are few positive catalysts to lift the stock.
Positive for AAPL: Worsening profitability at Samsung may be impacting its balance sheet, which in turn impacts its ability to finance smartphones for telco and retail channels. We think this works to AAPL’s advantage. We think iPhones, regardless of the progress in the rollout of Apple Intelligence, are likely to grab incremental shelf space as Samsung recedes from its dominant position in the US and Europe markets (link). In the haze of calls on the Street for cuts to iPhone build, we think the Street underappreciates the potential for weakness at Samsung’s financing muscle to provide tailwinds to iPhone supply into the channel. There is no weakening of Apple’s financing muscle. We expect AAPL stock to gain momentum as the Street digests the competitive landscape. We maintain our $240 PT.
Net/net: We do not think the Street appreciates the widening impact of Samsung’s woes on the competitive and supply chain landscape. This is especially so in the case of AAPL iPhones.
KC Rajkumar