Samsung Mobile / SmartPhones Performance Rocks in Q1-2013

Samsung’s OPM of handsets, which rose from 21% to 22%, were probably better than indicated taking into account the negative impact from the provision booked related to AAPL vs. Samsung case. We think this is impressive given such performance occurred during the weakest seasonal quarter, without a major product launch. Therefore, we think the next several quarters should continuously be strong given the upcoming Galaxy S4 launch and Galaxy Note 3 launch in 4Q13.

Smartphone shipment of 70 mn (12% QoQ growth) is strong given the seasonality and lack of new product launches. Blended handset ASP rose 8% QoQ and OPM expanded to 22% from 20% despite the one time provision took related to the AAPL. However, 1Q total handset volume did not increase, but the smartphone products rose 12% in volume sequentially. This implies that the featurephone mix ratio continue to decline to now 38%, paving to the road for continuous mix improvement.

High-end smartphone segment still grew. We think Galaxy S3 sales topped 13 mn and GN2 sold over 9 mn units to slightly improve on the combined volume of the previous quarter. It is surprising GS3 sales did not decline despite anticipation of Galaxy S4 launch. We expect Samsung to sell 24~25mn units of Galaxy S4 in 2Q13F and reach monthly sales of 10mn units per month in 3Q13F, surpassing Galaxy S3 sales level of 6mn units per month

We expect another strong year for 2013, driven by the launch of new mass-market products such as LTE phones, Galaxy S4 and Galaxy Note 3. We forecast smartphone shipments growth to slow from 116% in 2012 to 44% in 2013, but margin deterioration should be limited due to product mix improvement.

Mid- to long-term, we anticipate a gradual decline in ASP and margin due to commoditization of smartphones, long-term R&D investment and higher marketing cost.

Memory semiconductors improved, bettering the earlier management guidance. DRAM OPM expanded from 13% to 19% in 1Q13 despite a decrease in bit shipment volume of 5%, given that blended ASP was flat on QoQ, implying cost reduction of about 6%. The details also confirmed the turnaround of DRAM and NAND cycles as the supply tightness in DRAM continues and growth in mobile devices continued to drive the sales of NAND solution products.