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Samsung's Strong Earnings Report Was Good News for Quite a Few Companies

In what's been a superb earnings season to date for big-name tech companies, Samsung Electronics' Q3 report might take the cake for the sheer number of firms the report yields positive takeaways for. Everyone from memory chip rivals to mobile suppliers to chip equipment firms can smile a little upon seeing Samsung's numbers and earnings call commentary.

Eighteen days after forecasting similar numbers, Samsung reported Q3 revenue of KRW62.05 trillion (up 30% annually and equal to $55.5 billion) and operating income of KRW14.53 trillion ($13 billion). Net income more than doubled to roughly $1 billion.

The results look especially good outside for Samsung's mobile, chip and display businesses, which between them account for about 80% of its sales.

This column originally appeared on Real Money, our premium site for active traders. Click here to get great columns like this.

Strong demand for the Galaxy Note 8 and Samsung's low-end J-Series phones helped mobile product revenue rise 23% annually to KRW27.2 trillion ($24.3 billion), a healthy improvement from Q2's 11% growth. And though Samsung cautioned it will face tougher high-end smartphone competition in Q4 -- a reference to Apple Inc.'s (AAPL - Get Report) iPhone X and 8 launches, and perhaps also Alphabet Inc./Google's (GOOGL - Get Report) Pixel 2 launch -- it also forecast better Note 8 distribution and higher ad spend will help it grow the percentage of phone sales it gets from flagship models.

Samsung/Apple chip suppliers Skyworks Solutions Inc. (SWKS - Get Report) , Broadcom Ltd. (AVGO - Get Report) and Knowles Corp. (KN - Get Report) rose moderately following Samsung's report. Meanwhile, Integrated Device Technology Inc. (IDTI - Get Report) , which supplies wireless charging ICs for Samsung phones, rose over 7% following solid results and guidance.

Samsung's chip sales rose 51% annually to KRW19.9 trillion ($17.8 billion), topping the 46% growth seen in Q2. This was largely driven by a 65% increase in memory chip sales to KRW16.3 trillion ($14.6 billion), as DRAM and flash memory boom cycles remained in full swing. Strong mobile DRAM and NAND sales (aided by Apple and Samsung's phone launches) helped, as did growing server DRAM and solid-state drive (SSD) demand.

DRAM/NAND rival Micron Technology Corp. (MU - Get Report) rose 6.4% to $44.31 following Samsung's report, and NAND supplier Western Digital Corp. (WDC - Get Report) rose 4.1% to $89.27. But those gains might've had more to do with Samsung's very bullish commentary on supply/demand trends. Especially for NAND.

Though NAND demand is expected to remain strong in Q4 due to server and mobile demand, Samsung now forecasts NAND industry bit shipments will only grow by a high-20s percentage this year, down from a prior outlook of 30% and less than the high-30s growth Micron has forecast. Though production of high-density 3D NAND chips continues ramping, Samsung suggests the removal of planar (2D) NAND production lines and "increasing technical difficulties" related to 3D NAND ramps is holding back bit growth.

For the DRAM market, Samsung expects 20% 2017 bit supply growth. That's slightly higher than before, but on par with what Micron forecasts and still pretty restrained in light of mobile and server demand, as the amount of DRAM in the average phone keeps growing and deployments of memory-intensive cloud, AI and analytics server workloads rise further. And Samsung echoes Micron in forecasting most DRAM bit supply growth going forward will come from upgrading existing production lines to new manufacturing processes, rather than building new lines.


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