Susquehanna Downgrades Samsung, Sees Margin Pressure And Catalysts Lacking

• Apple Inc. AAPL shares are down 14 percent since October 12.
• Susquehanna’s Mehdi Hosseini downgraded the rating for Samsung from Positive to Neutral, while reducing the price target from W1,650,000 to W1,200,000.
• Samsung's Memory business is weakening and the Mobile unit is witnessing margin pressure, Hosseini stated.

Samsung reported its 4Q15 revenue at W53 trillion, missing the consensus expectation of W54 trillion. The company’s OP of W6.1 trillion also missed the consensus estimate of W 6.4 trillion. Overall smartphone unit shipments most likely came in at 82M, representing a 2 percent sequential decline, and below the prior expectation of 85M+.

“Additionally, we believe the overall ASP and unit shipments within Samsung’s memory business deteriorated throughout the quarter, thus pressuring Semi business OP,” analyst Mehdi Hosseini wrote.

The OP estimates for CY16 and CY17 have been reduced from W23 trillion to W21 trillion and from W28 trillion to W23 trillion, respectively. The analyst pointed out that while the estimates reflect a double-digit rebound in 2017, additional data points are needed to gain confidence in this, given the uncertainties associated with the macro picture, memory margin trends and Samsung’s Mobile strategy.

Hosseini commented that although Samsung’s stock is currently not expensive, memory fundamentals have continued to deteriorate and there is no clear strategy with the Mobile business unit, which is facing intensifying competition. He expects the stock to be range bound until “such catalysts emerge.”