How strong was third-quarter growth, and what was the quality of earnings?
- Samsung Electronics reported revenue of 195.3 trillion won in the third quarter of 2026, up 127% year on year. Operating profit was 107.4 trillion won, up 20% quarter on quarter, in line with BofA’s forecast and 1% below market consensus.
- BofA attributed the profit growth mainly to higher memory prices: average selling prices for both DRAM and NAND rose about 20% quarter on quarter in the third quarter, and operating margins reached 81% and 71%, respectively.
- Operating profit was strong, but net profit attributable to the parent was 75.2 trillion won, 14% below market consensus and 7% below BofA’s forecast. The company recorded a net non-operating loss of 8.9 trillion won for the quarter.
Why did BofA raise its earnings forecasts, and what are the constraints on its price assumptions?
- BofA raised its assumptions for DRAM and NAND bit shipment growth and selling prices, among other factors, and increased its earnings-per-share forecasts for 2027 and 2028 by 4% and 6%, respectively. It expects fourth-quarter 2026 operating profit of 132.3 trillion won, above the market consensus of 120 trillion won.
- High margins depend on prices remaining favorable. BofA expects DRAM operating margins to stay above 75% in 2027 and NAND margins above 60%; its model also assumes DRAM selling prices fall 2% quarter on quarter in the fourth quarter of 2027 and NAND prices decline sequentially from the second quarter onward.
- The spot market has already diverged: DRAM prices remain high, while spot prices for 1 Tb NAND wafers were weak from September 2026 to October. BofA’s memory indicator also fell from 190 in the 3–April period to 179 in August, owing to slower year-on-year growth.
How does the memory boom affect other businesses and cash returns?
- Higher memory prices also raise costs for the mobile phone business. BofA expects Samsung’s mobile business to be near break-even in 2026 and post an operating loss of about 4 billion dollars in 2027; it also expects phone shipments to fall from 240 million units in 2025 to 210 million in 2027.
- The scope for cash returns is growing alongside memory profits. Samsung announced a cash dividend of about 30 trillion won at the end of the third quarter; BofA estimates that annualized free cash flow from the fourth quarter of 2026 onward has exceeded 300 trillion won and believes it could support substantial shareholder returns in the coming years.
- Capacity expansion also requires funding: BofA expects Samsung’s capital expenditure to reach 85.5 trillion won in 2026, up from 47.5 trillion won in 2025, driven mainly by DRAM investment and construction of new plants.
Why did the price target fall despite higher earnings forecasts?
- BofA maintained its buy rating on Samsung but cut its price target for the common shares from 500 thousand won to 450 thousand won. The bank had previously assigned Samsung a 2027–2028 forecast price-to-earnings multiple of 9 times, above SK Hynix’s 7 times, because of Samsung’s memory leadership and relatively lower earnings volatility; it now uses 7 times.
- BofA believes SK Hynix’s DRAM selling-price increases and bit shipment growth in the third and fourth quarters of 2026 are stronger than Samsung’s. Hynix also confirmed that HBM4 is in mass production and being shipped, and expects it to account for more than half of fourth-quarter HBM sales. Taking sequential memory performance and capital returns together, the bank currently prefers Hynix.
- BofA forecasts Samsung’s operating profit at 529.1 trillion won and 527.9 trillion won in 2027 and 2028, respectively, still 7% and 15% below market consensus. High-margin assumptions would come under pressure if large technology companies cut capital expenditure or capacity expansion in 2026–2027 creates a memory oversupply.