Shares of Samsung SDI Co. Ltd. (SSDIY) are likely to soar as a result of purchases by Apple Inc. (AAPL) of advanced smartphone display screens, according to the Wall Street Journal. Meanwhile, Samsung SDI derives most of its revenue from batteries, and advanced electric car maker Tesla Inc. (TSLA) is poised to become a major customer. Samsung SDI's stock price has doubled since last fall, and its forward P/E ratio is 15, per data from S&P Global Market Intelligence cited by the Journal. Meanwhile, Apple's smartphone competitor Samsung Electronics Co. Ltd. (SSNLF) has a 20% stake in Samsung SDI.
The Apple Connection
Apple is expected to unveil three new iPhone models on Tuesday, with the most expensive version featuring an edge-to-edge screen using organic light-emitting diode (OLED) technology. Meanwhile, a third member of the Samsung chaebol, or South Korean business conglomerate, is Samsung Display Co. Ltd., which is by far the dominant global supplier of mobile OLED screens, the Journal notes. Samsung SDI owns 15% of Samsung Display, while Samsung Electronics owns the other 85%. (For more, see also: Apple Will Surge on iPhone 8, Options Trades.)
Earnings recognized by Samsung SDI as a result of its stake in Samsung Display are accelerating: $200 million for full-year 2016, $200 million just for the second quarter of 2017, and a projected $1.5 billion for full-year 2018, per the Journal. The 2018 estimate was made by investment management firm AllianceBernstein Holding LP (AB). Top-of-the-line Android smartphones, most notably the Galaxy S8 from Samsung Electronics, already use OLED screens. Apple's decision to follow suit is expected to establish this technology as a "must-have" for future smartphone models, the Journal says.
While competition is increasing, Goldman Sachs Group Inc. (GS) projects that 80% of Apple's OLED screens will be sourced from Samsung Display in 2019, even if, by that year, all iPhones use this technology, per the Journal. Additionally, Samsung SDI will profit directly from the expansion of the OLED market given that it supplies materials used in their manufacture.
The Tesla Connection
Tesla is building a 100-megawatt energy-storage system in Australia using battery cells from Samsung SDI, the Journal reports. This will be the world's largest lithium ion battery, "three times more powerful than anything else on earth," says Tesla CEO Elon Musk, as quoted by technology website CNET. The state of South Australia, which has 1.7 million residents, has been beset by power outages, and this project is designed to increase the reliability of the power grid, CNET adds. Tesla's huge battery array will be charged by a nearby wind farm.
With Tesla moving aggressively beyond its core electric vehicle business to other applications of battery technology, this may be the first step in cementing a profitable long-term relationship for Samsung SDI, which already supplies batteries for electric vehicles. German manufacturers BMW and Volkswagen are major customers for this business. However, the Journal adds, China has placed protectionist roadblocks against Samsung SDI, such that vehicles using its batteries probably will not be eligible for government subsidies. This is a significant disappointment, since China has become the world leader in electrifying transport. (For more, see also: Electric Car Sales Get a Big Jolt.)