August 9, 2022

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Samsung's second-quarter profit is 'better than feared' and spurs a rally in chip stocks

Samsung’s second-quarter profit is ‘better than feared’ and spurs a rally in chip stocks

Samsung Stocks rose on Thursday, sending Asian chipmakers higher after the South Korean tech giant reported “better than fear” second-quarter earnings guidance.

The figures eased investor concerns about rising inflation, deteriorating consumer demand and rising material costs for semiconductor companies, although analysts cautioned that weak demand may not be completely gone yet.

Chip stocks have been hit hard this year amid a hurricane of concerns, including supply chain disruptions, the Russia-Ukraine war, rising material costs and rampant inflation that threaten consumer demand for products like smartphones. A few days before Samsung’s earnings guidance, US chip maker Micron warned that Low consumer demand.

This is background mode for Samsung results.

But Samsung rose more than 3% Thursday after it said it expects second-quarter revenue to rise 22% year-on-year to KRW 77.78 trillion ($59.8 billion), in line with expectations. Operating profit is expected to grow about 12% to KRW 14.12 trillion, although this was the slowest rise in more than two years and missed expectations.

However, the results were “better than feared,” SK Kim, an analyst at Daiwa Capital Markets, told CNBC.street signs asia” Thursday.

Samsung’s earnings guidance brought a rally in semiconductor stocks in other Asia on Thursday. Taiwan’s semiconductor industrywhich is one of the world’s largest chip makers, rose 5%, while it is competitive United Microelectronics Company It was more than 7%. South Korea SK Hynix It was about 2% higher.

“It’s like easing fears ahead of results, with investors overselling tech stocks,” Dale Jay, director of research at Counterpoint Research, told CNBC by email.

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Samsung chip power

Samsung has not released a breakdown of the results for each business segment. That will come later this month. But its component businesses account for nearly 60% of total operating profit and are made up of segments that go into products ranging from servers in data centers to smartphones and laptops. Samsung also designs and manufactures semiconductors.

Sanjeev Rana, an analyst at CLSA, told CNBC that he expects Samsung’s profit in the semiconductor business to rise 19% on a quarterly basis. Rana said a better product mix of Samsung’s so-called memory chips, as well as a stronger US dollar, would likely help the tech giant. Samsung chip sales are mainly in US dollars but announces profits in KRW.

Daiwa’s Kim said memory chips are likely to see shipments drop, but the company’s design and foundry business may have seen a “double-digit operating margin” in the second quarter, which helped boost the chip division. A foundry is a chip-making service in which one company designs and manufactures semiconductors for another. TSMC is the largest foundry in the world.

The decline in sales of smartphones and TVs is expected to weigh on the company’s results.

uncertain future

Despite the strength of Samsung’s chipset in the second quarter, analysts expect headwinds in the near term.

“Technology companies have only seen a significant deterioration in demand since the last month of the second quarter, and weaker demand has not taken its course in my view,” Rana said in an email.

Meanwhile, “chip stocks have reached a very high level,” according to Counterpoint Research’s Day. High semiconductor inventory levels indicate weak demand, which could also lead to oversupply and pressure on prices.

But Rana said some of the problems of oversupply could be mitigated.

“(A) a lot of bad news is also in the price and for stocks like Samsung and Hynix, investors seem to be betting that the two companies may also announce memory production or only the capex cuts that Micron announced last week,” Rana said.

Samsung shares are down about 25% this year, while SK Hynix is ​​down 28%.

Meanwhile, Samsung is facing delays in securing production equipment or semiconductors, which could also slow memory chip production, Rana added.

Given these factors, Samsung’s strategy to build its inventory of certain chips is “correct,” Rana said, adding that the market may underestimate the challenges Samsung will face in producing memory chips in 2023.