Investors should brace for uglier results ahead.
The South Korean technology giant reported preliminary results for the quarter ending in June roughly in line with analysts’ estimates on S&P Global Market Intelligence. Revenue grew 21% from the same period last year, while operating profit rose 11.4%. Both were slightly down from the quarter before.
Samsung will provide full results with a sector-by-sector breakdown later this month. Its smartphone segment likely suffered from slowing shipments, while earnings from semiconductors remained solid. The weakening South Korean won against the dollar probably buoyed results too.
Investors seemed to breathe a sigh of relief after the results. Samsung’s shares rose 3.2% Thursday. The market has long expected a hangover after the pandemic boom: The stock has lost more than a third of its value since its peak in January last year.
But the worst is likely still ahead, especially for Samsung’s memory-chip business. The company’s semiconductor division, which derives most of its revenue from memory chips, made up 60% of Samsung’s operating profit in the first quarter.
Rising worries about the risk of recession in the U.S. and other developed economies will hit chip demand further as consumers and businesses pull back. Sales of consumer gadgets like personal computers and smartphones have already started falling. Server-chip orders will likely be cut in the second half of this year. And that is as inventories in the supply chain have built up to record levels. Many chip customers over-ordered in the past couple of years due to the semiconductor shortage, which could now turn into a glut.
Other chip makers are sounding the alarm too. Memory-chip maker Micron reckons revenue for the quarter ending in August will be $7.2 billion, 21% below what analysts were expecting and the first year-over-year drop in more than two years. Analysts have already cut their operating-profit estimates for Samsung’s third quarter by 8% over the past three months, according to S&P Global Market Intelligence. But that’s probably still too optimistic.
The saving grace for Samsung is that shares are already pretty cheap: 1.3 times book value. The company’s big cash pile also adds up to a big buffer against market and economic turbulence. But cheap valuations alone probably aren’t enough to draw investors in again. That requires a clearer picture of how escalating macroeconomic risks will spread through critical, highly cyclical industries such as memory chips.
The downturn, should it fully materialize, is clearly in its early days for now. Samsung, as a linchpin of the global tech supply chain, will inevitably take a hit. Its technological leadership and big cash balance mean it is well prepared to weather the storm—but it will be a while before it makes sense for investors to do anything but watch from the sidelines.
strong run is coming to an end. Investors should brace for uglier results ahead.
The South Korean technology giant reported preliminary results for the quarter ending in June roughly in line with analysts’ estimates on S&P Global Market Intelligence. Revenue grew 21% from the same period last year, while operating profit rose 11.4%. Both were slightly down from the quarter before.
Samsung will provide full results with a sector-by-sector breakdown later this month. Its smartphone segment likely suffered from slowing shipments, while earnings from semiconductors remained solid. The weakening South Korean won against the dollar probably buoyed results too.
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