Samsung’s Q2 earnings ‘better than feared’ and spur chip stock rally


Samsung shares rose on Thursday, dragging Asian chipmakers larger after the South Korean know-how big posted “higher than feared” earnings steering for the second quarter.

The numbers assuaged traders’ issues about rising inflation, deteriorating client demand and better materials prices for semiconductor companies, although analysts cautioned that demand weak spot might not have absolutely run its course but.

Chip shares have been hammered this yr amid a twister of issues, together with provide chain disruptions, the Russia-Ukraine battle, rising materials prices and rampant inflation that threatens client demand for merchandise like smartphones. A number of days forward of Samsung’s earnings steering, U.S. chipmaker Micron warned of softening demand for consumer products.

That set the backdrop for Samsung’s outcomes.

However Samsung was up greater than 3% on Thursday after saying it expects second quarter income to rise 22% yr on yr to 77.78 trillion Korean received ($59.8 billion), consistent with expectations. Working revenue is predicted to develop round 12% to 14.12 trillion Korean received, although that was the slowest rise in additional than two years and missed expectations.

Nonetheless, the outcomes had been “higher than feared,” SK Kim, analyst at Daiwa Capital Markets, instructed CNBC’s “Street Signs Asia” on Thursday.

Samsung’s earnings steering introduced on a rally in different Asia semiconductor shares on Thursday. Taiwan Semiconductor Manufacturing, one of many world’s largest chipmakers, rallied 5%, whereas rival United Microelectronics Corporation was up greater than 7%. South Korea’s SK Hynix was practically 2% larger.

“It is extra like a aid of the fears earlier than the outcomes, as traders have oversold tech shares,” Dale Gai, analysis director at Counterpoint Analysis, instructed CNBC through e-mail.

Samsung chip energy

Samsung didn’t launch a breakdown of outcomes for every enterprise section. That may come later this month. However its part enterprise accounts for practically 60% of whole working revenue and consists of chips that go into merchandise starting from servers in information facilities to smartphones and laptops. Samsung additionally designs and manufactures semiconductors.

Sanjeev Rana, analyst at CLSA, instructed CNBC he expects revenue at Samsung’s semiconductor enterprise to have risen 19% quarter on quarter. Rana stated that a greater product combine amongst Samsung’s so-called reminiscence chips, plus a stronger U.S. greenback, probably helped the know-how big. Samsung’s chip gross sales are primarily in U.S. {dollars} nevertheless it experiences the revenue in Korean received.

Daiwa’s Kim stated that reminiscence chips probably noticed a decline in shipments, however the firm’s design and foundry enterprise in all probability noticed “double-digit working revenue margin” within the second quarter, which helped increase the chip division. A foundry is a chipmaking service by means of which an organization might design and manufacture semiconductors for an additional agency. TSMC is the world’s largest foundry.

A decline in smartphone gross sales and TVs is predicted to be a drag on the corporate’s outcomes.

Unsure future

Regardless of Samsung’s chip energy within the second quarter, analysts expect near-term headwinds.

“Tech corporations noticed an enormous demand deterioration solely from the final month of 2Q and weak demand has but to run its course in my view,” Rana stated in an e-mail.

In the meantime, “chip stock is reaching a really excessive stage,” in accordance with Counterpoint Analysis’s Gai. Excessive stock ranges of semiconductors counsel demand is weakening, which might additionally enhance provide and put strain on costs.

However Rana stated that among the extra provide points might ease.

“(A) lot of the unhealthy information can be within the value and for shares like Samsung and Hynix the traders appear to be betting that the 2 corporations may also announce reminiscence manufacturing or capex cuts only a Micron introduced final week,” Rana stated.

Samsung shares are down round 25% this yr, whereas SK Hynix has fallen 28%.

In the meantime, Samsung has been going through delays in securing manufacturing tools or semiconductors, which might additionally add to a slowdown in its reminiscence chip manufacturing, Rana added.

Given these elements, Rana stated, Samsung’s technique of increase its stock of sure chips “is true,” including that the market could also be underestimating the challenges Samsung will face on reminiscence chip manufacturing in 2023.

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