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Samsung’s Q2 earnings ‘higher than feared’ and spur chip inventory rally

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

The numbers assuaged buyers’ considerations about rising inflation, deteriorating shopper demand and better materials prices for semiconductor companies, although analysts cautioned that demand weak point might not have absolutely run its course but.

Chip shares have been hammered this yr amid a twister of considerations, together with provide chain disruptions, the Russia-Ukraine battle, rising materials prices and rampant inflation that threatens shopper demand for merchandise like smartphones. A number of days forward of Samsung’s earnings steerage, 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), in step 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.

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

Samsung’s earnings steerage 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 buyers have oversold tech shares,” Dale Gai, analysis director at Counterpoint Analysis, advised CNBC by way of e mail.

Samsung chip power

Samsung didn’t launch a breakdown of outcomes for every enterprise phase. That may come later this month. However its part enterprise accounts for practically 60% of complete 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, advised CNBC he expects revenue at Samsung’s semiconductor enterprise to have risen 19% quarter on quarter. Rana mentioned that a greater product combine amongst Samsung’s so-called reminiscence chips, plus a stronger U.S. greenback, seemingly helped the know-how large. Samsung’s chip gross sales are primarily in U.S. {dollars} but it surely reviews the revenue in Korean received.

Daiwa’s Kim mentioned that reminiscence chips seemingly 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 way 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 power within the second quarter, analysts predict near-term headwinds.

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

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

However Rana mentioned that a number of the extra provide points might ease.

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

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 gear or semiconductors, which might additionally add to a slowdown in its reminiscence chip manufacturing, Rana added.

Given these elements, Rana mentioned, Samsung’s technique of build up 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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