Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Sometimes, a near 80 per cent drop in earnings is reason to celebrate. Samsung Electronics shares rose following the release of their third-quarter preliminary results that showed a 78 per cent decline in operating income. The increase in share price can be attributed to rock bottom expectations for the South Korean chipmaker. However, it is still too early to declare a comeback.
Operating income fell to approximately Won2.4tn ($1.8bn) while sales saw a 13 per cent drop in the September quarter. Nevertheless, this is an improvement compared to a record 95 per cent decline in operating income in the previous quarter. Some analysts are optimistic and believe that this indicates the bottoming out of the chip market cycle.
In order to boost profitability, chipmakers have been reducing memory chip output throughout this year.
Despite these improvements, Samsung shares trading at a 21 times forward earnings multiple are being criticized for being overvalued compared to chipmaker competitors like Taiwan Semiconductor Manufacturing Company Limited (TSMC).
This high valuation is partly based on hopes that Samsung can benefit from the hype around artificial intelligence (AI). The company is known for its “high bandwidth memory solutions” which offer faster data processing capabilities compared to other technologies. These solutions are used in the development of AI-driven graphics processing units. Samsung is planning to double its production capacity for these chips.
However, it’s worth noting that Samsung has already lost its leading position in this market to local competitor SK Hynix. Furthermore, these chips only account for around 1 per cent of the global DRAM chip market. The demand for AI-related solutions is expected to take years to surpass the demand for chips from traditional clients like smartphone and car manufacturers.
It will take time for the production cuts to have an impact on chip supply. Even when they do, the suppressed demand means that there is a limit to how much of a boost it will provide to chip prices. While the worst may be behind for the chip cycle, this doesn’t guarantee a dramatic near-term rebound in Samsung’s earnings.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
