Samsung sparks chipmaker rally after 21% sales jump

Samsung is due to release detailed earnings later this month. PHOTO: REUTERS

SEOUL (BLOOMBERG) - Samsung Electronics reported a better-than-anticipated 21 per cent jump in revenue, assuaging investors’ worst fears about the impact of weakening consumer demand and soaring materials costs on the US$550 billion (S$773 billion) chip industry.

The results from South Korea’s largest company - among the first major tech firms to report earnings after a pivotal quarter - helped drive a rally in Asian stocks on Thursday (July 7). While concerns linger about the longer-term impact of a potential global recession, investors seized on Samsung’s top-line expansion as a sign that chip stocks may have been oversold.

Samsung gained 3.2 per cent in Seoul, while fellow memory maker SK Hynix rose 2 per cent. Taiwan Semiconductor Manufacturing Co jumped 5 per cent and smaller rival United Microelectronics surged 7.3 per cent in Taipei. TSMC will report its monthly sales on Friday.

The four Asian chipmakers gained about US$30 billion of market value collectively. Despite that rally, they remain down for the year, reflecting uncertainty about the longer term.

Samsung’s narrow sales beat offset weaker-than-expected operating profit, reflecting margin pressures from rising inflation. Operating profit growth slowed to its lowest in more than two years, with 14 trillion won (S$15 billion) for the three months ended June. Analysts had estimated 14.6 trillion won on average.

Sales of 77 trillion won were helped by the South Korean won, which weakened against the US dollar during the period. Samsung will provide net income and split out divisional performance with its full report at the end of this month.

Samsung’s smartphone shipments in the second quarter might have fallen by more than 10 million units to 63 million compared to the previous three months, according to Eugene Investment & Securities analyst Lee Seung-woo. Sales of TVs and PCs also fell significantly compared to the first quarter as people spent less on pricey IT products.

South Korea’s chip stockpiles jumped more than 50 per cent in May, according to the national statistics office, signaling sluggish consumer demand is directly impacting the memory chip industry. Samsung and SK Hynix are two of the leading trio of memory makers supplying the world’s data centres and electronics makers. Both have seen their share prices slump by over 20 per cent this year as worries over a potential recession grow.

“Macro uncertainty still lingers globally,” said Nam Dae-jong, an analyst at eBEST Investment & Securities. “The Fed’s interest rate hikes have triggered FX fluctuations while raw materials and logistics costs continue to rise. There is also growing uncertainty over demand.”

Samsung warned of an “immense” challenge over its business outlook during its last earnings call as global macro risks like inflation and the Russia-Ukraine war threatened ripple effects. Consumers and enterprise clients are cutting their spending to hunker down before a potential recession, while rising interest rates and costs are directly hitting their disposable income.

US rival Micron Technology, the third biggest Dram maker, last week gave a grim outlook for the current quarter with lowered expectations for tech spending.

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