Samsung’s profits fell 95% to their lowest level since Q1 2009, yet the stock is up… 🤔
Let’s take a look at what the Korean tech giant had to say during its first-quarter earnings report.
Revenue of 63.75 trillion Korean Won was down 18% YoY. That topped the company’s guidance of 63 trillion but missed the 63.9 trillion won expected by analysts. Operating profits fell from 14.12 trillion won last year to 640 billion won this quarter. While that does represent a 95% decline, it did beat the company’s own guidance marginally. 🔺
As for what drove the weakness, its semiconductor business reported a record $3.4 billion loss. Weak demand for tech devices in the post-COVID environment has caused a chip glut across the industry. With concerns of a global recession driving companies to further cut costs, the semiconductor industry has had no choice but to reduce production and discount existing inventory. ✂️
With that said, Samsung offered a cautiously optimistic outlook on its chip business. Executives expect inventory levels to begin falling in the second quarter, causing customers to begin gradually buying chips again in the second half of the year. However, without a clear catalyst, they expect similar results in the current quarter.
Despite the rough couple of quarters, the company continues to invest in its future. Its long-term outlook on the chip market remains strong, given the proliferation of electric vehicles, artificial intelligence, and high-performance computing. As such, it invested 10 trillion won just this quarter to expand production capacity in Texas and South Korea. 🏭
Additionally, Samsung’s mobile business was a nice surprise for investors. It reported a 3.94 trillion won profit in Q1, focusing on premium smartphone sales instead of volume. Executives also expect this area of the business to pick up in both shipments and revenue during the second half of 2023. 📱
The sentiment expressed by Samsung executives is shared by many in the industry. Just today, we heard from KLA Corporation, which is the leading supplier of equipment used to measure and inspect semiconductor chips. And although its near-term outlook was weak, executives are expecting a recovery in the second half of the year.
As a result, investors are looking ahead with optimism. Samsung shares rose nearly 1%, and $KLAC shares were up about 6% on the day. 📈
Whether or not they’re right remains to be seen. But it’s clear that lower valuations and a potential recovery later this year have investors snatching up some of these companies in anticipation of a strong second half. 🔮