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Memory chip down-cycle projection limiting tech giant's stock
By Kim Bo-eun
Samsung Electronics' stock price is expected to pick up momentum in the coming months on the back of the company's improvements in non-memory chip earnings and strong demand for its foldable smartphones, analysts said Sunday.
The forecast came as the tech giant's stock has remained sluggish, due to an expected slowdown in the memory chip market, despite record quarterly earnings in the third quarter.
Samsung on Friday unveiled its earnings estimates for the third quarter, a revenue of 73 trillion won ($61 billion) and an operating profit of 15.8 trillion won, each up 9 percent and 27.9 percent year-on-year, respectively. The revenue figure represents Samsung's largest revenue on a quarterly basis yet, and its operating profit is the second-largest since the third quarter of 2018, when the chip market was in a super cycle.
But these strong earnings estimates were not reflected in Samsung's stock price, which closed at 71,500 won on the same day, down 0.14 percent from the previous day's close.
Samsung's share price has continued to move in accordance with the conditions of the memory chip market, which is cyclical in nature. Samsung's chip business has a heavy concentration on memory chips. DRAM accounts for half of Samsung's chip revenue. Samsung's semiconductor business' operating profit accounts for more than half of Samsung's total earnings.
Memory chip prices are forecast to fall starting at the end of this year. Market tracker Trendforce projects DRAM prices to fall by 3 percent to 8 percent in the fourth quarter and NAND flash prices to fall by up to 5 percent in the same period. Samsung's fourth quarter earnings are set to be affected by the dip in memory chip prices.
Brokerages project Samsung's operating profit for the fourth quarter to come to slightly above 15 trillion won, down from the previous quarter.
"The fall in NAND prices will exceed the fall in production costs and profitability will slow. As for the non-memory chip sector, the company will see the impact of the seasonally low demand for smartphones," Kiwoom Securities analyst Park Yu-ak stated in a recent report.
But regardless of slowed earnings in the coming quarter, some analysts are projecting that Samsung's stock will make gains in the coming weeks.
"Samsung's stock has reflected the entry of a memory down-cycle in advance, and therefore we project that its stock price will start rising soon considering the company's improvements in non-memory chip earnings and strong demand for foldable smartphones," Hanwha Investment & Securities analyst Lee Soon-hak said.
KTB Investment & Securities analyst Kim Yang-jae said, "Considering the fact that Samsung's stock underwent adjustments since January of 2021, and considering its current valuation, it has reflected a substantial part of the concerns in advance," referring to memory market's down-cycle.
Samsung's stock peaked at 91,000 won on Jan. 11, but has since been on an overall downward trajectory, with prices hovering around 75,000 won in recent weeks.
Inflation concerns and other external uncertainties surrounding China's debt-saddled property developer, Evergrande, have taken a toll on the local stock market in recent weeks.
The market capitalization of Samsung Group stocks fell below 700 trillion won for the first time this year, with the market capitalization of 23 of Samsung's listed affiliates coming to 684.79 trillion won as of Friday. Samsung's electronics, biotech and electric vehicle battery affiliates rank in the top 10 companies on the main KOSPI bourse in market capitalization.
