Samsung Sparks $30 Billion Tech Rally After 21% Sales Jump

(Bloomberg) — Samsung Electronics Co. reported a better-than-anticipated 21% jump in revenue, assuaging investors’ worst fears about the impact of weakening consumer demand and soaring materials costs on the $550 billion chip industry.

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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 Thursday. 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% in Seoul, while fellow memory maker SK Hynix Inc. rose 2%. Taiwan Semiconductor Manufacturing Co. jumped 5% and smaller rival United Microelectronics Corp. surged 7.3% in Taipei. TSMC will report its monthly sales on Friday.

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

“The results were less bad than expected,” said Song Myung-sup, an analyst at HI Investment & Securities. “There were huge worries and earnings estimates were getting lowered. But the results came within the boundary of expectations.”

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Samsung’s narrow sales beat offset weaker-than-expected operating profit, reflecting margin pressures from rising inflation. Operating profit grew at its slowest pace in more than two years to 14 trillion won ($10.7 billion) in the June quarter, versus the 14.6 trillion won projected. It posted sales of 77 trillion won, helped by a weakening of the Korean won.

“Samsung seemed to manage memory chip shipments in the second quarter pretty well by keeping its inventories and stabilizing prices,” said Greg Roh, head of technology research at HMC Investment & Securities. “Negotiations for chip prices would be heated in the current quarter if demand continues to fall. But the markets are not expecting severe price drops as happened in previous downturns.”

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Samsung will provide net income and split out divisional performance with its full report at the end of this month. 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% in May, according to the national statistics office, signaling sluggish consumer demand is directly impacting the memory chip industry. Samsung and compatriot SK Hynix are two of the leading trio of memory makers supplying the world’s data centers and electronics makers. Both have seen their share prices slump by over 20% this year as worries over a potential recession grow.

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.

South Korea’s Chip Stockpile Jumps Amid Tech Slowdown Concerns

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

What Bloomberg Intelligence Says

Samsung’s 2Q preliminary numbers may not be as weak as rival Micron’s poor sales guidance for June-August suggests. But its 3Q sequential profit growth may not be as strong as expected, due to weaker PC and smartphone demand caused by inflation.

— Masahiro Wakasugi, BI analyst

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(Updates with analyst comment)

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