5 months ago • 2 mins
What’s going on here?
Samsung Electronics admitted it ran aground on the rocky shores of the global chip market on Friday.
What does this mean?
Samsung likes to give investors a sneak peek before its full results come out, and this time, the update was more like a warning than a promise. See, the $160 billion global memory chip industry is going through a rough patch, with consumers and businesses tightening their purse strings – and that’s put a damper on chip sales worldwide.
According to market research, that drop in demand dented chip prices by as much as 18% last quarter, so it’s no surprise Samsung reported a likely 22% drop in sales compared to the same time last year. And here’s the kicker: operating profit fell a staggering 96%, marking the company’s lowest profit since 2009. And while that’s somehow better than what pessimistic analysts were expecting, it’s still a tough pill to swallow – and shares took a predictable hit.
Why should I care?
The bigger picture: What goes down, might come up.
There is some optimism floating around, mind you: industry peers like Micron and SK Hynix think the industry might be bottoming out. And some analysts are latching onto that idea, expecting Samsung’s profit to bounce back in the second half of the year. After all, the rise of AI could be a game-changer: AI servers need up to six times the memory capacity of standard ones, which could give the market a much-needed boost.
Zooming out: Bigger’s not always better.
Despite the hurdles, Samsung has managed to shine on South Korea’s Kospi index this year. But not everyone’s sold: one of the country’s top funds, for instance, is avoiding Samsung and eyeing smaller Korean suppliers of chip materials and equipment instead. And it seems that strategy is working so far: the underdog stocks have outperformed the Kospi, helping catapult the fund ahead of 99% of its peers this year.
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