Samsung Warned That Its Profit From Last Quarter Won’t Be High Fidelity

Samsung Warned That Its Profit From Last Quarter Won’t Be High Fidelity
Paul Allison, CFA

about 2 months ago2 mins

What’s going on here?

Samsung warned that last quarter’s profit will come in well short of expectations, but it was easy to spot investors’ loyalty when the Korean chipmaker’s stock stayed steady.

What does this mean?

Samsung’s name might be plastered over 85-inch flat screen televisions and cult-favorite Galaxy smartphones, but the tech company has also quietly become the world’s biggest producer of computer and phone memory chips. But it’ll want to keep the latest development on the down-low: with shoppers cutting back on luxuries like new phones and laptops, companies are buying fewer memory chips – and that’s left Samsung flogging unsold stock at discount prices. So now, the company’s warning that profit will have fallen a worse-than-expected 35% during the quarter that ended in December, a turnaround from Samsung’s optimistic tone back in October.

Samsung profit

Why should I care?

For markets: The chips aren’t down yet.

Samsung won’t be shouting that news from the rooftops, of course, but the firm’s memory chips trade on an exchange, which means their prices are public knowledge. Still, future-focused investors don’t seem worried. In fact, Samsung’s stock didn’t budge after the news. That’s partly because a gaggle of chipmakers – including the Korean household name itself – are slowing down their production lines to match demand, which should perk up chip prices a little. And with investors hoping for more sales in the computer and phone markets when interest rates take a breather, Samsung could be in for a more lucrative year.

Samsung chip price
The falling price of a Samsung chip | Source: Bloomberg

Zooming out: Investors are playing the long game.

Investors sent Samsung’s stock up 45% last year, and that’s not only because they’ve crossed their fingers for a recovery in the memory chip market. While no one’s sure quite how artificial intelligence will develop over the coming months and years, chipmakers are guaranteed to be in demand. After all, any artificial intelligence systems will need a bounty of all sorts of chips if they’re going to take over the world.

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