(Bloomberg) — Samsung Electronics Co. reported a more modest decline in quarterly profit after heavy losses at its chip division, suggesting the global semiconductor market has turned a corner.Thank you for reading this post, don't forget to subscribe!
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Samsung shares rose as much as 4.4%, the most in more than a month, after some investors said the 78% decline in operating income was better than they feared. South Korea’s largest company has been battling the downturn in the industry along with smaller rivals SK Hynix Inc and Micron Technology Inc. Key customers, including personal computer and smartphone makers, are cutting orders to deal with weak gadget demand and excess inventories of chips. ,
Operating income fell to about 2.4 trillion won ($1.8 billion) due to a 13% decline in sales in the three months to September, according to Samsung’s preliminary results. The numbers represent an improvement from a record 95% year-over-year decline in the previous quarter, in line with analysts’ estimates.
Sanjeev Rana, head of Korea research at CLSA, said expectations are rising that Samsung’s semiconductor business has “largely bottomed out”. “And the recovery is underway in the fourth quarter.”
The news comes days after the US granted the company and Hynix immunity to acquire equipment needed to maintain and expand their chip manufacturing operations in China. That removes some of the uncertainty hanging over the two memory leaders, allowing them to take on the world’s largest chip sector and make long-term bets.
Samsung now positions itself to benefit from a long-awaited AI-related boom in tech spending, driven by investors and consumers’ enthusiasm over OpenAI’s ChatGPT debut last year.
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But in developing the tools needed to train AI, Samsung is trying to catch up with smaller Hynix, the main supplier of next-generation DRAM to AI chip maker Nvidia Corp. Samsung has said it plans to double its capacity to make high-bandwidth memory, the capacity needed to speed up AI training, by 2024.
Hynix shares have risen nearly 60% this calendar year before Wednesday’s trading, while Samsung shares have gained 20%.
However, until AI-related demand translates into sales, Samsung and Hynix have said they will face economic uncertainty by cutting production of NAND chips used in PCs and phones. This has helped support both DRAM and NAND prices, indicating that the market may eventually bottom out.
Samsung, a leader in the tech industry due to its leading position in chips, electronics and smartphones, has also benefited from strong sales of its foldable phones.
The world’s largest smartphone maker has introduced the fifth generation of its foldable phone, entering territory hitherto untapped by rival Apple Inc products. Its display sales are expected to be boosted by smartphone users’ preference for larger screens, such as those used in new iPhones by Apple, which is a customer as well as a competitor.
Samsung will give a more detailed snapshot of its earnings later this month. The company had earlier said it expected sales to improve in the second half of the year.
Investors will also assess Samsung’s progress in the foundry business, where it lags Taiwan Semiconductor Manufacturing Co. The focus is on any changes in Samsung orders as customers look to reduce their exposure to Taiwan, an island claimed by China, amid rising demand due to geopolitical tensions. Quarterly sales at TSMC fell less than expected, thanks to rising demand from AI players.
The market is looking to the tech industry’s biggest companies for signs of an AI-fueled recovery, but rising inflation and geopolitical unrest are clouding the forecast.
Samsung is a giant in the memory sector that has rapidly built up capacity to meet demand generated by the pandemic. The company spent well through the recession, providing itself and its largest customers with large quantities of goods.
“The result was better than expected,” said Lee Seung-woo, analyst at Eugene Investment & Securities. “The end of the memory chip industry is behind us and Samsung’s results show that.”
–With assistance from Yukyung Lee.
(Updated with share reaction and analyst commentary from paragraph 2.)
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