Last week the technology giant Samsung Electronics [KRX:005930] posted a profit plunge of 95% for the second quarter of the year, as weak demand for memory chips persisted.
As the world’s largest maker of dynamic random-access memory chips, which are found in consumer devices like smartphones and laptops, this sharp decline in demand has hit the company hard.
The technology giant has said it will continue operating cuts with the oversupply of memory chips sending prices plummeting. Nevertheless, it expects the global demand to gradually recover in the second half of the year.
Demand for shares in the company remains steady however, with the stock still up a respectable 11% over six months. It is also still trading close to a 52 week high of KRW 72,600.
Kate Leaman, chief market analyst at AvaTrade, says patience is likely to be rewarded over the medium term:
“Samsung expects a gradual recovery for its semiconductor business in the second half of the year after reporting a record loss in the first quarter due to a chip glut caused by weak demand for tech devices – particularly as customers will eventually run the current inventory dry. Chip prices plummeted amid an economic slowdown, leading to production cuts across the sector.”
Despite the losses, Samsung remains optimistic about the future, with positive long-term outlooks for chip demand driven by electric vehicles, artificial intelligence, and high-performance computing.
The company’s mobile business performed well in Q1, focusing on profit rather than volume. Samsung is investing heavily in chip production facilities and plans to keep memory chip investment similar to the previous year.
“Samsung’s positive outlook for a gradual recovery in its semiconductor business holds promising implications for the wider semiconductor industry,” Leaman explained. “As a major memory chipmaker, Samsung’s performance is often seen as a barometer for the overall market.”
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The forecast of a chip market rebound in the second half of the year indicates potential improvement for the entire industry, leading to a more balanced supply-demand situation and better pricing dynamics as the sector recovers from the chip glut experienced in the first quarter.
Moreover, the technology giant’s unwavering commitment to heavy investment in chip production facilities demonstrates its confidence in the long-term potential of the semiconductor market.
“This bold move may inspire other companies to follow suit, leading to increased capital expenditures and expanded production capacities across the industry,” Leaman commented. “Samsung’s positive outlook for chip demand, driven by emerging technologies like electric vehicles, artificial intelligence, and high-performance computing highlights the significance of these trends in shaping the direction of research, development, and production within the sector.”
Overall, Samsung’s recovery expectations and positive long-term outlook may boost confidence in the semiconductor industry, fostering further growth and innovation. However, the industry’s trajectory will hinge on a variety of factors, including global economic conditions, technological advancements, geopolitical developments, and supply chain dynamics. As such, remaining adaptable and responsive to changes in the market environment will be crucial for sustained success in this ever-evolving sector.
