Picture: Wall Street Journal
Techspace - As Samsung Electronics, the world's largest maker of semiconductors, reported its greatest earnings fall since the third quarter of 2014, shares of semiconductor companies in Asia plunged.
Its operational profit for the fourth quarter dropped to 4.31 trillion won ($3.4 billion), a 69% decrease from the same time last year when it brought in 13.87 trillion won.
The operating profit for the last three months of 2022 fell to its lowest level since the quarter that concluded in September 2014, when it totaled 4 trillion won. This occurs at a time when worldwide smartphone shipments have experienced their worst decrease ever, falling to levels last seen in 2013.
The announcement by Samsung that it will continue capital expenditure in 2019, after spending a total of 47.9 trillion won on semiconductors in 2022, caused stocks of chipmakers in Asia to fall. The corporation was generally anticipated to cut back on additional investment as the state of the global economy deteriorated.
According to market research firm IDC, sluggish consumer demand and macroeconomic conditions caused a sharp decline in global smartphone sales during the fourth quarter of 2022, a traditionally busy Christmas shopping season.
The number of smartphones delivered worldwide in 2022 was 1.21 billion, which is the lowest annual shipping total since 2013, according to IDC. This is because consumer demand has been drastically reduced, there has been inflation, and the economy is still shaky.
"Shipments in the holiday quarter never came in lower than the prior quarter, to our knowledge. Vendors had to substantially cut back on shipments, nevertheless, due to weak demand and a large inventory, according to Nabila Popal, research director at IDC.
Shares of Samsung Electronics fell by 3.6% in Seoul’s trading session on Tuesday. Rivals like SK Hynix also fell more than 2%, while Taiwan Semiconductor Manufacturing Company also fell 3.9% in Asia trade.
Japanese chipmakers Tokyo Electron fell 1.14%, Renesas Electronics shed 0.97% while Advantest fell 1.7%. Lasertec also fell 2.07%. “Without some meaningful adjustment in production, I think it’ll be difficult to match the current mismatch in supply and demand,” SK Kim of Daiwa Capital Markets told CNBC’s “Street Signs Asia.”
U.S. semiconductor maker Micron announced last month it will cut its headcount by 10% in 2023 and cut its capital expenditures, which Kim described as “not enough.” "We expect Samsung and other big memory producers to drop output by at least 20%, starting at the end of this quarter and continuing into the second quarter," Kim added.
Despite worsening economic conditions, Samsung Electronics anticipates a recovery in demand later this year. "While macroeconomic uncertainty is projected to linger in 2023, the Company forecasts that demand will begin to rebound in the second half," it stated in a news release.
"The semiconductor industry will maintain its market and technical leadership while increasing the number of advanced nodes and products."
"Ready for Recuperation"
According to JPMorgan Private Bank, the semiconductor business offers an appealing entry point for investors due to severe drops in chip equities in 2022.
"Looking at price changes, earnings forecasts, and [price-to-earnings] multiples, the sector currently appears to be close to a cyclical bottom," its strategists Jacob Manoukian and Jonathan Linden stated in a study issued earlier this month, using World Semiconductor Trade Statistics data.
"From electric cars to smartphones, semiconductors are the driving force behind everything. The beaten-up equities in the sector, in our opinion, are poised for a comeback," they stated.
It could be the right time to purchase semiconductor stocks, according to Daniel Yoo of Yuanta Securities.
On CNBC's "Street Signs Asia," he said: "I think that it is a chance to purchase, but the question [mark] is whether or not a very major reversal comes in the second quarter or the third quarter."
In terms of the need for data centers or other locations, Yoo stated, "We see that continuing of the significantly increased." "There's also a chance that demand for AI-related products may increase this year," you added.
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