Samsung sparks $30 billion tech rally after sales surge

Samsung Electronics reported a 21 percent higher-than-expected revenue jump, dispelling investors’ worst fears about the impact of weaker consumer demand and a sharp rise in material costs on the $550 billion chip industry.

The results of the largest South Korean company – one of the first big technology firms to report earnings after a key quarter – helped Asian stocks rally on Thursday. While worries persist about the long-term impact of a potential global recession, investors have seized on Samsung’s top-line expansion as a sign that chip stock may have been oversold.

Samsung added 3.2% in Seoul, while memory maker SK Hynix Inc. rose by 2 percent. A Taiwanese semiconductor company jumped 5%, while smaller competitor United Microelectronics Corp. rose 7.3% in Taipei. TSMC will report its monthly sales on Friday.

In the morning, the four Asian chip makers collectively earned about $30 billion in market value. Despite this rally, they remain low throughout the year, reflecting uncertainty over the longer term.

“The results were less bad than expected,” said Song Myung-sup, an analyst at HI Investment & Securities. “There were huge concerns and earnings estimates were going down. But the results were within expectations.”

Samsung’s weak sales figure offset weaker-than-expected operating income, reflecting pressure on margins from rising inflation. Operating income rose at the slowest pace in more than two years to 14 trillion won ($10.7 billion) in the June quarter, up from a forecast of 14.6 trillion won. Sales were 77 trillion won, boosted by the weakening Korean won.

“It looks like Samsung did a pretty good job of managing memory chip shipments in the second quarter, keeping its inventory and stabilizing prices,” said Greg Roh, head of technology research at HMC Investment & Securities. “Chip price talks will be heated this quarter if demand continues to fall. But markets are not expecting a major drop in prices, as they did during previous downturns.”

Samsung will present net income and share the division’s performance in its full report later this month. According to Eugene Investment & Securities analyst Lee Seung-woo, smartphone shipments in the second quarter could fall by more than 10 million units to 63 million from the previous three months. TV and PC sales also dropped significantly compared to the first quarter as people spent less on expensive IT products.

Chip inventories in South Korea jumped more than 50 percent in May, indicating that sluggish consumer demand is directly impacting the memory chip industry, according to the National Bureau of Statistics. Samsung and its compatriot SK Hynix are among the top three manufacturers of memory, supplying it to the world’s data centers and electronics manufacturers. Both companies have seen their stock prices fall more than 20% this year as worries about a potential recession rise.

Samsung warned of a “huge” challenge to its business outlook during its latest earnings announcement as global macro risks such as inflation and the Russian-Ukrainian war threaten to ripple. Consumers and corporates are slashing their spending to hide from a potential recession, while rising interest rates and costs are hitting their disposable income directly.

US rival Micron Technology Inc., the third-largest DRAM maker, gave a gloomy outlook for the current quarter last week, lowering expectations for technology spending. Bloomberg News

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