Samsung Bears Win After Stock Swings on `Shock' Profit Miss

(Bloomberg) -- Samsung Electronics Co. ended the day weaker, giving into bears worried about the outlook for the first half following today’s disappointing fourth-quarter earnings estimates.

The shares swung between a gain of as much as 1.2 percent and a loss of 2.1 percent before finishing the day 1.7 percent lower. The stock rose as analysts said the bleak fourth-quarter results on slumping chip demand were largely factored in, but fell back on pessimism over what comes next. The South Korean company reported preliminary operating income dropped to 10.8 trillion won ($9.65 billion) for the period through December, missing the average analyst estimate compiled by Bloomberg by 22 percent.

Samsung shares lost 24 percent last year, capping its worst performance since 2000, with the stock taking a beating as chip prices slid and demand for new smartphones slowed. The world’s largest smartphone maker by shipments has been increasingly dependent on chips for profit growth, riding on a spike in global data traffic while yielding to stiffer competition for phones.

Samsung Bears Win After Stock Swings on `Shock' Profit Miss

Semiconductors accounted for more than three-quarters of Samsung’s total profit, compared with the first quarter of 2013 when its phone business represented almost three-quarters of profit.

Here’s what analysts said:

HI Investment & Securities (Song Myung-sup)

  • “It’s a shock.”
  • “It’s not just Apple, but also smartphone, server and PC manufacturers that are not buying.”
  • “While the U.S.-China trade war hangs over them, these customers just won’t accept current prices, and Samsung faces pressure to cut chip prices.”

CGS CIMB (Lee Dohoon)

  • “We are concerned that memory inventory levels could be elevated even further” in the first quarter of this year, making it “inevitable” for the company to see weaker results in the first half, according to a note published Jan. 8
  • “We look for further memory capex cuts, slower memory price declines and better signs of order recovery from data centre customers to catalyse the stock” in the first half
  • “We are still of the view that structural demand growth for AI, cloud, 5G and big data should continue, and that the memory supply-demand imbalance should be reduced along with memory makers’ capex cuts and order restocking cycle” by the second half
  • Cuts price target by 9.4 percent to 48,000 won, maintains buy rating

KB Securities (Jeff Kim)

  • “There’s a good chance the trend of deteriorating conditions for chip supply-and-demand will continue into the first half coupled with seasonal weakness,” according to a note on Jan. 8
  • “With uncertainty over chip earnings growing for the first half, there’s a possibility for the company to see quarterly operating profit dropping below the 10 trillion won threshold.”
  • Sluggish stock performance will be “inevitable” as instability in earnings will persist for a while
  • Earnings expected to improve in the second half when demand for DRAM starts to recover and on sales of flexible displays used in smartphones

Citi (Peter Lee)

  • Samsung’s “memory strategy for 2019, including DRAM and NAND capex plans will be the most important thing to look out for in terms of ascertaining the possibility of earnings improvement” in the second half, according to a note on Jan. 8
  • “We see Samsung as a long-term beneficiary of the oncoming 5G era, driven by its 5G equipment and smartphone in 2020.”
  • Despite concerns of the chip down-cycle, “we believe Samsung will sustain product and technology leadership” in 3D NAND

BNK Securities (Park Sung-soon)

  • “The results were a bit worse than expected but it’s not as if we were expecting good results in the first place.”
  • “There was a bout of estimate downgrades by brokerages in December and the stock price had slumped.”
  • “The most important thing from here is for the pace of decline in chip prices to slow, which I expect will happen in the second quarter.”

©2019 Bloomberg L.P.