Samsung Electronics' Stock Stalls Despite 'Surprise Earnings'... The Key Is Semiconductors

1Q Operating Profit 9.3 Trillion Won... Strong Performance Exceeding Consensus
Stock Price Still Weak... Due to Sluggish Semiconductor Division Results

[Asia Economy Reporter Minwoo Lee] Samsung Electronics' stock price remains sluggish despite surprising earnings.

As of 11:26 AM on the 8th, Samsung Electronics' stock price stood at 84,700 KRW, down 1.05% compared to the previous day. Following a 0.47% decline the day before, the stock has fallen for two consecutive days. Despite posting 'surprising earnings' in the first quarter of this year, the stock price shows a lackluster performance.

On the previous day, Samsung Electronics announced consolidated sales of 65 trillion KRW and operating profit of 9.3 trillion KRW for the first quarter. Compared to the same period last year, sales increased by 17.48% and operating profit by 44.19%. Compared to the previous quarter, sales and operating profit rose by 5.61% and 2.76%, respectively. The operating profit exceeded market consensus estimates of 8.9 trillion KRW by about 400 billion KRW, marking a 'surprising earnings' report.

Nevertheless, the sluggish stock price is attributed to somewhat weak performance in the semiconductor division, Samsung's core business area. The semiconductor division's operating profit is estimated at around 3.475 trillion KRW, down approximately 12.9% from the first quarter of last year and about 9.8% from the previous quarter. Hyunwoo Doh, a researcher at NH Investment & Securities, explained, "Despite a rebound in DRAM prices, increased costs related to investments in the Pyeongtaek 2 plant and Xi'an 2 plant in China, along with power outages caused by an unusual cold wave in the U.S. that halted the Austin, Texas plant, negatively impacted foundry losses and overall earnings." Ultimately, this surprising earnings report was driven by the smartphone and home appliance sectors, fueled by rebound consumption following COVID-19.

However, as the semiconductor industry is expected to enter a full-fledged 'super cycle' starting in the second quarter, there are forecasts that both earnings and stock prices will rebound. Minseong Hwang, a researcher at Samsung Securities, stated, "Mobile demand remains strong, especially among Chinese companies, and PC demand continues to grow robustly, supported by online needs such as remote work and online classes since last year. Although server DRAM orders have not significantly increased in the first half, orders from major clients preparing to adopt next-generation server processors are expected to recover in the second half alongside economic improvements."