[Click eStock] "Samsung Electronics, Record-Level Supply Reduction... Short-Term Rebound Factor"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Shinhan Investment Corp. maintained its 'Buy' rating and target price of 70,000 KRW for Samsung Electronics on the 11th.

Samsung Electronics' preliminary results for the third quarter of this year showed sales of 76 trillion KRW and operating profit of 10.8 trillion KRW, down 1.6% and 23.4% respectively compared to the same period last year. The operating profit fell short of the market expectation of 11.9 trillion KRW, attributed to the sluggish performance of the memory division. This was due to DRAM and NAND prices and shipments falling further below previous forecasts.

While the decline in IT demand is at an unprecedented pace, the intensity of supply reduction is expected to be equally significant. The semiconductor upcycle, which lasted for about three years, caused the largest inventory burden in history. However, memory companies plan to boldly reduce supply by leveraging their monopolistic power. Micron announced in its earnings conference call that it will cut next year's capital expenditure by 50% and reduce operating rates by about 5% at the end of this year and early next year. Additionally, Kioxia announced plans to reduce NAND production by 30% starting in October. The response to supply reduction is also unprecedented.

Choi Do-yeon, a researcher at Shinhan Investment Corp., analyzed, "Looking at the previous down cycle, after the earnings peak, there were order cuts and earnings shocks, followed by a short-term stock price rebound. The key logic driving the short-term stock price rebound at that time was supply reduction. Supply reduction, a core variable unique to memory semiconductors, provides the rationale for memory stocks to outperform the KOSPI."

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