Market Cheers Gasan Decision... "Samsung Electronics, Buy More Now?"

Samsung Electronics Q1 Earnings Shock but Stock Price Surges 4%
Focus on Production Cut Decision... Expecting Full-Scale Stock Rally in Second Half

Despite Samsung Electronics recording an 'earnings shock' in the first quarter, the market appears to be cheering the decision to cut production. Experts analyze that the investment appeal has increased as a shift in Samsung Electronics' supply strategy was crucial for a stock price rebound.

[Image source=Yonhap News]

As of 12:45 PM on the 7th, Samsung Electronics' stock price was trading at 64,800 KRW, up 4.01% from the previous trading day. The company's stock price surged to 65,200 KRW during the day. Despite posting results below market expectations for the first quarter, investors focused on Samsung Electronics' decision to cut production.

On the day, the company announced an operating profit of 600 billion KRW for the first quarter. This represents a decrease of about 96% compared to the same period last year (14 trillion KRW). It is the first time since the first quarter of 2009 that operating profit has fallen below the 1 trillion KRW mark. The market had expected operating profit in the 1 trillion KRW range, reflecting the semiconductor industry's downturn, but the company failed to meet even that. The average selling price of DRAM fell by 31%, and the average selling price of NAND also dropped by 30%.

Samsung Electronics' decision to cut production appears to be due to sluggish shipments caused by weakening semiconductor demand and a larger-than-expected price decline. Until now, Samsung Electronics had taken a conservative stance on production cuts compared to other memory semiconductor companies. At the fourth-quarter earnings announcement last year, the company explicitly stated that there would be 'no artificial production cuts.' However, as the industry worsened and major memory semiconductor companies such as SK Hynix and Micron began aggressive production cuts to reduce losses, Samsung Electronics is also analyzed to have decided to cut production. Lee Seung-woo, a researcher at Eugene Investment & Securities, said, "Inventory at memory companies is still increasing, and shipments are not keeping up with production, but there are signals that inventory in distribution channels is partially decreasing," adding, "News of production cuts by memory companies can accelerate the rate at which inventory decreases."

Foreign investors have already increased their expectations for the production cut decision and have been concentrating their purchases of Samsung Electronics shares since last month. Since the 1st of last month, foreign investors have bought about 1.7 trillion KRW worth of Samsung Electronics stock. On this day as well, concentrated buying by foreigners is taking place through buying channels such as JP Morgan, Morgan Stanley, and UBS. The foreign ownership ratio also increased by 1.42 percentage points from 49.67% at the beginning of the year to 51.1%.

Naver screen capture

Experts say that the stock price could show an upward trend due to the memory production cut decision. Although the stock price has risen more than 17% compared to the beginning of the year, there is still room for further gains. Securities firms had already raised their target prices since the end of last month. IBK Investment & Securities raised the target price by 14% from 70,000 KRW to 80,000 KRW, SK Securities set it at 80,000 KRW, NH Investment & Securities at 79,000 KRW, and Kiwoom Securities at 78,000 KRW. This is based on the analysis that the announcement to reduce memory production will have a positive effect on supply and demand. Lee Eun-taek, a researcher at KB Securities, said, "Samsung Electronics showed a stock price increase after announcing its worst-ever earnings," adding, "Although a period of exploring direction will follow, a full-fledged rally is expected once the economy rebounds." He further added, "This period is expected to be from the second half of this year to early next year."

However, as the decline in DRAM prices continues, Samsung Electronics is expected to post poor results in the second quarter as well. Samsung Electronics' expected operating profit for the second quarter is 835 billion KRW, with sales of 63.8214 trillion KRW. A performance rebound is expected to occur from the second half of the year. Do Hyun-woo, a researcher at NH Investment & Securities, explained, "From March, some set companies have started ordering parts in anticipation of improved smartphone demand, expanded data center investments, and increased PC sales, so a performance rebound is expected from the second half of the year."

This content was produced with the assistance of AI translation services.