Samsung Electronics on Thursday last week reported just enough earnings data to tease us about what might be heading our way. Second-quarter revenue and operating profit at the South Korean Goliath portend a tough second half for global technology hardware manufacturers.
Sales pipped estimates by a little, but that was mostly because analysts have been cutting their forecasts over the past two weeks in anticipation of a worsening market for Samsung’s chips, smartphones and other electronic devices.
The figure was likely boosted by a slide in the Korean won of almost 7 percent during the period. Crucially, operating profit missed by a wider margin than revenue beat. Samsung only provided a preliminary range for the data, and this analysis is based on the median of that information. A full breakdown of numbers by division is to come later this month.
What we do know so far, though, is that prices of its bread-and-butter products are weakening.
Although Samsung is best known for smartphones and recently grabbed headlines for claiming to be first to make semiconductors at the advanced 3-nanometer node (an announcement that was mostly a marketing ploy), a large swathe of its revenue and a bulk of its profit comes from making memory chips, notably DRAM which helps speed up a computer and Flash which stores data.
Because these components, which are used in most electronic devices, are a commodity product, any slowdown tends to impact both shipments and prices. There are already signs manufacturers are willing to sell for less just to move stock.
“Facing uncertain peak-season demand in 2H22, some DRAM suppliers have begun effectively expressing clear intentions to cut prices,” Taipei-based researcher TrendForce wrote this week. “This situation will cause 3Q22 DRAM pricing to drop from the previous 3% to 8% to nearly 10% quarter on quarter.”
Slowdowns in commodity products tend to have a multiplier effect. A 10 percent drop in prices coupled with a 10 percent fall in demand means a 19 percent drop in revenue (0.9 times 0.9 is 0.81). A 15 percent decline in both equates to a 44 percent hit on sales.
This means the bottom could fall out of the memorychip market very quickly.
Samsung’s announcement “may push analysts to cut forecasts for the firm’s 2022 operating profit by 4% to 6%,” Bloomberg Intelligence analyst Masahiro Wakasugi wrote after the announcement. “Its 3Q sequential profit growth may not be as strong as expected, due to weaker PC and smartphone demand caused by inflation.”
US rival Micron Technology sounded an early warning last week. While the world’s third-largest maker of DRAM posted revenue and operating profit for the quarter ended June 2 that was largely in line with estimates, its forecast for the coming three months was 20 percent lower than expectations. It now sees the PC and smartphone markets much weaker than previously thought.
Taiwan Semiconductor Manufacturing Co, which does not make many memory chips, but is the major player in processors that run smartphones, computers and servers, is also seeing signs of a slowdown amid reports that key clients have asked to cut or delay orders.
It was barely six months ago that the technology hardware sector looked quite immune to a global slowdown as streaming services and cloud computing continued to drive demand for chips and servers, while consumers remained eager to buy the latest gadgets. That picture is now fading fast and investors need to brace for more tough news to come.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
In an article published on this page on Tuesday, Kaohsiung-based journalist Julien Oeuillet wrote that “legions of people worldwide would care if a disaster occurred in South Korea or Japan, but the same people would not bat an eyelid if Taiwan disappeared.” That is quite a statement. We are constantly reading about the importance of Taiwan Semiconductor Manufacturing Co (TSMC), hailed in Taiwan as the nation’s “silicon shield” protecting it from hostile foreign forces such as the Chinese Communist Party (CCP), and so crucial to the global supply chain for semiconductors that its loss would cost the global economy US$1
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
Sasha B. Chhabra’s column (“Michelle Yeoh should no longer be welcome,” March 26, page 8) lamented an Instagram post by renowned actress Michelle Yeoh (楊紫瓊) about her recent visit to “Taipei, China.” It is Chhabra’s opinion that, in response to parroting Beijing’s propaganda about the status of Taiwan, Yeoh should be banned from entering this nation and her films cut off from funding by government-backed agencies, as well as disqualified from competing in the Golden Horse Awards. She and other celebrities, he wrote, must be made to understand “that there are consequences for their actions if they become political pawns of