Samsung's Worst Quarterly Profit in 8 Years Drags Down Asia's Chipmakers

Semiconductor shares in Asia fell after South Korean chipmaker Samsung Electronics reported its biggest profit drop since the third quarter of 2014.

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Its fourth quarter operating profit fell to 4.31 trillion won ($3.4 billion) — a 69% drop from the same period a year ago. This is a significant decrease from the 13.87 trillion won it made in profit during the same quarter last year.

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Operating profit for the final three months of 2022 was the lowest since the quarter that ended in September 2014, when it recorded 4 trillion won. This is a significant decrease from the previous quarter, and indicates that the company is struggling to maintain its profitability. Smartphone shipments have declined sharply, reaching levels not seen since 2013. This marks the largest ever decline in global smartphone shipments. Chipmaker stocks in Asia saw losses after Samsung announced that it would continue to invest in capital expenditure in the upcoming year. Samsung spent a total of 47.9 trillion won on semiconductors in 2022.

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As global demand worsened, many people expected the company to cut back on spending. Samsung Electronics shares fell by 3.6% in Seoul's trading session on Tuesday. Rivals like SK Hynix also fell more than 2%, while Taiwan Semiconductor Manufacturing Company also fell 3.9% in Asia trade.

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Tokyo Electron, Renesas Electronics, and Advantest all fell today, by 1.14%, 0.97%, and 1.7% respectively. Lasertec fared even worse, falling by 2.07%.
"I don't think we can match the current mismatch in supply and demand without making some meaningful adjustments to production," SK Kim of Daiwa Capital Markets told CNBC's "Street Signs Asia."

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Last month, U.S. semiconductor maker Micron announced that it will cut its headcount by 10% in 2023 and reduce its capital expenditures. However, according to Kim, these cuts are not enough.

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Microsoft's recent focus on artificial intelligence has some analysts bullish on the stock, even after lackluster earnings. Mizuho predicts that Coinbase shares will be cut nearly in half as retail traders shun crypto. This is a significant change from the current situation, where Coinbase is one of the most popular exchanges among retail investors. If this trend continues, it could have a major impact on the crypto market. According to Kim, Samsung and other major memory makers are expected to cut production by at least 20% from the end of this quarter over the second quarter. This is something that was anticipated and is in line with expectations.

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Despite the worsening economic conditions, Samsung Electronics said it is still expecting demand to recover later on this year.
The company said that while macroeconomic uncertainties are expected to continue into 2023, it anticipates that demand will begin to recover in the second half of the year.

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The semiconductor industry is forecast to continue its strong growth in the coming years, driven by continued demand for advanced nodes and products.
JPMorgan Private Bank has said that the semiconductor industry provides an attractive entry point for investors, as chip stocks have seen steep declines in recent years. The bank believes that the semiconductor industry is a good place to invest, as it is expected to see strong growth in the coming years.

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According to strategists Jacob Manoukian and Jonathan Linden, the semiconductor industry may be nearing a cyclical bottom, based on factors such as price movements, earnings expectations, and price-to-earnings ratios. In a report released earlier this month, the strategists cited data from the World Semiconductor Trade Statistics in support of their claim.

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Semiconductors are a critical component in a wide range of electronic devices, from smartphones to electric vehicles. Despite recent challenges, we believe the semiconductor sector is poised for a rebound.

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Daniel Yoo of Yuanta Securities believes that now may be a good time to invest in chip stocks.
"I believe that now is a good time to invest, but I'm not sure if we'll see a significant turnaround in the second or third quarter," he said on CNBC's "Street Signs Asia."
"We expect to see continued strong growth in demand for data centers and other areas," said Yoo. "There is also a possibility that AI-related demand may increase this year."