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Samsung stock fell on Tuesday morning after the tech giant posted earnings guidance for the three months that ended in June. Operating profit likely rose almost 23% from a year ago.
Samsung Electronics Co Ltd (KRX: 005930) stock declined by around 3% on Tuesday after the tech giant posted its earnings guidance for the quarter that ended in June. The company stated in its official announcement that the operating profit inclined approximately 23% to 8.1 trillion Korean won (around $6.8 billion) from a year ago, that beat the 6.4 trillion won number that analysts predicted through Refinitiv SmartEstimate. Consolidated sales are said to be fallen more than 7% on-year to 52 trillion won.
The company however didn’t say how each unit performed in Tuesday’s guidance but has abated a one-off gain in the display business, which has a tech giant Apple Inc (NASDAQ: AAPL) as its client as well.
Samsung stock initially rose more than 1% before erasing gains to trade down 2.91% as of 121:13 pm CET.
Mark Newman, managing director and senior analyst at Bernstein stated:
“The last few days Samsung’s been doing quite well as more and more expectations were that the numbers were going to be pretty good.”
He also added that when the guidance was released, it turned out a “large reason” for this result was the one-off gain in the display business — specifically an already mentioned payment from Apple, which is “making up for them not buying enough displays last year,” Newman explained.
Sanjeev Rana, a senior analyst at CLSA, commented:
“Samsung’s second-quarter results were very strong, driven by the strength in its smartphones and consumer electronics business as well as the expected strength in the memory unit.”
Also, memory components that are used in data centers and in smartphones are the main reason for Samsung’s profit.
Strong Expectations for the Next Quarter
Rana also added he expected another strong quarter for the South Korean company in the three months that end in September, driven by higher overall memory-related earning and the biggest demand when it comes to smartphone shipments in the second half of the year. Samsung’s display unit is also likely to utilize supplying parts to Apple for the iPhone 12.
Still, Rana says that there is slight short-term weakness in the memory market.
Rana was referring to the average selling prices of memory chips. He also said this correction in the price would be only temporary, maybe lasting for two quarters. Also, he said that there could be some deficiencies when it comes to demand-side in the close term. However, Rana adds he expects a recovery in 2021.
Bernstein’s Newman added that the memory business has energized plenty of recovery during the last few quarters for Samsung’s profits.
COVID-19 Lessened Demand
However, some data points, that are deliberated to be leading signs for memory prices, have started to decline during the last few months, he added. Newman also noted the reason behind the fall is a concern that data centers and cloud computing service givers may not spend as much buying new servers and memory chips for those servers in the second half of 2020.
Analysts have also said that memory chip demand was pushed by the COVID-19 outbreak, which forced millions of people to work from home and buy stuff online.
Full earnings numbers from Samsung will be released later this month.