Why did Samsung’s profit rise nearly ninefold, yet shares fell?
Samsung Electronics Co. announced a preliminary operating profit of 107,4 trillion won ($80,1 bn) on revenue of 195 trillion won ($145,5 bn) for the third quarter. Bloomberg reports these figures as the company’s preliminary estimates. The almost ninefold increase in profit was driven by a surge in demand for components needed for infrastructure for artificial intelligence (AI).
Despite the impressive growth, both metrics came in below analysts’ forecasts, triggering a 2,1 percent drop in the shares. The market reacts sharply to deviations from expectations, so even record numbers do not guarantee a positive market response if they miss the consensus.
Which divisions generated profit, and where were the problems?
The semiconductor division was the main source of income. Its expected profit reached 110 trillion won ($82 bn). The AI boom caused a shortage of high-bandwidth memory (HBM) and flash memory, which pushed up demand and allowed Samsung to stay ahead of the previous industry downturn.
At the same time, the consumer electronics segment recorded losses, softening the overall picture. The market also saw rising prices for DRAM memory. According to sources, equipment suppliers and component manufacturers, including AMD, are calling for a rapid ramp-up of production to meet demand.
How might this affect the average investor, and when is the detailed report due?
For a private investor’s portfolio, the market reversal after quarterly announcements means increased volatility. The 2,1 percent fall in the shares shows that the market reacts more to misses relative to expectations than to the absolute level of profit. The cyclical nature of the chip market remains a risk for anyone investing in semiconductor manufacturers’ stocks.
Samsung will publish its full financial report on 29 October. If you are unfamiliar with some financial terms, be sure to note the definitions of yield and bonds. Yield is the percentage return on an investment; a bond is a debt instrument that pays fixed or floating income; domestic government bonds (OVDP) are bonds issued by the government. These instruments can be an alternative to equities during periods of heightened volatility.
