Samsung having Troubles: Low IT Devices Demand Surges

Highlights

  • Samsung and other prime players in the smartphone industry are reducing the purchase of the components due to the plummeting market.
  • The industry has been hit by the limited supply of components, and this has resulted in a capacity reduction in production and manufacturing.
  • Requirements for tech devices, especially smartphones, are diminishing due to macro factors.

The latest development in the tech industry has come to light, as it is already known that the market is facing issues because of the snail-paced demand for electronics devices and the pertaining issue with the supply of both raw materials and semiconductor components shortage.

This time, According to the reports from the media industry, requirements for tech devices, especially smartphones, are diminishing due to macro factors (the factors that make up the macro-environment are economic factors, demographic forces, technological factors, natural and physical forces, political and legal forces, and social and cultural forces) such as international interest rate hikes, Europe becoming a warzone, and China’s lockdowns due to the pandemic.

Samsung keeps and manages a Buy rating (a statement that the shares of a particular company are worth buying) on SEC.

Samsung experienced a lower TP from W87,000 to W78,000. A take-profit order (T/P) is a type of limit order that specifies the exact price at which to close out an open position for a profit.

The TP also faced a downward adjustment (Averaging down is a strategy in which investors buy more of an asset as its price falls) because of the trimming of estimated earnings in 2022E~2023F( A trimmed mean removes a small designated percentage of the largest and smallest values before calculating the average) and an assumption to hikes in Samsung’s risk-free rate(The risk-free rate of return is the interest rate an investor can expect to earn on an investment that carries zero risk) in line with increased interest rates.

Samsung and other prime players in the smartphone industry are reducing the purchase of the components due to the plummeting market to cut down losses and reduce the stock inventory. Samsung also reduced from 310 million to 280 million units which is nearly 10%, while its supplier informed it would go down up to 270 million earlier this month. And recently, this month, Samsung got stuck with 50 million smartphones in stock too. 

Additionally, Samsung’s smartphone sales are also anticipated to go down to 68 million units by a -9% q-q (quarter on quarter).

However, a feeble but steady surge in the semiconductor industry has been observed due to the pandemic giving rise to the health and education sector especially. This could result in the semiconductor industry rising and performing in early 2023 instead of mid-2022, as was anticipated.

As a result, in addition, DRAM supply growth will likely be limited to +17% in 2022 and +18% in 2023.

This could result in the following anticipated scenarios :

  • Samsung to the record sales of 2022 2ndQ with W74.9tn (-4% q-q) and OP of W14.1tn (flat q-q).
  • Shares of the class W are intended for private and institutional investors and are issued as capitalization shares wrt in tomorrow next or tom next.
  • Semiconductor Division -2022 Q2 OP is projected at W10.0tn (+18% q-q).OP Shares mean ordinary shares issued in the share capital of the Company from time to time.
  • SDC (display)- W0.8tn (-22% q-q).
  • MX/NW (phone division)- W2.5tn (-35% q-q). & VD/HA at W0.7tn (-15% q-q)

These figures will mostly be reflected in earnings at the MX division, i.e. Samsung’s mobile phone manufacturing business was renamed Samsung MX, which means Mobile Experience.

The industry has been hit by the limited supply of components, and this has resulted in a capacity reduction in production and manufacturing.

In the recent share price decline, the closed share price of Samsung on June 31 2022, was 69,600 KRW, on March 31, compared with 81,400 last year. Furthermore fell to 62,100 KRW as of June 13 2022.

Currently, SEC shares are trading at a 2022E P/E (price to earnings) of 8.0x and P/B (price to book)of 1.2x. This is the 10-year low for the firm’s P/B sits at 1.0x for this decade.

This year Samsung group ranked 22nd position from 15th last year, making it drop down 7 steps on the global market cap in comparison to last year’s position with a market value of $342 billion as of March, according to the PwC report.

Also, we saw Samsung and LG Again Scale Down The Production this month. It’s been a plummeting month in terms of growth for tech industries.

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