The Samsung logo. Photo: AFP / Beata Zawrzel / NurPhoto

SEOUL – Electronics colossus Samsung continued the bullish streak it has maintained throughout the Covid era, registering its highest-ever quarterly earnings in the third quarter of 2021 and its second-highest ever operating profit.

The South Korean flagship enjoyed consolidated revenues of 73.98 trillion won ($63 billion), a 10% rise from the same quarter in 2020, the previous record high, according to a disclosure posted on Samsung’s corporate site on Thursday. Operating profit increased 26% from the previous quarter to 15.82 trillion won.

Yet, the company’s stock price has been sliding since January. On January 6, the stock price hit a yearly high of 90,000 won, and has been on a downward trend since, hitting an annual low of 68,800 won on October 13 before rising to close at 70,700 won Thursday.

There are multiple reasons for the divergence between results and share price, analysts say.

One is weakening prices for memory chips, Samsung’s key product, which are not suffering the shortages affecting the rest of the sector. There are local issues, too.

One is an appetite for new-economy stocks among local investors. A second is the massive share sell-off required by Samsung’s Lee family. The Lees must amass cash to pay $10 billion in inheritance taxes, following the passing of the company’s second-generation head last year, adding a diluting effect.

Good news dominates

Samsung is a nose-to-tail electronics player that produces everything from components, notably semiconductors and displays, to devices and appliances such as phones and TVs. In scale terms, it is the world’s leading supplier of memory chips and smartphones.

Due to the company’s size, and the breadth of its product portfolio, its quarterly results provide a snap overview of the health or ills of the global electronics sector.

A woman walking past advertisements for the Samsung Galaxy S21 smartphone at an underground shopping area in Seoul. Photo: AFP / Jung Yeon-je

In its key area of business, memory chips, the company cited “favorable market conditions,” while the foundry and display divisions “achieved robust sales.”

Driving the good news for the memory area was strong fundamental demand for servers stemming from increased investments from technology companies, Samsung said. Advanced system-on-chips will see continued growth due to expected increases in mobile phones planned for 2022.

There has also been rising demand for memory due to end-user purchases. PC sales have been strong “due to changes, such as workplaces opting for hybrid work patterns,” Samsung said.

In non-memory, Samsung is seeking to boost its global number-two position in foundry – the manufacturing of bespoke, high-end system chips – behind Taiwan-based global industry leader TSMC.

The foundry business saw record revenue for the quarter “as supply of key advanced process products increased,” Samsung said. The company is also expanding its revenue base by winning new orders for advanced processes, it said.

Mobile saw a “sequential improvement in earnings” thanks to “new products by major manufacturers and the base effect of the previous quarter.” Samsung released its own range of new, foldable models and low to mid-range smartphones, and saw further growth in tablets and wearables.

Samsung’s networks business expanded its global presence in markets including North America and Japan, and “continued to grow 5G network installations in the domestic market.”

Even so, not all divisions prospered. Sales of TVs and appliances suffered due to a “significant rise in material and logistics costs.”

The family has to pay about $10 billion after the death of second-generation Samsung head Lee Keun-hee in 2020. Much of their wealth is in Samsung shares. Photo: AFP

And Samsung admitted that its Q3 results benefited from the strength of other currencies, notably the US dollar, against the Korean won, adding approximately 800 billion won in operating profits.

Mixed picture for 2022

Looking to 2022, Samsung expects server and PC demand to continue their robust trends, thanks to demand for “high-capacity products that are following “new CPU adoption and continued growth of enterprise IT investments.”

In foundry, the company plans to improve earnings significantly by expanding supply of advanced processes, increasing sales to global customers, and normalizing prices.

In mobile, the company expects shipment growth and the high-capacity trend to continue as new, low-mid-range 5G models and new design trends add froth to the market.

And in the display area, demand for advanced OLED panels is expected to increase due to the “higher penetration of 5G smartphones.” 

Still, not all is rosy.

Looking ahead, Samsung warned that potential hiccups in supply of memory chip components “may need to be monitored.” Component supply issues also hang over the display sector amid global logistic uncertainties.

Moreover, a combination of macro uncertainties as well as the outcome of “living with Covid-19” policies and rising vaccination rates are bedeviling predictions.

Why the stock fall?

While some suggest that Samsung is a perennially undervalued company, multiple factors are behind the company’s downward price trend.

One issue is the semiconductor supercycle.

The market for memory chips is highly cyclical.. Photo: iStock

“If you look at past cycles, this is a cyclical stock and memory is highly cyclical,” said Paul Choi, head of research at securities firm CLSA. “The share prices of Samsung Electronics and [local memory competitor] SK hynix tend to lead the actual earnings and DRAM cycles, so when the earnings are good and the DRAM price is strong it is favorable, but the market price in the good times will not last.”

A local analyst who spoke on condition of anonymity, as he did not have permission to speak to media, said, “The pricing of DRAMs has declined. There is a shortage of other components and other semiconductors, but not in memory, so DRAM prices have underperformed.”

He expected this discount to continue into early 2022.

Another negative factor, Choi said, was earnings expectations, which since the summer have outpaced actual earnings.

More specifically, local market issues have also had an impact.

“Local investors are looking at other stocks and there have been a lot of IPOs and there is more interest in new stocks such as gaming and Kakao Bank,” said the local analyst. “Local retail investors and institutions have been converting Samsung stock to cash to buy other stocks.”

Yet another issue weighing down the stock is the massive inheritance tax that needs to be paid by the third generation of Samsung’s founding family, the Lees, the analyst said.

Following the death of second-generation Samsung head Lee Keun-hee in 2020, the family has to pay approximately $10 billion. Much of their wealth lies, naturally, in Samsung shares.