'Earnings Shock' Becomes Reality… Semiconductor Slump Deals a Heavy Blow
Samsung Electronics recorded an 'earnings shock' in the second quarter of this year, significantly falling short of market expectations. As the semiconductor slump continues and the Biden administration signals potential tariffs, anxiety is rising.
Moreover, there is a looming risk of a management void as the Supreme Court ruling for Lee Jae-Yong, Vice Chairman of Samsung Electronics, is scheduled for the 17th.
On the 8th, Samsung Electronics announced that its operating profit for the second quarter was tentatively estimated at 4.6 trillion won. This represents a 55.9% decrease year-on-year and a 31.2% decrease compared to the previous quarter. The figure is also 23.4% lower than market expectations of 6.069 trillion won, leading to the characterization of the results as an 'earnings shock.' It is the first time in six quarters that operating profit has dropped below 5 trillion won.
Inventory Provisions & NAND Weakness… AI Chip Sanctions Also Adversely Affecting
The main culprit behind the poor performance was the semiconductor sector. Across both memory and non-memory segments, provisions for inventory assessment amounting to several hundred billion won were recorded, and export sanctions on advanced AI chips to China also took a toll.
In particular, the decline in NAND prices and losses in the foundry business resulted in semiconductor sector performance falling short of market expectations, despite hopes for a rebound in the industry.
Adding to the concern, President Trump has abruptly announced that he will impose a 25% tariff on all products from Korea starting August 1. He has also warned that tariffs could be increased further if Korea does not amend its trade barriers and policies.
Wall Street speculates that this tariff could be postponed once again; however, it is assessed that companies like Samsung Electronics, which are highly dependent on exports, are already experiencing significant psychological pressure.
Imminent Supreme Court Ruling for Lee Jae-Yong… Concerns Over Management Void
In the midst of this, the final Supreme Court ruling date for Lee Jae-Yong's charges of unfair merger and accounting fraud is approaching. The ruling date is set for the 17th.
Lee has been indicted for his involvement in fraudulent transactions, market manipulation, and accounting fraud during the merger process of Cheil Industries and Samsung C&T. Despite being acquitted in both the first and second trials, it cannot be ruled out that the Supreme Court could confirm a prison sentence.
If the Supreme Court overturns the ruling with a guilty intention, concerns are arising that a management void at Samsung Electronics, which leads the national GDP during a low-growth phase, could become a reality.
An industry insider stated, "In a phase where global supply chain restructuring and semiconductor competition are intensifying, if the chief decision-maker is tied down by judicial risks, it could lead to a national crisis."
Earnings, Stock Prices, and GDP in Concurrent Slump… Shareholder Anger
Samsung Electronics' stock price is reflecting these concerns directly. As of 1:45 PM on the 8th, Samsung Electronics' stock price was trading at 61,300 won, down 0.65% from the previous day.
Recovering to the peak of over 90,000 won in 2021, as well as the 80,000 won level recorded in 2024, seems distant. Even when the KOSPI surpassed 3,000, Samsung Electronics' stock price has yet to exceed the 70,000 won mark.
Among shareholders, voices of anger are growing, saying, "How can the stock price of Korea's representative company be like this?" "If Lee Jae-Yong is shaken, it will really be the end," and "The crisis facing Samsung Electronics is the crisis facing the Republic of Korea."
In reality, Samsung Electronics' performance has closely been linked to the Korean economy. In years like 2017 and 2021, when Samsung Electronics' operating profit surpassed 50 trillion won and recorded all-time high performance, the growth rates of Korea's GDP were relatively high at 3.2% and 4.1%, respectively.
On the other hand, like in 2019, when the sharp drop in memory prices adversely affected Samsung Electronics' performance, the GDP growth rate also fell to 2.0%, spreading shocks across manufacturing and exports. Experts warn, "The decline of Samsung Electronics is not just a problem for one company, but it can weaken the momentum of the national economy as a whole."
Expectations for Recovery in the Second Half… "Optimism Is Overly Ambitious"
Samsung Electronics is hoping for a rebound in the second half, considering the second quarter as the bottom. In fact, with the rise in DRAM prices and the seasonal effects of mobile and display, forecasts for improved performance are emerging. However, the accumulation of external unfavorable factors still renders the extent of that rebound uncertain.
Industry insiders believe that overcoming these adverse factors will be challenging if the combined effects of the earnings shock, tariff threats, and management risks continue.
On the Samsung Electronics shareholder bulletin, posts stating, "If Lee Jae-Yong is unstable, the Republic of Korea's economy will be at an end," and "Isn't it time to let him go?" are appearing one after another.
For this reason, the attention and ears of the business community and stock investors are directed towards July 17.
Image source: Photo = Insight, Lee Jae-Yong, Samsung Electronics / News1, Donald Trump, President of the United States / gettyimageskorea, unrelated stock images / gettyimagesbank
