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Seoul, South Korea – Samsung Electronics, the South Korean chip magnate, anticipates a dramatic 78% decline in its third-quarter operating profit, based on the latest guidance released. Despite this gloomy projection, its shares have experienced a significant uptick.
Key Financial Highlights
- Revenue Forecast: Samsung expects revenue of roughly 67 trillion South Korean won ($50.02 billion) for the third quarter.
- Profit Comparison: This anticipated revenue pales in comparison to the figures from a year ago, which showcased 76.78 trillion won in sales and an impressive operating profit of 10.85 trillion won.
- Quarterly Increase: On examining the figures sequentially, the third-quarter guidance shows an 11.5% upswing from the preceding quarter’s revenue of 60.01 trillion won. Additionally, the operating profit is set to exceed threefold the prior 670 billion won.
Beating the Analysts’ Expectations
Interestingly, Samsung’s operating profit guidance surpassed the predictions of market analysts. Analysts surveyed by LSEG (formerly known as Refinitiv) had forecasted an operating profit of 2.3 trillion won for the September quarter, marking a 78.7% year-on-year reduction. Revenue predictions were at 67.8 trillion won, indicating an 11.6% decline.
Global Stature
Samsung’s prominence on the global stage cannot be understated. It holds the crown as the world’s preeminent memory chip manufacturer, supplying chips for many devices, from laptops to servers. Samsung reigns supreme as the global leader in the fiercely competitive smartphone domain.
Market Response
The company’s shares witnessed a remarkable 3.16% surge on Wednesday, making it the top gainer on the South Korean Kospi. This drove the index to spearhead gains across Asia.
An Expert’s Take
SK Kim, the executive director at Daiwa Securities, in a conversation with CNBC’s “Squawk Box Asia”, shed light on the company’s future. He envisions Samsung experiencing a notable “price recovery” commencing from Q2 2024. According to Kim, Samsung’s strategy to curtail production is a calculated move to “change the situation” amid a subdued demand scenario.
Geopolitical Tailwinds
Kim highlighted a recent pivotal development on the geopolitical stage. Both Samsung and its competitor, SK Hynix, have been greenlit to export U.S. semiconductor manufacturing equipment to their factories in China indefinitely without necessitating separate U.S. clearances. While some constraints persist, Kim posits this will pave the way for both companies to bolster their production capacities, potentially extending till 2025.
Is Samsung’s Dominance in the Semiconductor Market Waning?
Following its most dismal quarterly performance since 2009, Samsung’s streak of financial setbacks continues, signaling potential cracks in its stronghold on the semiconductor market.
A Series of Setbacks
- Continued Losses: The tech behemoth from South Korea reported a staggering 4.36 trillion won loss in its semiconductor business for Q2. By the year’s midpoint, projections indicated that Samsung Electronics’ semiconductor arm could be heading towards a jaw-dropping annual loss exceeding 10 trillion won.
- Memory Chip Market Fluctuations: Industry pundits believe that the pricing for memory chips likely hit rock bottom in Q3, with certain categories showing signs of revival. As per the preliminary figures from Samsung, the global leader in memory chip manufacturing registered an operating profit of 2.4 trillion won (US$1.79 billion) between July and September, attributed to a 13% dip in sales. While these numbers are somewhat of an improvement from the staggering 95% YoY nosedive in the prior quarter, they still paint a bleak picture, especially when considering the magnitude of the Q2 losses.
Potential Rays of Hope
A CNBC report sheds light on potential avenues of growth for Samsung in the upcoming September quarter:
- Display Division Upsurge: Samsung’s display division might witness a spike in sales, riding on the coattails of Apple’s iPhone 15 series launch. Notably, Samsung is the key display supplier for this flagship Apple product.
- High-End Smartphone Margin Boost: The smartphone division of Samsung could see an uptick in its profit margins. This potential surge is primarily linked to the release of their premium foldable phones in July.
Global Smartphone Market in Doldrums
The global smartphone industry has been grappling with stagnation over the past two years, with H1 2023 witnessing one of the sharpest shipment declines in recent memory. Industry stalwarts like Apple and Samsung haven’t been spared, with both recording decreasing shipment numbers. For Samsung, the decline is even more pronounced.
According to figures from CasinosEnLigne.com, Samsung managed to ship 114 million smartphones in the first half of this year, marking a significant 16% decline from the 136 million units shipped during the same period the previous year. As per projections from the International Data Corporation’s Worldwide Quarterly Mobile Phone Tracker, the global smartphone shipment landscape is set for a 3.2% decline in 2023.
Halal Stock Screening of Samsung Electronics
Stock Overview
Samsung is a South Korean multinational conglomerate with a vast array of businesses spanning various industries. Founded in 1938 by Lee Byung-chul as a trading company, it has since diversified into areas such as food processing, textiles, insurance, securities, and retail. However, in the late 20th and early 21st centuries, Samsung became most well-known for its forays into electronics.
Samsung’s Business Landscape
Samsung Electronics Co., Ltd. engages in the manufacturing and selling of electronics and computer peripherals. The company is headquartered in Suwon, Gyeonggi-Do. The firm operates its business through four segments. First, the Information Technology and Mobile Communications (IM) segment manufactures computers, handheld phones (HHPs), network systems, digital cameras, and others.
Second, the Device Solutions (DS) segment provides semiconductor and display parts, including dynamic random access memories (DRAMs), flashes, thin film transistor-liquid crystal displays (TFT-LCDs), and others. Third, the Consumer Electronics (CE) segment manufactures color televisions (CTVs), monitors, printers, air conditioners, refrigerators, laundry machines, and others.
Fourth, the Harman segment manufactures head units, infotainment, telematics, and speakers. The firm distributes its products within the domestic market and to overseas markets.
Shariah Compliance Assessment
Following the AAOIFI standards, three primary benchmarks must be met in assessing whether Samsung’s stock adheres to Shariah standards.
First and foremost, the nature of the company’s business operations must be scrutinized. For Samsung, activities that don’t align with Shariah principles contribute approximately 3.06% of its total revenue. This figure sits well below the allowable limit of 5%.
The next factor to consider is the proportion of the company’s interest-bearing debt to its market capitalization. In the case of Samsung, this particular debt constitutes 4.82% of its overall market valuation, fitting snugly within the standard 30% margin.
However, Samsung falls short when analyzing the third criterion, which concerns the percentage of interest-earning securities against the company’s market capitalization. These securities comprise 36.58% of its market cap, surpassing the stipulated 30% limit.
Weighing all these elements, Samsung fails to fully align with the requisite halal screening benchmarks.
Consequently, Muslim investors are advised to avoid investing in such a stock.
To read more about Islamic finance-related topics, please click here and visit our academy.
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Disclaimer: Important information
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