Samsung’s exhibition booth features the slogan “A New Era of Mobile Agentic AI” from South Korean company Samsung Electronics.
Jeanne Cros | Nuphoto | Getty Images
Shares of Samsung Electronics fell as concerns over spending and demand overshadowed record second-quarter profits.
Shares closed nearly 7 percent lower on Tuesday, even after reporting preliminary operating profit of 89.4 trillion won ($58.4 billion) for the second quarter, down from 57.2 trillion won in the prior period.
On a year-over-year basis, operating profit for the quarter jumped more than 1,800%.
Revenue for the April-June period was 171 trillion won, up from 133.9 trillion won in the previous quarter. Compared to the same period a year earlier, sales more than doubled.
“The stock price was in a historic quarter for months, and once the numbers confirmed it was significant, but not much beyond what the market had already expected, there was little to reward anyone who stepped in,” said Zavier Wong, market analyst at eToro. “It feels more like confirmation, and confirmation is what people are selling on.”
It has been “slowed by concerns that spending on AI infrastructure cannot continue to grow at the rate that has driven up memory prices,” he said.
The results include one-time expenses deducted for provisions for employee bonuses. Earlier this year, Samsung agreed to remove the 1,000% bonus cap on base pay and devote 10.5% of its operating profit to bonuses, capitulating to a weeks-long union protest that demanded a fair share of the company’s profits.
“A lot of negative news has been piling up, so it seems like everyone wants a piece of these profits. The union wants it and the Korean government wants it,” Tom Kang, research director at Counterpoint Technology Market Research, told CNBC. Additionally, memory prices may have risen too high, fueling concerns about demand, he said.
“Our monthly price checks on consumer memory, mobile products and servers have all indicated that prices continue to rise,” he said, signaling that the price surge will continue at least through this quarter.
Samsung’s latest promise to build huge semiconductor manufacturing plants in the south of the country is also weighing on stocks, Kang said.
He noted that the location is far from the central part of Korea where traditional manufacturing plants are concentrated, and because it is “new ground,” Samsung will have to start from scratch to build the infrastructure, a setup that deviates from investors’ expectations. Likewise, the market considers it an unusual location that is generally not suitable for high-tech equipment, he added.
Samsung’s domestic peer SK Hynix’s upcoming ADR listing this week also played a role.
“It doesn’t help that SK Hynix’s ADR listing is coming the same week, drawing some of that rotation appetite elsewhere,” eToro’s Wong pointed out.