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Samsung Electronics’ stock stages a rebound as outlook concerns ease

The possible release on parole of the conglomerate’s leader Jay Y. Lee could work as upward momentum, analysts say

By Aug 04, 2021 (Gmt+09:00)

Samsung's stock is staging a meaningful rebound.
Samsung's stock is staging a meaningful rebound.

Shares of Samsung Electronics Co. have risen above the psychologically important level as foreign and institutional investors returned amid easing concerns over the chip industry outlook.

The largest stock on South Korea’s main Kospi market is trading 2% higher at 83,000 won in Seoul late Wednesday after breaching the 80,000 won level for the first time since July 15 the previous day.

On Tuesday, foreign investors bought 626 billion won ($547 million) in shares of Samsung while institutions purchased 130.7 billion won worth. Retail investors sold a net 792.6 billion won in Samsung to book recent gains.

The stock has been depressed since the start of the year as foreigners and institutional investors dumped a combined 27 trillion won in Samsung year to date on the market view that the second-half outlook for the semiconductor industry may not be as strong as initially thought.

Weighed by heavy selling by the two main players, Samsung’s shares have fallen as much as 17% from a high of 91,000 won on Jan. 11, despite retail investors’ steady purchases on the belief that Korea’s No. 1 stock could rise above 100,000 won.

As the stock continues its slide, Samsung analysts slashed their target price for the tech giant, citing its lack of new growth drivers and unfavorable market conditions.

BEARISH OUTLOOK

The bearish outlook was strengthened by a gloomy forecast earlier this month by Taiwan-based market researcher TrendForce that the current uptrend in memory chip prices could end in the fourth quarter of this year on weakening demand amid a resurgence of the COVID-19 pandemic.

Earlier this month, the spot prices of DRAM chips for PCs fell 10% compared to their third-quarter contract prices as major PC server companies were found to keep their inventories at relatively high levels, according to TrendForce.

Samsung's chip foundry plant in Austin, Texas
Samsung's chip foundry plant in Austin, Texas

“Downside risks for the latter part of this year remain as chip demand may not be as strong as initially anticipated,” said HI Investment & Securities analyst Song Myung-seob.

Samsung’s shares largely moved in a boxed range in recent sessions despite the company’s strong second-quarter earnings.

Samsung, the world’s top maker of memory chips and smartphones, in late July posted a 54% on-year jump in second-quarter operating profit and a 20% rise in sales, boosted by its mainstay chip business.

The company also forecast better performance in coming quarters, although it warned of growing supply chain risks due to the resurgence of the pandemic.

Samsung’s second-quarter results showed it overtook Intel Corp. as the world’s top chipmaker by revenue.

Data showed Samsung racked up 22.74 trillion won ($19.7 billion) in semiconductor revenue in the three months to June, beating out Intel, which posted $19.6 billion in total revenue.

NEW MOMENTUM

Analysts said the recent rebound in Samsung’s share prices reflects a renewed view that concerns might have been exaggerated.

“Inventories at major server companies have risen indeed. However, chipmakers’ inventories remain at the lowest level since 2018,” said KB Securities analyst Kim Dong-won. “A sudden collapse of the supply-demand chain due to an oversupply won’t likely happen this time.”

Samsung leader Jay Y. Lee
Samsung leader Jay Y. Lee

Analysts said Samsung may need to show its vision for continued growth, including tangible M&A results, for its shares to move higher from the current level.

Industry officials said another potential factor that can provide a tailwind for Samsung’s stock is the release on parole of the conglomerate’s leader Jay Y. Lee as early as this month.

Support for his parole, both political and among the public, has grown amid talk that key strategic decisions are not being made at the top Korean tech company in the absence of its leader.

The expansion of Samsung’s Austin foundry plant and ramp-up of its Pyeongtaek factory could gain momentum once he’s out, according to industry officials.

Lee is currently behind bars, serving 18 months of his 30-month jail term over bribery and embezzlement conviction.

Write to Sung-Mi Shim at smshim@hankyung.com

In-Soo Nam edited this article.
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