Projected earnings for Samsung Electronics and SK Hynix plummet

Figures for semiconductor industry return to pre-boom levels

With 10 days to go before the end of the first quarter, the projected earnings at Samsung Electronics and SK Hynix are way down. There are also some reasons to reconsider predictions that the semiconductor industry will have a poor showing in the first half of the year but do better in the second half.

Several South Korean financial analysis firms that released corporate reports on Mar. 19 sharply downgraded their forecast for the operating profits of Samsung Electronics and SK Hynix, which until recently had been projected to be above 8 trillion (US$7.08 billion) and 2 trillion won (US$1.77 billion), respectively, in the first quarter of the year. The projection adjustment was especially sharp for SK Hynix, a semiconductor firm.

Changes in forecast for Q1 operating profits of Samsung Electronics and SK Hynix

The projection for Q1 operating profits at SK Hynix has recently fallen to less than half of initial predictions, down to the 1 trillion won (US$885.1 million) range. The company’s Q1 earnings had been forecast to be around 2.5 trillion won (US$2.21 billion) in January and either 2 trillion won or below in February. SK Hynix’s operating profits in the first quarter of 2018 amounted to 4.37 trillion won (US$3.87 billion). A report published by Yuanta Securities on Tuesday predicted that SK Hynix would have 996 billion won (US$881.51 million) in Q1 operating profits.

“The vacuum in demand for semiconductor memory is more severe than expected. The NAND flash deficit will exceed 500 billion won [US$442.52 million],” said Lee Jae-yun, an analyst for Yuanta.

Projections for Samsung Electronics’ Q1 operating profits have been gradually falling as well. As recently as this past January, analysts were predicting that earnings would exceed 9 or even 10 trillion won (US$7.97-8.85 billion), but more recently, those predictions have dropped to between 6.5 and 6.7 trillion won (US$5.75-5.93 billion). The company posted 15.6 trillion won (US$13.81 billion) in operating profits in the first quarter of 2018.

Lee Seung-woo, an analyst with Eugene Investment and Securities, predicted that Samsung Electronics would report 6.7 trillion won (US$5.93 billion) in Q1 operating profits, with 4.3 trillion won (US$3.81 billion) of that derived from its semiconductor division. “The situation is even worse than our expectations, which were already pretty bad,” Lee said.

The sector’s slump is being aggravated by the convergence of several factors, namely a sharp drop in the price of semiconductor memory, sluggish smartphone sales and global IT firms’ postponement of investment in data centers. DRAM, a leading product in the sector, was selling for US$5.13 last month, a decline of 37% from its peak of US$8.19 in September 2018, while NAND flash sales plummeted 27% from a high of US$5.78 in August 2017 to US$4.22 last month. In effect, the semiconductor industry has returned to the levels that preceded its “super boom.”

“This can be seen as the normalization of semiconductor prices, which had surged so high that operating profits reached 50%,” one industry insider said.

While a weak first half and a strong second half of the year remains the prevailing forecast, predictions of a sharp drop in earnings in the first half are prompting cautious speculation about a prolonged slump in the industry. DRAMeXchange, a market research firm in the semiconductor industry, predicted that downward pressure on DRAM prices could continue until the third quarter. That prediction assumes take it might take a while longer for distributors to run through the inventories they’ve competed to acquire.

The deteriorating performance in the semiconductor industry also has a considerable effect on the South Korean economy, including its exports. Figures compiled by the Ministry of Trade, Industry and Energy reported US$39.56 billion worth of exports in February, down 11.1% from the same month in 2018. That was the third month in a row that exports had fallen.

By Choi Hyun-june, staff reporter

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