WEBVTT - Peter Elstrom on Samsung (Audio)

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<v Speaker 1>Let's take a closer look here at samsung third quarter

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<v Speaker 1>profit missed analysts estimates. And joining us to discuss the

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<v Speaker 1>earnings is Peter Elstrom, Bloomberg Executive editor for Asia Technology.

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<v Speaker 1>So operating profit for the chip segment almost cut in half,

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<v Speaker 1>Yet Samsung is not cutting back on on capex. Uh.

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<v Speaker 1>We saw that from s k Heinis yesterday for next year.

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<v Speaker 1>But as one of our colleagues said, Samsung has deeper

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<v Speaker 1>pockets than most. Your thoughts on the earnings report, Peter, Uh, Yeah, Well,

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<v Speaker 1>these have been rough days for the semiconductor industry, in

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<v Speaker 1>particular in the technology industry more broadly. We knew that

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<v Speaker 1>there were going to be some weak results here. This

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<v Speaker 1>had been pretty well foreshadowed by Henis as you mentioned,

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<v Speaker 1>and Micron even before that. They've been pulling back on

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<v Speaker 1>their expenditures. Heinis yesterday reported weak earnings and said they're

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<v Speaker 1>seeing an unprecedented downturn and demand. So expectations were pretty

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<v Speaker 1>low for Samsung. As you mentioned, UM earnings are down sharply.

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<v Speaker 1>They did misend estimates. That was largely driven by the

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<v Speaker 1>chips business as much as Samsung UM. Uh. Samsung really

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<v Speaker 1>makes its money from the chips business, even though it's

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<v Speaker 1>it may be best known for its smartphones, but chips

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<v Speaker 1>really make the difference in terms of profit or not profit.

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<v Speaker 1>And as you mentioned, the difference here is that Samsung

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<v Speaker 1>is saying it is going to keep spending UM on

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<v Speaker 1>factories and new fabs to make more chips UM because

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<v Speaker 1>it sees opportunities ahead. That's both in the memory business

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<v Speaker 1>and it's also pushing into UM the foundry business, which

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<v Speaker 1>is making chips for other people. Always Taiwan Semiconductor does.

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<v Speaker 1>In the memory business, it is expanding in a few

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<v Speaker 1>different areas, including into the US. So it's expanding very

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<v Speaker 1>aggressively at this point, which is pretty contrary to what

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<v Speaker 1>its peers are doing. Yes, Samsung a major producer of

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<v Speaker 1>the whales chips, obviously ducing more chips into a market

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<v Speaker 1>that admits has already got a glass. Most the impact

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<v Speaker 1>on the broader market gonna be with this. Yeah, there

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<v Speaker 1>are there's some parallels to the oil industry, I think

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<v Speaker 1>in OPEC countries, where some company some countries continue to

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<v Speaker 1>produce very aggressively because they want the revenue. Uh, Samsung

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<v Speaker 1>is acting aggressively here. They're investing UM even though prices

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<v Speaker 1>are fallen pretty sharply in the memory chip market. They're

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<v Speaker 1>investing aggressively. They see opportunities here. They're expanding geographically also

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<v Speaker 1>um into a few different markets, and they do want

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<v Speaker 1>to become a bigger, more competitive player in logic chips,

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<v Speaker 1>which are microprocessors. As they build up this foundary business,

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<v Speaker 1>they want to compete with Taiwan Semiconductor, which is now

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<v Speaker 1>the most valuable chip company in the world and has

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<v Speaker 1>built a very very strong business as a foundry for

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<v Speaker 1>other companies. So we've seen these new US government rules

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<v Speaker 1>on exports to China, particularly having to do with very

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<v Speaker 1>high level chips for AI and such um. I think

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<v Speaker 1>a lot of people are curious what Samsung is saying

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<v Speaker 1>about these new rules. Have we heard anything on that yet? Yeah,

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<v Speaker 1>that is the big question for the chip industry over

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<v Speaker 1>the past two to three weeks. That's really the only

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<v Speaker 1>thing that everybody is talking about. What are these US

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<v Speaker 1>export rules mean for the industry broadly and especially for

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<v Speaker 1>doing business in China. Uh. Samsung, of course sits in

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<v Speaker 1>a quite challenging spot in South Korea. It has many

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<v Speaker 1>factories that are It also has a fab in mainland China,

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<v Speaker 1>UM and it it's it's uh, it's um. The Korean

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<v Speaker 1>government has very close ties to the US. Also, the

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<v Speaker 1>conference call hasn't started for Samsung yet, so they haven't

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<v Speaker 1>gone into details on how those chip export rules are

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<v Speaker 1>going to affect them, but they have been able to

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<v Speaker 1>secure a one year exemption so that they can You

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<v Speaker 1>need to ship equipment and supplies into China to uh

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<v Speaker 1>supply that fab that they've got in China so they

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<v Speaker 1>can continue to produce memory chips at that facility there. Yeah,

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<v Speaker 1>that conference called you to get underwig in about five minutes.

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<v Speaker 1>Of Blue subscribers, we'll be able to follow the details

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<v Speaker 1>on our blog top Live Go. But talk to us

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<v Speaker 1>about smartphones as well. We have had some weak growth

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<v Speaker 1>in that division. The market doesn't seem too troubled though. Yeah,

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<v Speaker 1>it's interesting. Uh. Samsung is probably better known for its

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<v Speaker 1>smartphones than its chips because that is a consumer facing business.

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<v Speaker 1>It says that business was pretty strong, which is a

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<v Speaker 1>little surprising. The overall smartphone market is falling this year. Um.

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<v Speaker 1>There has been some weakness across the board. Even Apple

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<v Speaker 1>has shown some signs of weaknesses and they and they

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<v Speaker 1>sell at the very high end of the market. Samsung

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<v Speaker 1>has sort of pushed the envelope with their flip phones

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<v Speaker 1>and their foldable phones. Um they say that demand has

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<v Speaker 1>been relatively strong and they're optimistic about that business going forward.

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<v Speaker 1>Is there a glut in that business at the moment, Well,

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<v Speaker 1>the real glut is in the chips business. As we

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<v Speaker 1>talked about. That's challenging for people because during the COVID

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<v Speaker 1>pandemic there were chronic shortages of chips that led customers

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<v Speaker 1>to overorder because they were so anxious to get chips

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<v Speaker 1>that they needed into their facilities. And now all the

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<v Speaker 1>chip makers are really saying that inventories are a problem.

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<v Speaker 1>They've been piling up and that means that customers are

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<v Speaker 1>going to use their inventories before they start buying new

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<v Speaker 1>chips from Samsung orhian X or Micron or the other companies.

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<v Speaker 1>In terms of smartphones, it's a it's a bit less

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<v Speaker 1>of an issue. The problem with smartphones is that they

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<v Speaker 1>become obsolete a lot more quickly. That's a business that's

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<v Speaker 1>very um that has to be very very timely. Uh

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<v Speaker 1>So Samsung is is facing some uncertainties. They're all set.

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<v Speaker 1>We've seen a very weak one over the past few

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<v Speaker 1>quarters as well. How's that altering out perspective on these results. Well,

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<v Speaker 1>they say that the strong dollar did have an effect.

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<v Speaker 1>The strong dollar of the weekend did have an effect

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<v Speaker 1>on their business. Largely, Samsung benefits because they are selling

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<v Speaker 1>much of their products abroad and bringing that revenue back

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<v Speaker 1>in either dollars or other currencies. So the week young

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<v Speaker 1>week one has been a little bit of a tailin

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<v Speaker 1>for them so far. You know, looking at what was

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<v Speaker 1>released and and and put out to the exchange, what

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<v Speaker 1>was the most surprising aspect of the earnings for you? Well, um,

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<v Speaker 1>I think the downturn in chips profit was not a surprise.

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<v Speaker 1>I think probably the biggest thing is Samsung's determination to

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<v Speaker 1>continue invest in ing U to put money into capital spending,

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<v Speaker 1>to be able to grow their market share of the

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<v Speaker 1>business memory chips of course, where they've been very very competitive,

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<v Speaker 1>that the biggest in the market as they compete against

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<v Speaker 1>Heinis and Micron, but more specifically in the foundry business.

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<v Speaker 1>They're showing the kind of determination that has made them successful.

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<v Speaker 1>This is not a one quarter question or a one

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<v Speaker 1>year question. It's like, Okay, Peter, we gotta go excellent stuff.

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<v Speaker 1>Thank you, Peter Elstrom, Bloomberg Executive editor for Asia Technology.

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<v Speaker 1>This is Bloomberg