Speaker 1: Let's take a closer look here at samsung third quarter
Speaker 1: profit missed analysts estimates. And joining us to discuss the
Speaker 1: earnings is Peter Elstrom, Bloomberg Executive editor for Asia Technology.
Speaker 1: So operating profit for the chip segment almost cut in half,
Speaker 1: Yet Samsung is not cutting back on on capex. Uh.
Speaker 1: We saw that from s k Heinis yesterday for next year.
Speaker 1: But as one of our colleagues said, Samsung has deeper
Speaker 1: pockets than most. Your thoughts on the earnings report, Peter, Uh, Yeah, Well,
Speaker 1: these have been rough days for the semiconductor industry, in
Speaker 1: particular in the technology industry more broadly. We knew that
Speaker 1: there were going to be some weak results here. This
Speaker 1: had been pretty well foreshadowed by Henis as you mentioned,
Speaker 1: and Micron even before that. They've been pulling back on
Speaker 1: their expenditures. Heinis yesterday reported weak earnings and said they're
Speaker 1: seeing an unprecedented downturn and demand. So expectations were pretty
Speaker 1: low for Samsung. As you mentioned, UM earnings are down sharply.
Speaker 1: They did misend estimates. That was largely driven by the
Speaker 1: chips business as much as Samsung UM. Uh. Samsung really
Speaker 1: makes its money from the chips business, even though it's
Speaker 1: it may be best known for its smartphones, but chips
Speaker 1: really make the difference in terms of profit or not profit.
Speaker 1: And as you mentioned, the difference here is that Samsung
Speaker 1: is saying it is going to keep spending UM on
Speaker 1: factories and new fabs to make more chips UM because
Speaker 1: it sees opportunities ahead. That's both in the memory business
Speaker 1: and it's also pushing into UM the foundry business, which
Speaker 1: is making chips for other people. Always Taiwan Semiconductor does.
Speaker 1: In the memory business, it is expanding in a few
Speaker 1: different areas, including into the US. So it's expanding very
Speaker 1: aggressively at this point, which is pretty contrary to what
Speaker 1: its peers are doing. Yes, Samsung a major producer of
Speaker 1: the whales chips, obviously ducing more chips into a market
Speaker 1: that admits has already got a glass. Most the impact
Speaker 1: on the broader market gonna be with this. Yeah, there
Speaker 1: are there's some parallels to the oil industry, I think
Speaker 1: in OPEC countries, where some company some countries continue to
Speaker 1: produce very aggressively because they want the revenue. Uh, Samsung
Speaker 1: is acting aggressively here. They're investing UM even though prices
Speaker 1: are fallen pretty sharply in the memory chip market. They're
Speaker 1: investing aggressively. They see opportunities here. They're expanding geographically also
Speaker 1: um into a few different markets, and they do want
Speaker 1: to become a bigger, more competitive player in logic chips,
Speaker 1: which are microprocessors. As they build up this foundary business,
Speaker 1: they want to compete with Taiwan Semiconductor, which is now
Speaker 1: the most valuable chip company in the world and has
Speaker 1: built a very very strong business as a foundry for
Speaker 1: other companies. So we've seen these new US government rules
Speaker 1: on exports to China, particularly having to do with very
Speaker 1: high level chips for AI and such um. I think
Speaker 1: a lot of people are curious what Samsung is saying
Speaker 1: about these new rules. Have we heard anything on that yet? Yeah,
Speaker 1: that is the big question for the chip industry over
Speaker 1: the past two to three weeks. That's really the only
Speaker 1: thing that everybody is talking about. What are these US
Speaker 1: export rules mean for the industry broadly and especially for
Speaker 1: doing business in China. Uh. Samsung, of course sits in
Speaker 1: a quite challenging spot in South Korea. It has many
Speaker 1: factories that are It also has a fab in mainland China,
Speaker 1: UM and it it's it's uh, it's um. The Korean
Speaker 1: government has very close ties to the US. Also, the
Speaker 1: conference call hasn't started for Samsung yet, so they haven't
Speaker 1: gone into details on how those chip export rules are
Speaker 1: going to affect them, but they have been able to
Speaker 1: secure a one year exemption so that they can You
Speaker 1: need to ship equipment and supplies into China to uh
Speaker 1: supply that fab that they've got in China so they
Speaker 1: can continue to produce memory chips at that facility there. Yeah,
Speaker 1: that conference called you to get underwig in about five minutes.
Speaker 1: Of Blue subscribers, we'll be able to follow the details
Speaker 1: on our blog top Live Go. But talk to us
Speaker 1: about smartphones as well. We have had some weak growth
Speaker 1: in that division. The market doesn't seem too troubled though. Yeah,
Speaker 1: it's interesting. Uh. Samsung is probably better known for its
Speaker 1: smartphones than its chips because that is a consumer facing business.
Speaker 1: It says that business was pretty strong, which is a
Speaker 1: little surprising. The overall smartphone market is falling this year. Um.
Speaker 1: There has been some weakness across the board. Even Apple
Speaker 1: has shown some signs of weaknesses and they and they
Speaker 1: sell at the very high end of the market. Samsung
Speaker 1: has sort of pushed the envelope with their flip phones
Speaker 1: and their foldable phones. Um they say that demand has
Speaker 1: been relatively strong and they're optimistic about that business going forward.
Speaker 1: Is there a glut in that business at the moment, Well,
Speaker 1: the real glut is in the chips business. As we
Speaker 1: talked about. That's challenging for people because during the COVID
Speaker 1: pandemic there were chronic shortages of chips that led customers
Speaker 1: to overorder because they were so anxious to get chips
Speaker 1: that they needed into their facilities. And now all the
Speaker 1: chip makers are really saying that inventories are a problem.
Speaker 1: They've been piling up and that means that customers are
Speaker 1: going to use their inventories before they start buying new
Speaker 1: chips from Samsung orhian X or Micron or the other companies.
Speaker 1: In terms of smartphones, it's a it's a bit less
Speaker 1: of an issue. The problem with smartphones is that they
Speaker 1: become obsolete a lot more quickly. That's a business that's
Speaker 1: very um that has to be very very timely. Uh
Speaker 1: So Samsung is is facing some uncertainties. They're all set.
Speaker 1: We've seen a very weak one over the past few
Speaker 1: quarters as well. How's that altering out perspective on these results. Well,
Speaker 1: they say that the strong dollar did have an effect.
Speaker 1: The strong dollar of the weekend did have an effect
Speaker 1: on their business. Largely, Samsung benefits because they are selling
Speaker 1: much of their products abroad and bringing that revenue back
Speaker 1: in either dollars or other currencies. So the week young
Speaker 1: week one has been a little bit of a tailin
Speaker 1: for them so far. You know, looking at what was
Speaker 1: released and and and put out to the exchange, what
Speaker 1: was the most surprising aspect of the earnings for you? Well, um,
Speaker 1: I think the downturn in chips profit was not a surprise.
Speaker 1: I think probably the biggest thing is Samsung's determination to
Speaker 1: continue invest in ing U to put money into capital spending,
Speaker 1: to be able to grow their market share of the
Speaker 1: business memory chips of course, where they've been very very competitive,
Speaker 1: that the biggest in the market as they compete against
Speaker 1: Heinis and Micron, but more specifically in the foundry business.
Speaker 1: They're showing the kind of determination that has made them successful.
Speaker 1: This is not a one quarter question or a one
Speaker 1: year question. It's like, Okay, Peter, we gotta go excellent stuff.
Speaker 1: Thank you, Peter Elstrom, Bloomberg Executive editor for Asia Technology.
Speaker 1: This is Bloomberg