Seen in a broader context, Samsung’s expected decline in earnings isn’t actually all that bad, says Martine Hafkamp of Fintessa Asset Management, at BNR Beurs. “Samsung has been maintaining its production for a long time, while the demand for chips has been lower for months. Everything crashed during the corona virus, and then many companies placed double orders. So you get excess capacity and then excess supply.’
Because Samsung chose to keep production at the time so it could gain more market share, the company now has substantial inventories. “It is a combination of circumstances that Samsung will now scale back production and bring shares to market at lower prices,” says Hafkamp.
“By continuing to produce so much all the time, Samsung itself has kept prices low.”
Long term
In the long run, Samsung will invest heavily in the coming years in increasing production capacity and partially relocating production. Hafkamp: ‘The 96 percent drop in profits sounds like a lot, but if you write off your own shares as well, things will go pretty fast. And long-term I think there’s still a very solid business model.’ The same sentiment seems to be prevailing in the stock market, because since Samsung’s announcement, the share has increased by about four percent.
The announced production halt may also ultimately benefit Samsung’s revenue and profit. “It’s so well called the ‘pig cycle,'” says Hafkamp. ‘If you start producing less, but there’s still a lot of demand, then supply and demand will automatically strike a better balance. By continuing to produce so much, Samsung itself has kept prices low.’
recession
Samsung notes that customers fear a recession and therefore place fewer orders. However, Hafkamp doesn’t think these concerns are entirely justified. ‘A few months ago everyone was sure there was going to be a recession, so far it hasn’t and the stocks have held up well. There may be a slowdown in growth, but on the other hand you can see in the bond markets that interest rates have come down quite sharply.’ According to Hafkamp, such a “flight to safety” is not an immediate cause for panic.
It is possible that the fear of a recession is also caused by the turmoil caused by the banking crisis. Hafkamp thinks everyone is confronted with the facts again. «And then they think that the banks will grant fewer loans. If that restriction comes, one can invest less. Then it becomes a self-fulfilling prophecy.