Samsung’s Q2 Earnings May Mean ‘Back To Reality’ After Pandemic Boom

It is hard to make sense of all of it. But in general, the results are better than people expected. The pandemic did unnatural things to the entire world. We saw an unbelievable boost in tech. And we had to see that at some point that would slow down – so, it’s back to reality. But it’s not fun if you’ve been flying high for a while,’ says Bob O’Donnell, president and chief analyst at TECHnalysis Research.

Samsung, the world’s largest smartphone and displays producer, reported a slower-than-expected net income rise to 10.95 trillion won ($8.3 billion), which one analyst characterized as “back to reality” after more than two years of a pandemic-fueled tech boom.

Still, Samsung’s net income rose 16 percent year-over-year, and its smartphone and networking division grew 29 percent, slightly beating expectations.

Many tech companies have been reporting lower-than-expected consumer sales after two years of booming pandemic demand. While many analysts have cautioned about signs of a coming recession, others have pointed to the fact that sales are still higher than pre-pandemic levels. The biggest headwinds are rising material costs and supply chain snarls from China COVID lockdowns and delays.

But Samsung’s growing contract chip production business remained a bright spot, gaining its highest revenue for the second quarter thanks to yield improvements, the company said. The company said it expects demand for memory chips from the server sector to continue to provide a boost through the remainder of the year.

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During a post-earnings conference call with analysts and media, Han Jinman, executive vice president for Samsung’s semiconductor business, said, “With the huge amounts of uncertainty in the market, driven by a wide variety of macro issues, we will flexibly supply memory by using inventory.”

Han added that semiconductor production lead times remain longer than expected as supply chain issues continue to hit parts suppliers. “There are structural constraints in production,” he said. “We expect market bit growth… will be significantly lower next year.”

While the earnings did not match up with analyst expectations, they still represent record second quarter results for South Korea’s largest company, with strong results from the company’s mobile display business and Mobile eXperience business. Semiconductor revenue was also at an all-time high.

Samsung offered a hopeful outlook for channel partners, despite acknowledging macroeconomic factors that may drag on future earnings. “Samsung will closely monitor rapidly changing market conditions and achieve solid profitability by further expanding strategic product sales,” the company said in a statement. “It will also work with its channel partners through strategic partnerships and actively target the Signage market where B2B demand has been recently revived…”

The overall softening on the consumer side is not a surprise to analysts. Apple, HP Inc., Lenovo and many major tech players saw cooling consumer sales. Research firm Gartner recently forecast a 7.1 percent drop in mobile phone sales this year, revising an earlier prediction of 2.2 percent growth. The company cited inflation, Russia’s invasion of Ukraine and COVID lockdowns in China.

On Wednesday, Gartner also forecast a chip sales slowdown in 2022. “The semiconductor market is entering an industry down cycle, which is not new, and has happened many times before,” Gartner analyst Richard Gordon said in the report.

Bob O’Donnell, president and chief analyst at TECHnalysis Research in Foster City, Calif. told CRN that Samsung’s results need to be viewed through a very nuanced lens considering the unprecedented impacts of the COVID-19 pandemic on the tech industry as a whole.

“It is hard to make sense of all of it,” O’Donnell said. “But in general, the results are better than people expected. The pandemic did unnatural things to the entire world. We saw an unbelievable boost in tech. And we had to see that at some point that would slow down – so, it’s back to reality. But it’s not fun if you’ve been flying high for a while.”

Samsung, he said, may be in a better position than other tech companies because of the critical value of the hardware they produce. “You’re seeing companies like Meta and Google getting hit harder right now,” he said. “Each company is going to have a unique story. And Samsung is very well diversified.”