Asia Tea Time - Cup 62 ☕

This week I talk Samsung’s crazy expected profits and why staying committed to our investing goals is crucial. 

I will be cutting Story of the Week going forward to keep Asia Tea Time more concise and better serve newsletter subscribers. 

Macro in Asia

Samsung Electronics expects profit to soar 1,400% on back of AI chips 

One of the world’s largest semiconductor firms, Samsung Electronics, said that it expects its operating profit to jump over 1,400% for the second quarter of 2024.

That’s being driven by an insatiable appetite for artificial intelligence (AI) chips and related products.

Why it’s happening

• Samsung Electronics is typically associated with its smartphones but the Korean firm is also one of the biggest memory chip firms in the world. 

• Dynamic random-access memory (DRAM) chips – widely used in digital electronics and one of the mainstays of Samsung’s chip business – saw prices rise by 13-18% in the second quarter of 2024.

• Nand flash memory chips, which are primarily used for data storage and an area Samsung also dominates, saw prices gain around 15-20% over the same period.  

Why it matters

• Samsung is the biggest company in Korea and is typically one of the bellwethers for the overall semiconductor industry in Asia.

• The tech firm expects is Q2 2024 operating profit to top 10 trillion Korean won (US$7.5 billion), way ahead of analysts’ average projection of 8.8 trillion won.

• The boom in data centres and AI development is clearly boosting the biggest players in the chip industry and Samsung is no exception.

What’s next?

• Watch out for competition from other niche chip players in South Korea, namely SK Hynix in the area of AI chips.

Tim’s Take 

South Korea’s chip ecosystem is second only to Taiwan and Samsung Electronics is a big part of that success.

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The problem for South Korea is that the US and Europe are looking to move production away from Asia to other centres of production, given the geopolitical tensions seen in Taiwan.

It won’t be so easy, though. That’s mainly because globally-integrated chip supply chains benefit incumbents who already have these ecosystems in place, countries like Korea and Taiwan.

For Samsung itself, the company’s business is starting to see the benefits of increased AI demand. Perhaps more unfortunately for investors, that hasn’t really translated into share price gains.

When set against the backdrop of +150% year-to-date gains for Nvidia, or 70% gains for Taiwanese giant TSMC, Samsung’s shares are only up around 10% so far in this year.

That’s more indicative of how slow AI has been to reach those parts of its business, primarily DRAM chips that are found in smartphones and PCs. 

Talk of AI being integrated more into PCs has seen more investor interest in the likes of semis design firm AMD. The same could be happening for Samsung, which saw its shares end last week up around 7%.

With an integrated model, Samsung is one of the only semiconductor companies (along with Intel) that both designs and manufactures chips. This could potentially give it an edge as the older (more successful) model starts to evolve and countries put barriers in place.

Whether that can turn into gains for Samsung longer term is another question but investors can add the Korean tech giant to the list of names vying for a piece of the AI pie.

Tim's money tip of the week

A lot of times, in investing “doing nothing” is usually the best course of action. We are constantly tempted to tinker with our portfolio or strategy depending on what’s trending in the news.

But if we have a solid “core strategy” in place, we shouldn’t really be deviating much from that allocation month to month.

Of course, it does make sense to review you investment portfolio every 6-12 months but that shouldn’t necessarily mean making any changes.

Too often, we change course or look to the next “shiny thing” when just sticking to consistently investing into broad markets – whether in stocks or bonds – tends to yield better results over time.

So, with a core in place, those “satellite strategies” can serve our urge to do something depending on what’s happening in markets. 

However, ideally, those non-core, satellite strategies shouldn’t make up more than 80% of our invested assets.

By just focusing on our end goals and riding out the volatility in markets, we can save ourselves a lot more unnecessary stress while also putting together a much more resilient financial plan.