What’s going on?

Korean tech giant Samsung Electronics said on Wednesday that it expects its second-quarter profit to be its sunniest in three years, buoyed by the global semiconductor shortage.

What does this mean?

Samsung’s the world’s biggest producer of memory chips, so it stands to reason that the imbalance of microchip demand and supply has proved a helpful tailwind. Prices of widely used dynamic RAM memory chips, for instance, rose 27% in the second quarter of this year versus the first. The company reckons it’ll turn in some $11 billion of quarterly profit as a result – up 53% on the same time last year, and ahead of investor expectations. And the rest of 2021 looks bright for Samsung too: memory chip prices are forecast to increase at least another 10% this quarter, with high demand – and therefore higher prices – also expected to continue on into next year.

Why should I care?

For markets: Sunny side down.

Despite Samsung’s better-than-expected earnings update, its share price actually fell a little on Wednesday. See, analysts and investors have known about chip shortages since February – and Samsung’s stock has already flown up some 50% this year, compared to the Korean stock market’s 6% rise. Investors may therefore have used Wednesday’s positive news as an opportunity to sell some shares and lock in a profit.

The bigger picture: The chip chat puts some carmakers in the driving seat.

While major automakers like Jaguar Land Rover and Mercedes-Benz are falling short of output targets on the back of semiconductor shortages, other firms are benefiting. Data out this week showed that German rival BMW had cannily stockpiled enough chips to keep production running and cars selling as planned – catapulting the company into pole position in terms of US luxury car sales this year.

For information purposes only, not intended to constitute financial advice from us. The customer should assess the risk of  potential loss carefully and individually before investing in any financial products. Dabbl Group Limited is authorised by the FCA under the reference numbers 767263 as an appointed representative of its Principal firm VIBHS Financial Ltd, which is authorised and regulated by the Financial Conduct Authority under the reference number 613381.

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