Peter Elstrom on Samsung (Audio)

pockets than most. Your thoughts on the earnings report, Peter, Uh, Yeah, Well, these have been rough days for the semiconductor industry, in particular in the technology industry more broadly. We knew that there were going to be some weak results here. This had been pretty well foreshadowed by Henis as you mentioned, and Micron even before that. They've been pulling back on their expenditures. Heinis yesterday reported weak earnings and said they're

seeing an unprecedented downturn and demand. So expectations were pretty low for Samsung. As you mentioned, UM earnings are down sharply. They did misend estimates. That was largely driven by the chips business as much as Samsung UM. Uh. Samsung really makes its money from the chips business, even though it's it may be best known for its smartphones, but chips really make the difference in terms of profit or not profit.

And as you mentioned, the difference here is that Samsung is saying it is going to keep spending UM on factories and new fabs to make more chips UM because it sees opportunities ahead. That's both in the memory business and it's also pushing into UM the foundry business, which is making chips for other people. Always Taiwan Semiconductor does. In the memory business, it is expanding in a few

different areas, including into the US. So it's expanding very aggressively at this point, which is pretty contrary to what its peers are doing. Yes, Samsung a major producer of the whales chips, obviously ducing more chips into a market that admits has already got a glass. Most the impact on the broader market gonna be with this. Yeah, there are there's some parallels to the oil industry, I think in OPEC countries, where some company some countries continue to

produce very aggressively because they want the revenue. Uh, Samsung is acting aggressively here. They're investing UM even though prices are fallen pretty sharply in the memory chip market. They're investing aggressively. They see opportunities here. They're expanding geographically also um into a few different markets, and they do want to become a bigger, more competitive player in logic chips,

which are microprocessors. As they build up this foundary business, they want to compete with Taiwan Semiconductor, which is now the most valuable chip company in the world and has built a very very strong business as a foundry for other companies. So we've seen these new US government rules on exports to China, particularly having to do with very high level chips for AI and such um. I think a lot of people are curious what Samsung is saying

about these new rules. Have we heard anything on that yet? Yeah, that is the big question for the chip industry over the past two to three weeks. That's really the only thing that everybody is talking about. What are these US export rules mean for the industry broadly and especially for doing business in China. Uh. Samsung, of course sits in a quite challenging spot in South Korea. It has many factories that are It also has a fab in mainland China, UM and it it's it's uh, it's um. The Korean

government has very close ties to the US. Also, the conference call hasn't started for Samsung yet, so they haven't gone into details on how those chip export rules are going to affect them, but they have been able to secure a one year exemption so that they can You need to ship equipment and supplies into China to uh supply that fab that they've got in China so they

can continue to produce memory chips at that facility there. Yeah, that conference called you to get underwig in about five minutes. Of Blue subscribers, we'll be able to follow the details on our blog top Live Go. But talk to us about smartphones as well. We have had some weak growth in that division. The market doesn't seem too troubled though. Yeah, it's interesting. Uh. Samsung is probably better known for its smartphones than its chips because that is a consumer facing business.

It says that business was pretty strong, which is a little surprising. The overall smartphone market is falling this year. Um. There has been some weakness across the board. Even Apple has shown some signs of weaknesses and they and they sell at the very high end of the market. Samsung has sort of pushed the envelope with their flip phones and their foldable phones. Um they say that demand has been relatively strong and they're optimistic about that business going forward.

Is there a glut in that business at the moment, Well, the real glut is in the chips business. As we talked about. That's challenging for people because during the COVID pandemic there were chronic shortages of chips that led customers to overorder because they were so anxious to get chips that they needed into their facilities. And now all the chip makers are really saying that inventories are a problem.

They've been piling up and that means that customers are going to use their inventories before they start buying new chips from Samsung orhian X or Micron or the other companies. In terms of smartphones, it's a it's a bit less of an issue. The problem with smartphones is that they become obsolete a lot more quickly. That's a business that's very um that has to be very very timely. Uh So Samsung is is facing some uncertainties. They're all set. We've seen a very weak one over the past few

quarters as well. How's that altering out perspective on these results. Well, they say that the strong dollar did have an effect. The strong dollar of the weekend did have an effect on their business. Largely, Samsung benefits because they are selling much of their products abroad and bringing that revenue back in either dollars or other currencies. So the week young week one has been a little bit of a tailin

for them so far. You know, looking at what was released and and and put out to the exchange, what was the most surprising aspect of the earnings for you? Well, um, I think the downturn in chips profit was not a surprise.

I think probably the biggest thing is Samsung's determination to continue invest in ing U to put money into capital spending, to be able to grow their market share of the business memory chips of course, where they've been very very competitive, that the biggest in the market as they compete against Heinis and Micron, but more specifically in the foundry business. They're showing the kind of determination that has made them successful. This is not a one quarter question or a one

year question. It's like, Okay, Peter, we gotta go excellent stuff. Thank you, Peter Elstrom, Bloomberg Executive editor for Asia Technology. This is Bloomberg