Samsung Electronics, SK Hynix Slide 17% and 24% in a Week on Peak Earnings Concerns

Samsung Electronics Co. and SK Hynix Inc. shares have fallen more than 17% and 24%, respectively, in the span of a week. The market appears more sensitive to slowing gains in memory prices and foreign selling than to strong chip earnings.

On Oct. 16, Samsung Electronics closed at 215,500 won, down 17.75% from a week earlier. SK Hynix ended the same period at 1.272 million won, a 24.33% drop. Samsung Electronics reported preliminary third-quarter operating profit of 107.4 trillion won, but that was not enough to shore up the stock.

BNK Investment & Securities said market conditions are worsening as slowing memory demand coincides with capacity expansions by suppliers. It projected D-RAM contract-price gains would slow to 10% to 15% in the fourth quarter from 93% to 98% in the first quarter. The brokerage also pointed to higher production by Chinese manufacturers and a stronger won as factors that could weigh on future earnings.

Foreign selling was also concentrated in the two stocks. Of about 199.1 trillion won in net selling by foreign investors on South Korea's main stock market this year through Oct. 12, Samsung Electronics and SK Hynix accounted for 173.2 trillion won.

Profitability across individual business lines is another variable. Eugene Investment & Securities estimated Samsung Electronics' third-quarter operating loss in its foundry and System LSI businesses at about 1.5 trillion won. LS Securities cut its forecast for SK Hynix's HBM operating margin next year to about 60% from about 80%, reflecting intensifying competition as Samsung Electronics enters the HBM4 market.

Brokerage forecasts also differ sharply. BNK Investment & Securities set a target price of 1.48 million won for SK Hynix, while Korea Investment & Securities set one at 4.7 million won, a gap of 3.22 million won. Eugene Investment & Securities said it would take time to close the gap between market expectations and actual industry conditions.