The Strategist

Samsung's shares plummeted thanks to Morgan Stanley's forecast

11/27/2017 - 11:52

Samsung Electronics Co Ltd’s shares on Monday fell more than 4%, to a minimum in a month, after Morgan Stanley lowered its recommendations for the South Korean technology giant, pointing to concerns that the boom in demand for memory chips will soon reach a peak, writes Reuters.

Jamie McCall
Jamie McCall
The so-called "super cycle" of memory chips, during which the prices were growing due to the demand for increasing the memory of servers and smartphones, contributed to Samsung's profit growth. At the same time, investors have focused on the question of how long this will continue.

In late October, Samsung Electronics announced a record profit for the third quarter of 2017. Net profit of the South Korean electronics manufacturer grew 2.5 times compared to the same period last year and amounted to 11.19 trillion won ($ 9, 9 billion). Operating income in the third quarter numbered 14.53 trillion won ($ 12.9 billion), an increase of 2.8 times compared with the same period in 2016.

As noted by Reuters, Morgan Stanley on Sunday lowered the recommendations on the shares of Samsung, and also reduced the target price of shares by 3.4% to 2.8 million won. Analysts of the bank believe that the company's profit in the memory chip manufacturing segment will not show significant growth in the next year.

Shares of Samsung Electronics on Monday decreased by 4.2% to 2.66 million won, which was their maximum intraday decline in more than a year.

Nevertheless, the shares rose by more than 47% this year in general, the company's current market capitalization is about $ 353 billion.

According to some analysts, Samsung Electronics will be less dependent on the predicted trends in chip prices than its competitors, such as SK Hynix Inc, the second largest memory chip manufacturer in the world after Samsung.

"The reaction [of the shares] is a bit excessive, as all this was predictable," HMC Investment & Securities analyst Greg Roh told Reuters.

Shares of SK Hynix fell by 3.6% - this is the maximum intraday decline since the end of October.