Tech Under Pressure? Samsung Warns Of Macro Risks Persisting Through The Year

The tech space has spearheaded the market sell-off seen since the start of the year, as evident from the more than 20% drop for The Invesco QQQ Trust QQQ in the year-to-date period.

A host of negative catalysts have worked in unison to plot the downfall of this market-leading sector. It now appears that the negative triggers have further legs to play out.

What Happened: South Korean electronics giant Samsung expects macroeconomic risks to persist in the second half, a statement from the company showed on Thursday.

On the earnings call, the company repeatedly delved into the risks that include the potential impact of the Russia-Ukraine war, surging inflation, and COVID-19 lockdowns in China, Bloomberg reported.

"It is an immense challenge to predict the duration of market ripple effects of various macro issues such as the Russian-Ukraine war and global inflation," Jinman Han, executive vice president for Samsung's memory chip business reportedly said.

Samsung, however, reported a 51% jump in first-quarter operating profit to 14.12 trillion won ($11 billion) and record revenue of 77.78 trillion won. The company said its mobile and appliance business – called Device Experience - recorded the highest revenue since 2013, while the chip and display business, collectively called Device Solutions, notched up record quarterly revenues.

Revenue from server memory chips was at a record, the company added.

To tackle uncertainties stemming from the macroeconomic environment and geopolitical issues, Samsung said it will prioritize advanced processes for components and strengthen the premium lineup and leadership position in the DX business.

Related Link: Samsung Guides To Strong Q1 Operating Profit Growth: Does This Have Readthrough For Chip Demand?

Why It's Important: China's COVID-19 resurgence has become the latest threat that poses a downside risk for the tech sector. Suppliers and assemblers of the majority of the big techs have plants in China. Lockdowns in the country have disrupted production plans of the suppliers and in turn these high-and-mighty tech stocks.

Much of the impact will be felt in the second quarter, as COVID struck toward the end of the first quarter. The magnitude of the impact will depend on how quickly the suppliers ramp up production.

TFI Securities analyst Ming-Chi Kuo recently warned that "the worst for the tech stocks may yet to come."

Kuo, however, said the mitigating impact could come from gradual production resumption in China, positive guidance/commentary from tech companies on the earnings calls, and a technical rebound from depressed levels.

Related Link: China's COVID-19 Shutdown Is Beginning to Bite Apple, Says Analyst