Samsung Stock to Drop as Apple Adds to Challenges, BGC Says
May 06, 2011, 2:29 AM EDTBy Jun Yang
(Updates with closing share price in the fifth paragraph.)
May 6 (Bloomberg) -- Samsung Electronics Co. shares are poised to drop amid increased competition and the possible loss of orders from iPad-maker Apple Inc., BGC Partners Inc. said, recommending a so-called short sale of the stock.
Investors should bet on Samsung falling to the bottom of the three-month trading range of 850,000 won to 950,000 won, BGC’s Singapore-based sales manager Jamie Coutts wrote in an e- mail. Falling below 850,000 may “herald a technical target of 750,000 won” for the world’s largest maker of memory chips and flat-screen panels, Coutts wrote May 4, when the shares dropped 2.5 percent to 915,000 won. The market was shut yesterday.
“Going full blown on this call now,” Coutts wrote. “When you get a trading range like that over a certain period of time, usually the market tends to start to preempt the price action around the resistance and support levels,” Coutts said in an interview with Bloomberg News.
Short selling is the sale of borrowed stock in the hope of buying it back at a lower price.
Shares in South Korea’s biggest company fell 1.8 percent to 899,000 won at the close of Seoul trading, extending their loss this year to 5.3 percent. The Suwon, South Korea-based manufacturer of Galaxy smartphones reported a 30 percent drop in first-quarter profit as competition drove down prices. Apple may switch to alternative chip suppliers including Intel Corp. amid increased rivalry with Samsung over alleged copying, Gus Richard, an analyst with Piper Jaffray & Co., wrote in a report this week.
“With both firms suing each other for patent infringements in smart devices, it is not surprising that Apple is looking to dump Samsung for all its major component needs,” Coutts’s colleague Amir Anvarzadeh wrote in a separate e-mail to clients.
Apple Lawsuits
The Apple lawsuits “won’t affect our business with them,” said James Chung, a spokesman for Samsung based in Seoul. Carolyn Wu, a Beijing-based spokeswoman for Apple, declined to comment.
Apple, the second-largest buyer of components from Samsung in 2010, filed an intellectual property lawsuit against Samsung in April, accusing the company of copying the iPhone and iPad. Samsung countersued Apple, alleging patent infringements. Apple’s relationship as a customer for components shouldn’t be disrupted by the suit, Apple’s Chief Operating Officer Tim Cook said on a conference call April 20.
Apple ordered Taiwan Semiconductor Manufacturing Co. to make the so-called A5 processors for its iPad2 and iPhone5 devices, the Economic Daily News reported on March 10, without saying where it got the information. Apple previously ordered the chips from Samsung, according to the report.
‘Tough Environment’
Samsung is facing a “very tough environment” for the rest of the year as competition with rival chipmakers including Elpida Memory Inc. intensifies and amid weakness in demand for liquid-crystal-display panels, Coutts wrote. Elpida said this week it will start mass-producing the world’s smallest dynamic random access memory chip, with a 25-nanometer line width, in July, possibly ahead of Samsung.
Thirty-nine of 40 analysts have “buy,” “outperform” or “overweight” recommendations on Samsung’s stock, with one “neutral,” according to data compiled by Bloomberg.
“Could it be possible that the street, which has held a five-year infatuation with the stock, is ignoring the serious headwinds and challenges it now faces?” Coutts wrote.
Vietnam’s VN Index has climbed 3.2 percent since Coutts told clients in a Dec. 6 e-mail the nation’s stocks were poised to rally, based on comparisons of price movements and trading activity.
--With assistance from Weiyi Lim in Singapore. Editors: Reinie Booysen, Allen Wan
To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net
To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Anand Krishnamoorthy at anandk@bloomberg.net
