Samsung Q4 24 & Apple FQ1 25– 2 AI Problems

No growth and no confidence.

Apple FQ1 25 – Still no growth.

• Apple reported good results despite weakness in China but credited Apple Intelligence for the interest in the iPhone 16 which I suspect is misplaced.
• FQ1 25 revenues / net income were $124.3bn / $36.3bn slightly ahead of forecasts of $124.1bn / $35.5bn.
• iPhone sales were slightly weaker than expected at $69.1bn compared to forecasts of $71bn, but this was mainly due to China where local brands continue to make inroads and where revenues overall fell by 11% to $18.5bn
• iPad, Mac and services took up the slack and registered good growth.
• Apple noted that interest in the iPhone 16 was greater in markets where Apple Intelligence has already been launched and consequently attributed that to interest in Apple Intelligence.
• This looks like a tenuous assumption to me as features such as the improved camera, computational photography and processor have generated much more consumer interest.
• The almost complete absence of generative AI in new products at the Consumer Electronics Show earlier this month is evidence that generative AI is not ready for the consumer.
• Consequently, I think that this fiscal year and next will be years where Apple struggles to find real growth making its 2025 PER of 32.4x look pretty stretched.
• I continue to look for better value elsewhere.

Samsung Q4 24 – All about memory.

• Samsung reported a difficult set of results where the AI -memory problem continued to plague the numbers, but I remain confident that Samsung will fix the problem and regain its crown as the king of memory.
• Q4 24 revenues / operating profit were KRW75.8tn / KRW6.5tn which was broadly in line with expectations, but semiconductor underperformance was helped by other areas of the business.
• The semiconductor business recorded operating income of KRW2.9tn which was much better than Q4 23’s loss but below what it managed in Q3 24.
• Results in semiconductors remain depressed because Samsung has effectively ditched the current generation of high bandwidth memory (HBM) and is focusing all of its efforts on getting the next generation right.
• The outlook for 2025 for semiconductors remains difficult which is why the shares continue to languish at very low levels.
• There was better news elsewhere in the portfolio with an improving performance from networks but there remains space for improvements in many areas.
• This is the second time in 10 years that Samsung has faced an existential challenge in one of its businesses and in smartphones it managed to turn the situation around despite my misgivings.
• Hence, I am confident that Samsung will return to form with the next generation of HBM which will in turn allow the shares to enjoy a multiple rerating.
• The catalyst will be when it qualifies with Nvidia as a supplier of HBM which I hope to see at some point this year.
• The current forecast for 2025 is for EPS to be broadly flat compared to 2024 which is definitely below the guidance the company is giving where it is expecting some improvements in 2025.
• Even with consensus, Samsung is trading on 2025 PER of 10.9x and 2026 PER of 8.5x where I suspect there could be meaningful upside to the 2026 EPS forecast.
• I own Samsung where I am down about 8% from where I bought it and if this continues, I suspect I will buy some more.