Samsung Electronics is one of the world's worst-performing technology stocks this year with billions wiped of its value as factors from increased smartphone competition to worries about the health of the semiconductor market have weighed on the company's performance.
Shares of the South Korean giant are down over 11 percent this year, more than major U.S. and other Asian technology stocks. Over $39.4 billion has been erased from Samsung's market capitalization year-to-date. It's a far cry from the 41 percent rally Samsung shares saw in 2017.
So what has changed?
Semiconductor slowdown fears
In recent times, the semiconductor division has been Samsung's biggest business, accounting for 37 percent of sales but 78 percent of profits in the second quarter of this year. It's a high-margin business that has been aided by high demand and supply constraints that have helped boost prices of chips that Samsung sells.
Samsung's success in semiconductors has helped it offset a slower smartphone market, but some analysts fear that the market dynamics that helped it charge high prices could become undone this year. In a recent note, Morgan Stanley warned of rising inventory in the semiconductor industry, which could make it harder to charge higher prices.
But the company doesn't appear to be worried yet. In its second quarter earnings report, Samsung said it expects market conditions for its memory chips to remain "solid" in the second half of the year.
Rising smartphone competition
Samsung's second quarter earnings showed the slowest quarterly profit growth in more than a year, partly because of sluggish smartphone sales. Revenue from the mobile division was down 22 percent year-on-year in the three months to June, which Samsung attributed to "lower-than-expected sales of the Galaxy S9," the company's flagship smartphone.
The firm is hoping the recently-released $1,000 Note 9 smartphone could help revive sales, but its facing the reality of a slowing market for handsets and increased competition. Global smartphone shipments declined 1.8 percent year-on-year in the second quarter, according to data from IDC. And for the first time, Huawei became the second-largest smartphone player by shipments, surpassing Apple and closing in on Samsung's crown.
And Samsung is facing stiff competition in the crucial, large markets of India and China. Huawei is the biggest player in China, followed by Oppo, Vivo and Xiaomi, all of which are domestic companies. Samsung, which several years ago featured in the top five handset makers in the country, has lost much of its share.
In India, Samsung, which was again very dominant in the past, is facing increased competition from Xiaomi, which is now equal to its South Korean rival in terms of shipments, according to research firm Canalys.
Neil Shah, research director at Counterpoint Research, said Samsung has lost share in the major markets of China, Europe and the U.S., where it can command higher-than-average selling prices of phones. This has had a knock-on effect to its lower-priced models that it sells in countries like India and China.
"The premium S9 did not work well in those markets. So now the only market they can sell premium S9 in quantity is Korea, which is a very small market. The bulk of the issue is compounded because of softer premiums. If your halo device isn't doing well it boils down to cheaper devices as well, because you lose the halo effect from the flagship," Shah told CNBC by phone Monday.
Weak display demand
Samsung supplies so-called organic light-emitting diode (OLED) panels for Apple's iPhone X. This helped boost the company's earnings last year when Apple was buying stock from Samsung for the device's release.
But in the second quarter of 2018, Samsung's display panel division saw revenues fall 27 percent year-on-year because "iPhone X demand in the first half this year has not been the same," according to Shah.
Given these issues, Samsung announced a recent $22 billion investment into new growth areas like artificial intelligence (AI) and 5G mobile internet technology.
How do Samsung shares compare?
One of the big topics this year has been whether technology stocks could continue their leadership of the stock market as they did in 2017. But they have seen some wobbles this year because of macro factors including the trade war between the U.S. and China, as well as isolated events such as privacy with stocks like Facebook.
But U.S. tech stocks have proved more resilient than those in Asia. For example, Amazon is up over 61 percent, while Apple is over 22 percent higher year-to-date. Even Facebook is in positive territory this year, despite poor second-quarter earnings that led to a big plunge on the share price.
The big Chinese names, however, have suffered. Tencent is down nearly 9 percent for the year while U.S.-listed Baidu has fallen 6 percent. Only Alibaba is positive year-to-date, up 4 percent.
Samsung has fared worse than these names with its more than 11 percent decline this year, making it one of the worst-performing major technology stocks in 2018.
However, analysts still view it positively. It currently has 12 "strong buy" ratings and 24 "hold" ratings from analysts, according to data from Reuters. And the mean price target on the stock is 66,327.94 South Korean won ($58.42), which represents over 47 percent upside from Monday's closing price of 45,050 South Korean won.
Daiwa Capital Markets, which has a buy rating on Samsung Electronics, said in a recent note that it is positive on the stock because of "strong earnings forecasts and likelihood of favorable shareholder returns" as well as an "attractive" valuation.