Recently, Samsung Electronics announced that its quarterly profit fell by two-thirds to an eight-year low as a result of a weakening global economy affecting demand for electronic devices and memory chip prices.
The poor profit estimate of the world’s largest manufacturer of memory chips, smartphones, and televisions, a sign of global consumer demand, sets a poor precedent for the quarterly results of other technology companies.
Analysts predicted that Samsung’s profits would fall once more in the current quarter after the South Korean company said that its operating profit for October through December was likely down 69% to 4.3 trillion won, or $3.37 billion, from 13.87 trillion won a year earlier.
According to analyst Lee Min-hee of BNK Investment & Securities, “all of Samsung’s businesses had a hard time, but chips and mobile especially.”
Samsung stated in a short preliminary earnings statement that quarterly revenue likely decreased by 9% compared to the same period a year earlier, reaching 70 trillion won. On January 31, the financial information for Asia’s fourth-largest listed company by market value will be made public.
Demand for Samsung’s smartphones and other devices, as well as for the semiconductors it supplies to rivals like Apple, has decreased as a result of rising global interest rates and rising living costs.
Samsung stated in the statement, “Customers adjusted inventories in their effort to further tighten their finances… as the decline in demand in the fourth quarter was greater than expected for the memory business.”
Samsung added that smartphone sales and revenue decreased in the fourth quarter due to weak demand brought on by prolonged macroeconomic issues, resulting in a decline in its mobile business’s profit.
According to Lee of BNK Investment, “Memory chip prices fell in the mid-20% during the quarter, and high-end phones such as foldable didn’t sell as well.” Additionally, Apple’s production delays at the world’s largest iPhone factory in China hurt the company’s display business during the quarter.
As a glut drives a further drop in memory chip prices, three analysts predicted that Samsung’s profits would fall again in the current quarter, resulting in an operating loss for the chips division.
On Friday, Samsung shares closed 1.4% higher than the market as a whole’s gain of 1.1%. SK Hynix, a rival manufacturer of memory chips, saw its stock rise by 2.1%.
According to Eo Kyu-jin, an analyst at DB Financial Investment, “the reason shares are rising despite the poor earnings result is… investors are hoping Samsung will need to reduce production, like Micron or SK Hynix said they would,” which would help the memory industry as a whole.
Lastly, in October, Samsung stated that it did not anticipate significant changes to its investments for 2023. According to analysts, Samsung has a history of not announcing production cuts for memory chips, but the company could organically adjust investment by delaying equipment imports or in other ways.