Analysts say Samsung’s quarterly earnings will hit a six-year low

Samsung’s quarterly profit is likely to fall 58 percent to its lowest level in six years as a global economic downturn dampens demand for electronic devices and clouds the outlook for the memory chip industry.

With consumers and businesses cutting back on spending and investing amid high inflation and rising interest rates, smartphone makers and other customers have been holding back on memory chip orders, while smartphones have sold for less due to falling demand, analysts said.

Samsung, as the world’s largest manufacturer of memory chips, smartphones and televisions, is a pioneer of global consumer trends. Preliminary results are expected to be announced on Friday and full results later this month.

Operating profit of Asia’s fourth most valuable listed company is likely to have fallen to KRW 5.9 trillion (about Rs.

That would be Samsung’s lowest quarterly profit since the third quarter of 2016, compared to an operating profit of KRW 13.87 trillion (about Rs. 90 trillion) a year earlier.

“The main reason behind the performance…is a sharp drop in demand. Both chips and smartphones supplies and prices are expected to fall short of previous expectations,” said Kim Roko, an analyst at Hana Financial Investment.

SmartEstimates are weighted against analyst forecasts, which are consistently more accurate.

Operating profit for Samsung’s chip business is likely to have increased by 78 percent to KRW 1.9 trillion.

Chips typically account for about half of the tech giant’s profits.

The prices of some DRAM memory chips, which are widely used in smartphones and PCs, fell 40 percent over the year, while the prices of NAND flash chips, used for data storage, fell 14 percent, according to data from TrendForce.

Memory chip competitors SK Hynix and Micron Technology have slashed planned 2023 investments in response to the memory downcycle, which is expected to last at least into the second half of 2023.

However, Samsung is expected to use its deep pockets during this downturn to expand market share while largely maintaining its investment plans, analysts say, so it may be poised to capitalize when the memory chip market eventually turns around recovered.

Samsung said in October that it doesn’t expect any major changes to its investments for 2023. At the end of September, it held about KRW 128.82 trillion (about Rs. 8.5 lakhcrore) in cash.

Samsung’s mobile phone business is also expected to see profits shrink, with forecasts for the quarter showing a 14 percent contraction to KRW 2.3 trillion (about Rs. 15,000 billion).

Data provider Counterpoint estimates that 63 million mobile phones were shipped in the quarter, including 62 million smartphones. In comparison, 72 million mobile phones were shipped in the fourth quarter of 2021.

Samsung stock fell about 29 percent in 2022 before rebounding this week as South Korea announced planned tax breaks for semiconductor investments. This contrasted with a 36 percent slump in the Philadelphia Semiconductor Index last year.

© Thomson Reuters 2023