Samsung takes a massive hit as earnings fall 69 percent to an eight-year low

Samsung Electronics said on Friday its quarterly profit fell by two-thirds to an eight-year low as a sluggish global economy hurt memory chip prices and slowed demand for electronic devices.

The somber earnings estimate from the world’s largest maker of memory chips, smartphones and televisions — an indicator of global consumer demand — gives quarterly results from other tech companies a weak tone.

Samsung’s Profits are expected to contract again in the current quarter, analysts said, after the South Korean company said its October-December operating profit is likely to have risen 69 percent to KRW 4.3 trillion (about Rs. 27,980 billion) from 13.87 trillion KRW (about 27,980 billion 90,190). a year earlier.

It was Samsung’s smallest quarterly profit since the third quarter of 2014, falling short of a KRW 5.9 trillion Refinitiv SmartEstimate.

“All of Samsung’s businesses have had a rough time, but especially chips and mobile devices,” said Lee Min-hee, an analyst at BNK Investment & Securities.

Quarterly sales are expected to have fallen 9 percent to $70 trillion compared to the same period last year, Samsung said in a brief preliminary earnings release. Asia’s fourth largest listed company by market value will release detailed results on January 31.

Rising global interest rates and the cost of living have dampened demand for Samsung’s smartphones and other devices, as well as for the semiconductors it supplies to competitors like Apple.

“In the memory business, the decline in demand was larger than expected in the fourth quarter as customers adjusted inventory levels to further tighten finances…” Samsung said in the statement.

Earnings from the mobile business fell in the fourth quarter as smartphone sales and revenue fell on weak demand amid ongoing macroeconomic woes, Samsung added.

“Memory chip prices fell about 20 percent during the quarter, and high-end phones like foldable phones didn’t sell as well,” said BNK Investment’s Lee, adding that the display business was impacted by the customer’s production delays Apple was impacted world’s largest iPhone factory in China during the quarter.

Three analysts said they expected Samsung’s profits to fall again in the current quarter, with a likely operating loss for the chip business as flooding pushes memory chip prices further down.

Shares of Samsung closed up 1.4 percent on Friday versus a 1.1 percent rise in the broader market. Shares in rival memory chip maker SK Hynix rose 2.1 percent.

“The reason the shares are rising despite the poor earnings result is… investors are hoping that Samsung will have to reduce production as announced by Micron or SK Hynix, which would help the memory industry as a whole,” said Eo Kyu-jin, an analyst at DB financial investment.

Samsung had said in October that it didn’t expect any major changes to its investments for 2023. Analysts said Samsung hasn’t announced production cuts for memory chips in the past, but could adjust investments organically by delaying device launches or otherwise.

© Thomson Reuters 2023