Samsung flags 78% profit drop as chip demand remains weak

Korean tech giant Samsung warned that operating profit in the third quarter likely plunged 78 per cent as it continues to contend with lower than usual demand for consumer devices.

The South Korean tech giant released earnings estimates Wednesday, forecasting operating profit of about 2.4 trillion Korean won ($1.8 billion) for the three months ended September. That compares with 10.85 trillion won ($8 billion) in the same period in 2022.

Revenue was also projected to drop 12.7 per cent from a year ago.

That continues a dreary run for the electronics maker, which has reported major losses in recent months as global economic uncertainty weighs on consumers around the world, leading many people to hold on to their cell phones and laptops longer.

According to Counterpoint Research, “2023 is on track to be the worst year for global smartphone shipments in 10 years,” with shipments forecast to decline 6 per cent to fewer than 1.2 billion units.

In major markets like North America, “consumers are hesitant to upgrade their devices,” the firm noted in an August report.

Samsung has already been feeling the effects. The firm’s operating profit plummeted 95 per cent in the first quarter, following a record loss in its semiconductor business. It saw similar results in the second quarter.

After a historic supply shortage during Covid, the global semiconductor industry is now seeing a glut in some areas that has driven losses for Samsung, the world’s largest memory chip and smartphone maker.

According to consultancy Bain, “the semiconductor industry’s post-pandemic rebound boosted capacity to the extent that some foresee an oversupply.”

In a report last month, Bain suggested the trend was merely cyclical, attributing it to “normal” ups and downs in the industry.

Samsung has also told shareholders it anticipates a gradual comeback in global demand in the second half of the year.

This “should lead to an improvement in earnings driven by the component business,” it said in a July earnings statement.

“However, continued macroeconomic risks could prove to be a challenge,” the company cautioned.

Analysts believe a downturn in memory chips will also turn around, benefiting manufacturers like Samsung.

In a recent note to clients, Nomura analysts said they expected a recovery in the sector “to accelerate” through the rest of this year.

“The team expects memory prices to remain flat or slightly increase in [the third quarter], then show strong growth in [the fourth quarter],” the analysts wrote, maintaining a buy rating on Samsung’s stock.

The company’s shares climbed 3.5 per cent in Seoul on Wednesday following its announcement.