Samsung Reports A 78% Profit Decline As Chip Demand Is Still Low

Samsung issued a warning, estimating a 78% drop in operating profit in the third quarter as it continues to deal with below-average consumer device demand.

In earnings forecasts announced on Wednesday, the South Korean IT giant predicted an operating profit of around 2.4 trillion Korean won ($1.8 billion) for the three months ending in September. In contrast, the same period last year saw 10.85 trillion won ($8 billion) being spent.

Additionally, a 12.7% decline in revenue from a year earlier was predicted.

That continues a gloomy trend for the electronics manufacturer, which has posted significant losses lately as customer anxiety about the global economy has many people holding onto their cell phones and laptops longer.

“2023 is on track to be the worst year for global smartphone shipments in 10 years,” claims Counterpoint Research, with shipments expected to drop 6% to less than 1.2 billion units.

In significant markets like North America, “consumers are hesitant to upgrade their devices,” the company observed in an August research.

The impacts are already being felt by Samsung. In the first quarter, the company’s operational profit fell by 95% as its semiconductor unit posted a record loss. Similar outcomes were seen in the second quarter.

The global semiconductor market is currently experiencing a surplus in some regions following an unprecedented supply deficit during COVID-19, which has resulted in losses for Samsung, the biggest memory chip and smartphone manufacturer in the world.

Consulting firm Bain claims that “the semiconductor industry’s post-pandemic rebound boosted capacity to the extent that some foresee an oversupply.”

Bain said the pattern was only cyclical in a report published last month, attributing it to the “normal” ups and downs in the business.

Additionally, Samsung has informed its shareholders that it expects a slow recovery in worldwide demand in the second part of the year.

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

The company did warn that continuing macroeconomic risks “could prove to be a challenge.”

Analysts predict that a decline in memory chip sales will also turn around, helping companies like Samsung.

Nomura analysts recently wrote to clients that they anticipated the sector’s recovery “to accelerate” throughout the course of this year.

The analysts kept a buy rating on Samsung’s stock and predicted that memory pricing would be stable or slightly up in the third quarter before showing robust increases in the fourth.

Following the announcement, the company’s shares increased 3.5% in Seoul on Wednesday.