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February 21, 2024

Samsung Forecasts Sharp 35% Plunge in Q4 Operating Profit

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Jan 9, 2024

South Korean tech giant Samsung Electronics Co Ltd flagged a steeper-than-expected 35% drop in fourth-quarter operating earnings on Monday, as demand for electronic devices and memory chips used in personal computers and smartphones likely remained weak.

Q4 Profit Plunge

Samsung said in a regulatory filing its October-December operating profit was likely 4.3 trillion won ($3.4 billion), below a Refinitiv SmartEstimate of 6.5 trillion won drawn from 20 analysts.

The tech giant had reported a Q3 profit drop of nearly 32%, amid a global economic downturn that has hammered demand for electronic devices and the memory chips that go in them.

If the prediction is realized when final results are announced later this month, Samsung will log its first year-on-year quarterly profit decline in nearly three years.

Key Details

  • Samsung said revenue likely fell 8.7% from the same period a year earlier to 70 trillion won.
  • The company’s operating profit has now fallen year-on-year for six straight quarters.
  • Samsung’s share price fell 2.5% in morning trade, versus a 0.5% drop on the wider market.
  • Semiconductor profits were estimated to post an operating loss due to weak memory chip prices, even as demands recovered slightly from server clients.
  • Demand and prices for memory products “will likely recover as data centre installations increase gradually through 2023,” Samsung said.

Analysts noted the guidance implies around a 33% on-quarter drop, much narrower than the 47% plunge registered in the third quarter. This indicates some improvement heading into 2023.

“Memory chip prices seem to have hit bottom and started to turn around already, earlier than expected, and PC demand is also recovering,” said Doh Hyun-woo, analyst at NH Investment & Securities.

“Data centre customers are expected to start buying to build inventory from the fiscal second quarter this year, further boosting chip sales.”

Background

The profit warning comes days after Samsung’s Jay Y. Lee was pardoned by South Korea’s President, raising investor hopes for major business decisions benefiting the memory chip and chipmaking equipment markets dominated by Samsung.

Lee, Samsung Electronics vice chairman, is expected to take greater control of the world’s top memory chip and smartphone maker after effectively receiving parole, loosening reins adopted to assuage concerns around his influence amid previous brushes with the law.

Shares in Samsung have slumped around 8% over the past year as the memory chip market has been hammered by falling demand and tumbling prices – in part stemming from oversupply issues but also from the impact of sharp consumer spending downturns.

Year Q4 Operating Profit Annual Operating Profit
2021 $11.2 billion $50.5 billion
2022 $7.2 billion $43.4 billion
2023* $3.4 billion $21.2 billion*

^*estimated based on Q4 guidance

As seen in the table above, Samsung’s operating profits have dropped sharply over the past year, with 2023 annual profit potentially falling below half that achieved just two years earlier. The consumer electronics sector has been hit hard by global inflation and economic uncertainty.

However after a brutal two year down cycle for memory chip prices, the market should start to recover in 2023 as data center demand rebounds. This would provide a boost to Samsung’s earnings in the second half of the year.

Outlook

Looking forward, analysts expect memory chip prices to rebound, aided by rising demand for cloud services and 5G expansion. Memory chip rivals Micron Technology Inc and SK Hynix Inc have also flagged recovery signals.

“Server memory demand is expected to recover from customers’ inventory adjustment starting from 2023,” Trekstor said in a recent earnings call.

Samsungoffers a glimpse into the state of the tech industry with its preliminary earnings releases, as a major maker of chips and displays used in smartphones, TVs, and computers along with its own phones, TVs and home appliances.

Rival Apple Inc warned in early December of lower shipments as COVID-19 lockdowns at contractor factories in China affected production of devices like iPhones. Analysts now see fourth-quarter smartphone shipments falling as much as a low double-digit percentage globally.

Samsung is slated to release detailed earnings later this month. While Q4 profit and revenues are sharply lower year-on-year, the guidance indicates the declines are moderating. With economists expecting a turnaround for the global economy in late 2023, Samsung should return to profit growth over the coming year.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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