Samsung Electronics Co’s profit dropped by the most in more than a decade, in a sign that a global economic slowdown might be hurting electronics demand even more than anticipated.
South Korea’s largest company has been grappling with weak demand for memory chips, smartphones and displays as consumers tamp down holiday spending amid soaring interest rates and inflation.
Adding to demand woes, Apple Inc, one of Samsung’s biggest customers for displays and memory chips, faced production delays at its iPhone assembly complex in the Chinese city of Zhengzhou.
Photo: EPA-EFE
Samsung’s operating profit fell by 69 percent to 4.3 trillion won (US$3.4 billion) for the three months ended last month, missing the average estimate of 6.7 trillion won by analysts.
Sales fell to 70 trillion won, the company said in a statement.
Samsung is slated to provide a full financial statement with net income and information on divisional performance on Jan. 31.
The grim preliminary numbers are adding pressure on Samsung, the world’s largest memorychip maker, to shift gears and lower output and capital expenditure, fueling hopes for a turnaround.
Samsung shares gained about 1 percent after gains and looses following the market open.
Rival SK Hynix Inc also climbed about 1 percent, while South Korean chip suppliers jumped.
“Samsung has been adamant that it has no plans to cut capex or supply, but fast deterioration in demand and deteriorating profitability means that management might be forced to consider the unthinkable, that is, memory production cuts,” CLSA analyst Sanjeev Rana said.
While Samsung’s inventory levels suggest a turnaround in the second quarter, a likely cut in memorychip production could mean a turnaround “a bit earlier,” Daniel Yoo, head of global asset allocation at Yuanta Securities Korea, told Bloomberg TV.
After ramping up production to record levels to meet a surge in demand during the COVID-19 pandemic, chipmakers have since had to slash spending on new production and cut costs to cope.
Memorychip makers including Micron Technology Inc have said they do not expect a recovery until the second half of this year, and have lowered budgets for new equipment and plants and cut costs.
Micron further warned that it would be difficult to return to profitability this year, announcing a 10 percent reduction to its workforce, as well as more cuts in capital expenses.
Hynix has said that it would cut its capital expenditure for this year in half.
Samsung has previously said it has no immediate plans to cut output.
However, since then memory chip price falls have accelerated as competition over clients intensified.
“The decline in 4Q demand was greater than expected as customers adjusted inventories in their effort to further tighten finances,” Samsung said in its statement.
The company saw greater-than-expected price declines in memory and added that “smartphone sales and revenue decreased due to weak demand resulting from prolonged macro issues.”
The crisis in the memorychip market has been further exacerbated by US sanctions on some chip-related exports to China, hurting demand from some of Samsung’s key clients.
Chip sales in South Korea — a bellwether for global tech demand — last month fell 29 percent from the previous year, the fifth consecutive monthly drop and on the heels of the biggest year-on-year decline since 2009 in November.
Samsung could sustain low profit in the first quarter after yesterday reporting preliminary operating profit for the fourth quarter last year about 35 percent below consensus, Bloomberg Intelligence analyst Masahiro Wakasugi said.
Its NAND chip segment might have been unprofitable last quarter due to severe price erosion, while DRAM might have generated a profit, Wakasugi said.
Samsung’s earnings recovery might be slow this year on declining memorychip prices, which could narrow profit margin, even when demand recovers in the second or third quarter, he said.
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