Samsung Expects 69% Drop in Profit on Slumping Tech Demand
High inflation and weak economies hit sales of memory chips and smartphones
SEOUL— Samsung Electronics Co. said it expects its fourth-quarter profit to plunge as the firm’s mainstay memory-chip and smartphone businesses face a sharp pullback in demand, showing the extent of the global tech downturn after pandemic highs.
The South Korean tech giant on Friday forecast its operating profit in the quarter ended Dec. 31 to drop by 69% from the prior year to 4.3 trillion won, the rough equivalent of $3.4 billion.
Revenue for the October-December quarter is expected to decline year-over-year by 8.6% to 70 trillion won, the company said.
Samsung’s estimated results were far below market forecasts. Analysts polled by FactSet were, on average, expecting Samsung to report roughly 7.1 trillion won in operating profit and 73.1 trillion won in revenue. The company is scheduled to report its full earnings later this month.
Samsung is considered a bellwether for the tech world. It is a major component supplier to companies such as Apple Inc. and is the world’s top seller of smartphones and TVs and a major player in many other areas of consumer electronics.
Samsung said in an explanatory note that its fourth-quarter profit had fallen because of larger-than-expected order pullbacks and price drops in the memory business, combined with falling sales of smartphones and home appliances. The possibility of a global recession and macroeconomic uncertainties are weighing on its key businesses, it said.
The tech industry at large is going through a prolonged downturn as consumers and companies have pulled back their spending on tech gadgets and electronic goods amid high inflation, rising interest rates and other macroeconomic challenges.
Last year’s worldwide shipments of smartphones and PCs are expected to have dropped by roughly 9% and 12% respectively from the prior year, according to International Data Corp., a tech-market research firm. Chip sales, which move in line with demand for tech goods, have also fallen.
Samsung’s vice chairman and CEO of its consumer-technology division said in a recent interview with The Wall Street Journal that the tech-market downturn would persist, though said he hoped for a potential recovery in the second half of 2023.
This year, worldwide semiconductor sales are expected to decline by 4.1% to roughly $557 billion, according to World Semiconductor Trade Statistics, an industry trade group.
Among the different types of chips, memory chips have taken the biggest price hits, as they are more commoditized and sensitive to supply-demand swings. As a category, memory chips are expected to see the steepest drop in revenue of 17% in 2023, versus a 1.2% decline for logic chips, a 1.6% increase for analog chips and a 3.7% increase for sensor chips, according to WSTS.
Samsung is the world’s largest producer of two major types of memory chips, DRAM, which enable devices to multitask, and NAND flash, which provide devices with storage capacity. The memory business drives most of the company’s income.
In the fourth quarter, prices of Samsung’s DRAM and NAND flash are projected to have both fallen by nearly 30% on a quarterly basis, according to a report last month by Goldman Sachs.
The investment bank forecast Samsung’s semiconductor unit’s operating profit for the October-December quarter to reach 1.5 trillion won, an 83% drop year-over-year. It also projected Samsung’s memory business would record an operating loss starting from the first quarter of this year due to steep losses in the NAND flash business.
Other players in the memory industry have issued grim outlooks. Rival American memory chip maker Micron Technology Inc. said last month that revenue for its latest quarter had dropped by nearly half and that it would curtail its spending. In November, it had announced plans to reduce its memory supply for the current quarter.
The memory-chip sector was in the throes of the most severe supply-demand imbalance in 13 years and profitability would remain challenged through 2023, said Micron Chief Executive Sanjay Mehrotra.
South Korea’s SK Hynix Inc., No. 2 in the memory business, said in October that it would cut its 2023 capital expenditure by more than 50% from the prior year because of deteriorating market conditions.
“I would say the current downturn is very severe for everyone involved in an unprecedented manner,” Noh Jong-won, SK Hynix’s chief marketing officer, said at the time.