Samsung profits fell due to the rapid decline in demand for chips

  • Samsung’s estimated third-quarter profit is 10.8 trillion won, down 32% year-on-year
  • The conditions of the financial memory chips deteriorated at the speed of the analyst
  • A high-end phone requires a more flexible analyzer

SEOUL, Oct. 7 (Reuters) – Samsung Electronics Co., Ltd. (005930.KS) It cited a worse-than-expected 32% drop in quarterly operating profit on Friday, as the economic slowdown slashed demand for the electronic devices and memory chips that go into it.

Analysts said Samsung’s memory chip shipments likely came in less than already low expectations and prices could drop further this quarter, as customers react to rising inflation, higher interest rates and the impact of Russia’s invasion of Ukraine.

Samsung, the world’s largest maker of memory chips, smartphones and TVs, is a leader in global consumer demand and its disappointing preliminary results add to a wave of falling earnings and a bleak outlook.

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Estimated profit fell to 10.8 trillion won ($7.67 billion) in the July-September period — the first annual decline in nearly three years — from 15.8 trillion won a year earlier, the company said in a preliminary earnings statement.

The score was 8.5% lower than the 11.8 trillion won SmartEstimate from Refinitiv.

Businesses and consumers have tightened their belts, with memory chip buyers such as smartphones and PC makers putting off new purchases and using up existing inventory, driving down shipments and ushering in an industry disruption cycle.

“The memory chip business is worse than expected, and DRAM chip shipments may fall by more teens than in the second quarter,” said Park Sung-soon, an analyst at Cape Investments and Securities.

“The trend in price negotiation appears to indicate that customer demand worsened rapidly during the quarter.”

Analysts expect memory chip prices to continue falling in the current quarter, causing a further decline in Samsung’s fourth-quarter earnings. Demand is not expected to recover until early next year.

Rival Micron Technology (MU.O) Last week it became the first memory chip maker to officially reduce its investment plans for next year, and its biggest competitor SK Hynix (000660.KS) hinted at a possible cut back on investment.

Chipmaker Advanced Micro Devices Inc on Thursday provided third-quarter revenue estimates that were about $1 billion less than previously forecast due to weak PC demand, suggesting that the chip downturn could be much worse than expected.

Samsung is not currently discussing cutting memory chip production, an executive told reporters in the United States on Wednesday, according to Yonhap News Agency.

“Investors will be interested to see if Samsung is considering cutting capital expenditures, planning a lot of chip equipment maintenance, or pursuing a strategy for profitability. This will indicate chip supply conditions,” Park said.

Samsung is scheduled to announce its detailed earnings on October 27, when executives will also give briefings to the media and analysts.

Its shares, which have fallen nearly 30% this year, are up 0.2% in morning trade, versus a 0.3% decline in the broader market. (.KS11).

High quality phone order

Counterpoint Research said Samsung’s estimated smartphone shipments in the third quarter were about 66 million, down 5% year-on-year, as Samsung launched its new foldable phones during the third quarter.

“The high-end and premium market is relatively resilient with strong demand despite the recent economic gloom,” said Liz Lee, associate director at Counterpoint. In the United States, “the initial sales of the Galaxy Z4 series were higher than those of the Galaxy Z3 series.”

Analysts said Samsung remains over-exposed to demand-driven businesses such as mobile phones and memory chips that are vulnerable to economic downturns, in the absence of a larger stake in long-term chip-making contracts.

“Samsung needs product lines with a large share of long-term agreements, exclusive market dominance and a premium brand with high consumer preference, but it still needs time to get there,” said Greg Roh, Head of Research at Hyundai Motor Securities.

Roh added that foldable display panels and advanced casting processes were “important” for the company to become less vulnerable to the economic downturn.

Samsung said quarterly revenue likely rose 3% from the same period a year earlier to 76 trillion won.

(1 dollar = 1407.6400 won)

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(Reporting by Joyce Lee and Hekyung Yang); Editing by Muralikumar Anantharaman and Richard Boleyn

Our criteria: Thomson Reuters Trust Principles.

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