Samsung Electronics is anticipating a significant decline in profits for the second quarter of 2023, projecting a 96% plunge. The weak demand for memory chips is cited as the primary reason for this decline. The company estimates an operating profit of 600 billion Korean won ($459 million) for the quarter, a considerable drop from 14.1 trillion Korean won recorded during the same period last year. If realized, this would mark Samsung’s lowest quarterly profit since 2009.
Market analysts had expected a profit of 555 billion Korean won, indicating that Samsung’s forecast is in line with those estimates. The anticipated revenue for the second quarter is 63.75 trillion Korean won, reflecting a 17.4% decrease compared to the previous year’s 77.2 trillion Korean won. The full earnings report is scheduled to be released on July 27.
During the pandemic, there was a surge in demand for consumer electronics, leading smartphone and PC manufacturers to stockpile memory chips. However, the current scenario has changed, with consumers purchasing fewer electronic devices due to rising inflation. Consequently, there is now an excess of chip inventories, resulting in a decline in memory chip prices.
SK Kim, the executive director of Daiwa Securities Capital Markets, pointed out that weak demand continues to be a factor, but the focus now shifts to the supply of memory chips. Samsung Electronics had already announced a significant production cut in April, following the lead of other major chipmakers such as SK Hynix and Micron. It is anticipated that this production reduction will have an impact in the third quarter.
Kim also mentioned that Samsung and SK Hynix may benefit from the U.S. ban on sales of Micron products in China, as it could generate additional demand for their products. Micron, based in the U.S., is the third-largest DRAM chipmaker globally, trailing Samsung and SK Hynix. However, the weak demand from China due to production uncertainties remains a concern.
The U.S. has granted one-year waivers to Samsung and SK Hynix, allowing them to continue importing advanced tools for their China plants. Initially set to expire in October, these exemptions are now expected to be renewed for an extended period, as reported by a U.S. official to the Wall Street Journal.
In the first quarter of 2023, Samsung reported an operating profit of 640 billion Korean won, which was a significant decrease from the previous year’s 14.12 trillion won.
Following the news of the profit plunge forecast, Samsung’s shares experienced a 2% decline in Friday morning trade.