Samsung’s quarterly profit drop to a 6-year low as consumers tighten their belts

The worldwide economic slump is depressing demand for electronic goods and casting doubt on the future of the memory chip sector, causing Samsung Electronics Co Ltd’s quarterly revenue to likely fall by 58% to its lowest level in six years. According to analysts, smartphone manufacturers and other clients delayed memory chip orders as consumers and businesses cut down on expenditures and investment in response to high inflation and rising interest rates, while handsets sold for less due to a decline in demand.

As the largest producer of memory chips, cellphones, and TVs worldwide, Samsung is a leading indicator of trends in global consumption. On Friday, the preliminary findings are anticipated, and the complete results will be released later this month.

According to a Refinitiv SmartEstimate from 21 analysts, operating earnings for Asia’s fourth most valuable listed firm likely decreased to 5.9 trillion won ($4.62 billion) in the October-December quarter. With an operating profit of 13.87 trillion won a year earlier, this would be Samsung’s lowest quarterly revenue since the third quarter of 2016.

“The demand has drastically decreased, which is the main cause of the performance. Chip and smartphone shipments, as well as prices, are anticipated to fall short of prior projections, “Kim Roko, an analyst at Hana Financial Investment, said.

According to the average of seven analyst forecasts, operating profit for Samsung’s chip unit likely decreased by 78% to 1.9 trillion won. Roughly half of the profits for the computer behemoth are often attributed to chips. According to TrendForce statistics, costs for select DRAM memory chips—commonly used in smartphones and PCs—fell 40% over the course of the year, while prices for NAND flash chips—used for data storage—fell 14%.

Rival manufacturers of memory chips Micron Technology (MU.O) and SK Hynix have drastically reduced their planned investments for 2023 in reaction to the memory downcycle, which is anticipated to extend at least until the second half of 2023.

Analysts predicted that Samsung would use its big resources to increase market share by mostly maintaining its investment plans throughout this crisis in order to be ready to benefit when the memory chip industry inevitably recovers.

In October, Samsung stated that it did not anticipate many changes to planned 2023 investments. As of the end of September, it had around 128.82 trillion won ($100.83 billion) in cash. Samsung’s mobile division’s profits are anticipated to decline as well; projections call for a 14% drop to 2.3 trillion won for the quarter. According to data source Counterpoint’s estimation, it shipped 63 million handsets in the quarter, including 62 million smartphones. In the fourth quarter of 2021, 72 million handsets were shipped.

After a 29% decline in 2022, Samsung shares recovered this week after South Korea promised tax cuts for investments in semiconductors. Comparatively, the Philadelphia Semiconductor index experienced a 36% decline in value last year.