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Samsung Electronics has reported a sharp 96% decline in operating profit for the second quarter, reaching its lowest level in 14 years. This drop is attributed to falling memory chip prices due to oversupply, despite production cuts. However, analysts predict that chip prices will stabilize in the current quarter and show signs of recovery next year.
In a report, Goldman Sachs analyst Giuni Lee stated, “We believe the worst quarterly loss from the semiconductor business was in the first quarter of 2023,” and forecasted that Samsung’s chip division would see a small profit in the fourth quarter. Samsung shares fell 2% on Friday morning, despite a 30% year-to-date increase, as the market anticipated a recovery.
Following the announcement of Samsung’s preliminary earnings, US rival Micron Technology provided a positive forecast for the ending quarter of June 1st, indicating a potential easing of the supply glut. Micron stated that the worst was over, while SK Hynix executives also anticipate a recovery this year driven by artificial intelligence demand.
Samsung’s operating profit is expected to decline to approximately Won600bn ($460mn) in the April-June quarter, compared to Won14.1tn profit in the previous year. This forecast, slightly better than the Won555bn estimate by Refinitiv SmartEstimate, reflects a 22% decrease in sales to about Won60tn.
The decline in operating profit was mainly influenced by the chip division, with estimated losses ranging from Won3tn-Won4tn. DRam chip prices used in smartphones, PCs, and servers are projected to fall up to 5% in the current quarter after experiencing an 18% drop in the second quarter. Industry experts believe that as Samsung’s DRam shipments surpass previous estimates and chip inventories decrease, the company’s cost structure will improve rapidly.
In response to the industry slump, Samsung aims to capitalize on the growing AI market. To meet the growing demand for AI-enabling servers, Samsung plans to increase its output of high-bandwidth memory chips, claiming a majority share of the market.
However, analyst Kim Un-ho from IBK Investment & Securities warns that the inventory surplus could impede the industry’s recovery. While AI chip demand continues to rise, there is a decline in demand for PCs and smartphones. Kim suggests that further production cuts are necessary for a chip price rebound this year.
To compete with Taiwan Semiconductor Manufacturing, Samsung plans to expand its capacity for contract manufacturing, focusing on producing chips for other companies. By 2025, Samsung aims to introduce cutting-edge 2-nanometer production of mobile chips.
Offsetting the losses in the chip division, Samsung’s mobile division is estimated to have profits around Won3.3tn, following successful cost-reduction measures.
Additionally, Samsung intends to unveil its latest foldable smartphones earlier than usual in Seoul to increase its market share in the premium phone segment before Apple launches its next iPhone.
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