During the Galaxy Unpacked event in Seoul, South Korea on July 26, 2023, Samsung unveiled the fifth generation of its foldable smartphones, including the Samsung Galaxy Z Fold 5 and Galaxy Z Flip 5. This release comes as Samsung faces a sluggish market for devices and upcoming competition from Apple Inc.
In terms of financial performance, Samsung Electronics reported a drop in second-quarter profit due to weak demand for memory chips. Here are the second-quarter results compared to estimates:
– Revenue: 60.01 trillion Korean won (approximately $47.21 billion), falling short of the expected 60.8 trillion Korean won from analysts.
– Operating profit: 0.67 trillion Korean won, surpassing the expected 0.6 trillion Korean won from the company itself.
Sales for Samsung decreased by 22% compared to the previous year, while operating profit plummeted by 95%. Samsung had previously estimated second-quarter revenue to be 60 trillion Korean won and operating profit to be 600 billion Korean won.
As the world’s largest producer of dynamic random-access memory chips, which are commonly found in smartphones and computers, Samsung acknowledges that global demand is expected to gradually recover in the second half of the year. This recovery is anticipated to positively impact the earnings of Samsung’s component business. However, the company also acknowledges that continued macroeconomic risks could pose challenges to this recovery in demand.
Despite the financial setback, Samsung’s shares rose by 2.29% on Thursday morning.
In terms of the memory business, Samsung acknowledged that robust demand for artificial intelligence (AI) contributed to higher DRAM shipments in the second quarter. The company attributed this increase to its focus on high bandwidth memory (HBM) and DDR5 products, anticipating strong AI application demand. Additionally, both DRAM and NAND flash memory chips experienced more limited price drops in the second quarter compared to the first, resulting in improved performance.
High-performance memory chips play a crucial role in training generative AI models, such as ChatGPT, enabling them to remember past conversations and user preferences for generating humanlike responses. Looking ahead, Samsung expects the market to gradually stabilize, partly due to increasing production cuts in the industry and customers’ completion of inventory adjustments. The company plans to focus on high-value-added products like DDR5, LPDDR5x, and HBM, along with increased investments in infrastructure, research and development, and packaging technology.
Switching gears, Samsung addressed the decline in overall demand for the mobile phone market, which can be attributed to ongoing macroeconomic challenges such as inflation. The Galaxy S23 series, which was launched in the first quarter, failed to maintain initial hype, and delayed market recovery further impacted second-quarter sales. Nonetheless, Samsung noted that the Galaxy S23 series performed better than its predecessor in terms of volume and value during the first half of the year. To boost sales, Samsung aims to elevate the sales of both the Galaxy S23 and Galaxy A series.
According to the International Data Corporation (IDC), global shipments of smartphones are expected to decrease by 3.2% in 2023, reaching 1.17 billion units. This revised forecast considers factors such as a weaker economic outlook and ongoing inflation. Smartphone and PC manufacturers continue to grapple with excess inventories of memory chips due to stockpiling during the pandemic. Inflation has led consumers to reduce their purchases of these goods, resulting in lower prices for memory chips.
Nabila Popal, IDC’s research director, commented on the recovery outlook, stating that conversations with channels, supply chain partners, and major OEMs indicate a pushed-out recovery and a weaker second half of the year. Consumer demand remains slow in all regions, including China.
To expedite inventory normalization, Samsung informed analysts during its earnings call that additional production cuts will be made for certain DRAM and NAND products. This move aligns with the previously announced capital expenditure cuts by Samsung, Micron, and SK Hynix.
Despite challenges in the memory business, Samsung maintains its leading position in the global foldable smartphone market by focusing on its newly launched high-end devices, namely the Galaxy Z Flip 5 and Galaxy Z Fold 5 series. While these foldable phones do not contribute significantly to profits, they offer a competitive advantage over Apple’s lineup and generate mindshare in the market.
Overall, Samsung aims to navigate the market challenges by diversifying its product portfolio and capitalizing on opportunities in the AI and foldable smartphone sectors.
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