A man walks past the Samsung logo displayed on a glass door at the company’s Seocho building in Seoul on April 7, 2023.
Jung Yeon-je | Afp | Getty Images
Samsung Electronics is anticipating a massive 96% drop in profits for the second quarter of 2023 due to sluggish demand for memory chips.
The company, which is the world’s largest producer of dynamic random-access chips, projects operating profit to be 600 billion Korean won ($459 million) from April to June, significantly lower than the 14.1 trillion Korean won recorded in the same period last year.
If these estimates hold true, it will mark Samsung’s lowest quarterly profit since the first quarter of 2009, when it recorded 590 billion won in profit.
According to Reuters, this second-quarter profit forecast aligns with analyst expectations of 555 billion Korean won, as per Refinitiv SmartEstimate.
Samsung also expects revenue in the second quarter to be 63.75 trillion Korean won, a 17.4% decline from the 77.2 trillion Korean won reported a year ago.
The company plans to release its comprehensive earnings report on July 27.
We are optimistic that prices will rebound by the end of this year or early next year.
SK Kim
Executive Director, Daiwa Capital Markets
During the pandemic-induced surge in demand, smartphone and PC manufacturers stockpiled memory chips. However, these companies are now facing excess chip inventories as consumers reduce their purchases due to rising inflation. Consequently, memory chip prices have plummeted.
“Demand has remained weak. Currently, the crucial factor is the supply of memory chips. Samsung Electronics announced significant production cuts in early April, so we anticipate improvements in the third quarter,” said SK Kim, the executive director of Daiwa Securities Capital Markets, in an interview on CNBC’s “Squawk Box Asia.”
In April, Samsung announced a meaningful reduction in memory chip production, following the lead of smaller competitors like SK Hynix and Micron.
“With this development, we believe that prices will recover by the end of this year or early next year,” added Kim.
Kim also mentioned that Samsung and SK Hynix, South Korea’s second-largest chipmaker, may benefit from increased demand resulting from the U.S. ban on Micron products in China. Micron, a U.S.-based company, is the third-largest DRAM chipmaker after Samsung and SK Hynix.
“However, there is also weak demand from China due to production uncertainties,” Kim noted.
The U.S. has granted Samsung and SK Hynix one-year waivers to continue importing advanced tools for their China plants. Although these exemptions were initially set to expire in October, a U.S. official has stated that they will be renewed for the foreseeable future, as reported by the Wall Street Journal.
In the first quarter of this year, Samsung reported an operating profit of 640 billion Korean won, a significant decrease compared to the 14.12 trillion won recorded in the same period last year.
In Friday morning trade, Samsung shares dropped by 2%.
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