Samsung Warns of Weaker Chip Demand for Phones, PCs Amid Recession Worries

Samsung Electronics cautioned chip demand from smartphone and PC makers would weaken further as people shop less, and that the more resilient demand from server clients may also see adjustments amid recession worries.

While the world's top maker of memory chips and smartphones turned in its best April-June operating profit since 2018 on strong server chip demand, it said its mobile business saw profits weakening amid geopolitical issues, inflation concerns, and higher components and logistics costs.

"Server (chip demand) is less affected by macro issues... But if global recession occurs, server clients will also have to adjust their inventory," Jin-man Han, executive vice president at Samsung's memory chip business, said on a conference call.

"Due to high uncertainty, we are updating our forecast constantly," he added.

Earlier, San Diego-based Qualcomm warned of a hit to fourth-quarter sales from cooling smartphone demand, adding to the chorus of voices cautioning about chip sales as red-hot inflation squeezes consumer spending.

Also, the Ukraine crisis and COVID-19 lockdowns in China, the world's biggest smartphone market, have worsened supply-chain snags, forcing many phone makers to cut orders for chips.

Samsung will respond to the uncertainty by "flexible" deployment of short-term capital expenditure and disciplined supply of chips to fit demand, Han said without elaborating.

An analyst at Cape Investment & Securities, Park Sung-soon, said he expects a "capital expenditure cut by Samsung as well as SK Hynix for next year in memory chip business".

However, Samsung was relatively optimistic about demand for smartphones in the second half, saying supply disruptions for the company had mostly been resolved and that demand would either stay flat or even see a single-digit growth.

It is aiming for foldable phone sales to surpass that of its past flagship smartphone, Galaxy Note, in the second half. It is expected to unveil its latest foldables on August 10.

Best Q2 profit since 2018

Samsung's operating profit rose to KRW 14.1 trillion (roughly Rs. 86,142 crore) for the quarter ended June 30 from KRW 12.57 trillion (roughly Rs. 77,146 crore) a year earlier, its highest second-quarter profit since 2018 and also slightly more than its own estimate of KRW 14 trillion (roughly Rs. 85,925 crore).

The profit included chip profits of KRW 9.98 trillion (roughly Rs. 61,252 crore) and mobile business profits of KRW 2.62 trillion (roughly Rs. 16,080 crore).

"Fundamental demand for server (memory chips) will stay solid as the investments in core infrastructure and new growth areas such as AI and 5G are expected to keep expanding, centering on major data centre companies," Samsung said.

TSMC, the world's largest contract-chipmaker, earlier this month also touted demand for its high-tech chips used in data centres.

However, smaller rival SK Hynix 000660.KS said on Wednesday that demand for server memory chips was likely to slow in the second half as data centre customers use up their inventory while bracing for recession.

Samsung's April-June revenue rose 21 percent to KRW 77.2 trillion (roughly Rs. 4,73,781 crore).

A strong dollar also aided Samsung's chip profits, boosting its operating profit by about KRW 1.3 trillion (roughly Rs. 7,900 crore) versus the prior quarter, the company said.

Samsung's chip sales are made mainly in dollars, while it reports its profit in Korean won, so a firm greenback translates to higher chip earnings.

Shares of the company were up 0.7 percent in afternoon trade, versus a 1 percent rise in the wider market and a 0.3 percent drop in memory chip rival SK Hynix shares.

© Thomson Reuters 2022