Samsung Electronics Expects Q2 Profit to Drop More Than 95 Percent Amid Ongoing Chip Glut

Samsung Electronics reported a likely 96 percent plunge in second-quarter operating profit on Friday, largely in line with forecasts, as an ongoing chip glut drives large losses in the tech giant's key business despite a supply cut.

The world's largest memory chip and smartphone maker estimated its operating profit fell to KRW 600 billion(roughly Rs. 3,795 crore) in April to June, from KRW 14.1 trillion (roughly Rs. 89,072 crore) a year earlier in a short preliminary earnings statement.

It would be Samsung's lowest profit for any quarter since a KRW 590 billion (roughly Rs. 3,729 crore) profit in the first quarter of 2009, according to company data.

The profit was largely in line with a KRW 555 billion (roughly Rs. 3,508 crore) Refinitiv SmartEstimate, which is weighted toward forecasts from analysts who are more consistently accurate.

Shares in Samsung fell 1.4 percent in early morning trade, underperforming a 0.6 percent drop in the wider market.

Samsung is due to release detailed earnings on July 27.

In the January-March quarter, the company reported a whopping KRW 4.58 trillion (roughly Rs. 28,938 crore) loss in its chip business as memory chip prices fell further and its inventory values were slashed.

But in the second quarter, losses in Samsung's memory chip business likely shrank due to more sales of DRAM chips, used in PCs, mobile phones and servers, analysts said.

"Although memory prices fell, the drop was not as large as feared," said Park Kang-ho, analyst at Daishin Securities.

"When full earnings are announced, investors will be looking for third-quarter signals - how much effect the production cut will have in the third quarter, any demand recovery, and whether higher-end DRAM and high bandwidth memory (HBM) products are set to improve (Samsung's) profit mix."

Bottoming Out 

The memory chip downturn that began last year is expected to hit bottom in the third quarter, analysts said, although the rebound may start small.

"DRAM memory prices are expected to rebound in earnest from the fourth quarter, and double-digit quarterly increases are expected from the second half of 2024," said Greg Roh, head of research at Hyundai Motor Securities.

"Unlike its competitors, (Samsung) is expected to maintain its investment in memory chips this year ... which will pay off in increased market dominance in 2025."

In the mobile business, Samsung is expected to unveil its latest foldable smartphones later this month in Seoul, weeks earlier than usual — seen by analysts as a bid to dominate the premium phone market for longer before rival Apple releases its next iPhone.

However, analyst outlooks for Samsung's mobile profits in the third quarter were mixed as consumer sentiment in the global smartphone market remained weak, despite some recent recovery in economic indicators.

Revenue in April to June likely fell 22 percent from the same period a year earlier to KRW 60 trillion (roughly Rs. 3,79,076 crore), Samsung said in the statement.

© Thomson Reuters 2023