Samsung Electronics Q2 Profit Fell Over 95 Percent Amid Chip Oversupply, Weaker Demand

Samsung Electronics on Thursday reported a more than 95 percent plunge in operating profits in the second quarter owing to weak demand for memory chips.

The firm is the flagship subsidiary of South Korean giant Samsung Group, by far the largest of the family-controlled conglomerates that dominate business in Asia's fourth-largest economy.

Operating profit from the April to June period was KRW 668.5 billion (roughly Rs. 3,800 crore), down from KRW 14.1 trillion (roughly Rs. 89,072 crore) from a year earlier, Samsung said in a statement.

This marks the firm's worst quarterly profit since the first quarter of 2009.

Samsung's second-quarter net profit fell 84.5 percent to KRW 1.72 trillion, and sales dropped 22.3 percent to 60 trillion won.

The firm — One of the world's largest makers of memory chips and smartphones — blamed weak demand for its chips and mobile phones, but offered an optimistic outlook for the remainder of the year.

"Global demand is expected to gradually recover in the second half of the year, which should lead to an improvement in earnings driven by the component business," it said, but added "continued macroeconomic risks could prove to be a challenge."

South Korean chipmakers, led by Samsung, enjoyed record profits in recent years as prices for their products soared, but the global economic slowdown has dealt a blow to memory chip sales.

Demand swelled during the pandemic as consumers bought computers and smartphones during lockdowns, prompting chip makers to ramp up production.

But demand quickly diminished as lockdowns lifted and weakened further in the face of soaring inflation and rising interest rates.

Joanne Chiao, an analyst at market research firm TrendForce, said output would decrease further — by an estimated 9.3 percent — this year owing to a weak overall economy.

"Consumer demand has weakened, leading to budget cuts by companies and ongoing order cancellations," Chiao added.

TrendForce forecast price declines of DRAM chips — often used in PCs and smartphones — to slow in the second half of the year as chipmakers tighten supply after prices plunged as much as 18 percent in the second quarter.

In April, Samsung said it would make a "meaningful" cut in memory chip production, following the lead of rivals SK Hynix and Micron.

The recent drop in profits has not deterred the firm from making bold investments.

In March, it unveiled plans to contribute $227 billion over the next two decades to building the world's largest chip centre in Yongin, south of Seoul.