Samsung Q3 Profit Set to Decline 25 Percent Amid Reduced Demand, Analysts Say

Samsung's third-quarter profit could tumble 25 percent, the first year-on-year decline in nearly three years, as an economic downturn saps demand for electronic devices and the chips that power them.

Globally, inflation is on the rise, central banks are aggressively hiking interest rates, fears of recession are growing and uncertainty about the fallout from Russia's invasion of Ukraine is ever-present. As a result, businesses and consumers alike have reined in spending.

Operating profit for Samsung, the world's biggest memory chip and smartphone maker, likely fell to KRW 11.8 trillion (roughly Rs. 68,710 crore) in the July-September quarter, according to a Refinitiv SmartEstimate from 22 analysts.

"Being the world's top memory chip maker, top in TV and mobile OLED displays, and top in smartphone shipments, Samsung is highly sensitive to the economy, with profits easily linked to demand," said Greg Roh, head of research at Hyundai Motor Securities.

It would be the first profit decline since the first quarter of 2020, early on in the pandemic, and the lowest level of quarterly profit since the first quarter of 2021. Until this latest quarter, robust demand for devices as people were forced to stay at home has driven large profit gains for the South Korean tech giant.

Operating profit for Samsung's chip business likely fell by nearly a third to 6.8 trillion won, an average of seven estimates showed.

Prices of some DRAM memory chips, widely used in smartphones and PCs, tumbled 14 percent in the quarter while prices for NAND flash chips, used in data storage, fell 8 percent, according to TrendForce data.

Shares in Samsung, which will announce preliminary results at about 5:10 am Friday, Indian Standard Time (IST), have fallen about 30 percent this year. That compares with a 37 percent slump for the Philadelphia Semiconductor index.

Samsung's mobile business is also expected to see profits tumble with forecasts calling for a 17 percent fall to KWR 2.8 trillion, although the launch of the company's pricy new foldable phones during the quarter raised the average selling price.

Kim Yang-jae, an analyst at Daol Investment & Securities, estimates that Samsung's smartphone shipments dropped 11 percent in the quarter from the same period a year earlier to about 62.6 million smartphones after distribution channels cut orders.

Memory chip rival Micron last week significantly cut its investments for the next year and warned of tougher times ahead.

© Thomson Reuters 2022