Samsung's Quarterly Profit Set to Drop 92 Percent as Chip Glut Worsens Amid Economic Slowdown

Samsung Electronics' first-quarter profit is expected to plunge 92 percent to the lowest for any quarter in 14 years, as a chip glut worsens and buyers like data centres and computer makers slow purchases amid a global economic slowdown.

The launch of a new flagship smartphone is expected to have supported mobile profits, but its chip division likely reported quarterly losses of more than KRW 3 trillion (roughly Rs. 18,903 crore) as memory chip prices fell and its inventory values were slashed, analysts said.

Samsung, the world's biggest maker of memory chips, TVs and smartphones as of 2022, is a bellwether for global consumption trends. It is expected to announce preliminary first-quarter results on Friday and full results later this month, in what is typically a seasonally weak period.

Operating profit likely fell to KRW 1.08 trillion (roughly Rs. 6,769 crore) in the quarter ended March 31, according to a Refinitiv SmartEstimate from 27 analysts, weighted toward those who are more consistently accurate.

That is lowest since a KRW 590 billion (roughly Rs. 3,700 crore) profit in the first quarter of 2009, according to company data, and compares with an operating profit of KRW 14.12 trillion (roughly Rs. 88,553 crore) last year.

Prices of DRAM memory chips, widely used in smartphones, PCs and servers plunged about 20 percent during the quarter, while prices for NAND flash chips used in data storage fell about 10 percent to 15 percent, according to TrendForce data.

Clients including data centre operators, smartphone and personal computer makers are refraining from buying new chips and instead using up inventories, as consumer demand for tech devices remains sluggish due to rising inflation.

Chip buyers also remain conservative about making new investments as interest rates soar.

Rivals Micron Technology and SK Hynix have slashed investment plans as a result, expecting the chip downturn to last at least until the second half of 2023.

Samsung, in contrast, has not yet changed its investment plans. Analysts have said the tech giant is using the opportunity to expand its market share lead over competitors so it can take advantage of an eventual rebound in demand.

In February, Samsung Electronics said it planned to borrow KRW 20 trillion from unit Samsung Display to use as operational funds until August 2025.

Operating profit at Samsung's mobile business likely fell by 9 percent to KRW 3.46 trillion in the March quarter, an average of seven analyst estimates showed.

While demand for smartphones is sluggish overall, premium models are more resilient, analysts said.

Profits were supported by the higher-margin flagship models including the Galaxy S23 series launched during the quarter, which accounted for about 20 percent of total sales, IBK Investment & Securities analyst Kim Woon-ho said.

© Thomson Reuters 2023