Samsung blamed weak demand for memory chips.
Seoul, South Korea:
Samsung Electronics on Thursday reported its worst quarterly profit in 14 years, blaming slowing consumer spending on electronics and a global microchip glut that hit its core memory business.
The South Korean company – one of the world’s biggest makers of memory chips and smartphones – said in a statement that operating profit fell 640 billion won ($478.6 million) – down 95 percent from a year earlier.
The company’s first-quarter net income fell 86.1 percent to 1.57 trillion won, and sales fell 18 percent to 63.75 trillion won.
The company said that “overall consumer spending slowed amid an uncertain global macroeconomic environment”.
Samsung also blamed weak demand for memory chips — which typically generate about half of the firm’s profits — and falling chip prices.
Samsung’s chip division reported a loss of 4.58 trillion won, its first operating loss since 2009 – when the world was emerging from the 2008 financial crisis.
It said this was due to “sustained price declines and an increased valuation loss … amid weak sentiment and the continued effects of inventory adjustments by customers due to prolonged external uncertainties,” the company said.
Memory demand was “expected to recover gradually” in the second half of 2023, “amid projections that customer inventory levels will decline.”
The firm is the flagship subsidiary of the giant Samsung Group, the largest of the family-controlled conglomerates that dominate business in Asia’s fourth-largest economy.
The first-quarter decline is the third consecutive margin squeeze for Samsung, which saw a 70 percent drop in fourth-quarter operating profit year-on-year.
reduce production
Korean chip makers – led by Samsung – have enjoyed record profits in recent years as prices for their products soared, but the global economic downturn has dealt a blow to memory sales.
Demand soared during the pandemic as consumers bought new computers and smartphones during lockdowns, prompting chip makers to ramp up production.
But demand fell sharply as the lockdown lifted and weakened further due to rising inflation and rising interest rates.
Samsung said this month it would reduce memory chip production to “meaningful” levels to address oversupply, an unusual move by the firm, which previously said it would make only small adjustments.
South Korea’s chip maker SK Hynix and America’s Micron Technology have also reduced production.
A report released by Eugene Investment & Futures said Samsung’s “proactive” efforts to break out of its inventory rut were “evaluated positively” given its impact on market sentiment and demand for memory chips.
“Even if the pace of demand recovery remains slow, if cooperation among chip makers on production cuts goes well, the semiconductor industry is likely to recover in the second half.”
While solid sales of its new flagship Galaxy 23 smartphone helped offset losses in the chip sector in the first quarter, analysts expect conditions to worsen in the April to July period and even the worst since 2008. Samsung’s first profit will be loss.
“We cannot rule out the possibility of Samsung turning red when the impact of the new smartphone wears off,” Hwang Min-seong, an analyst at Samsung Securities, told Yonhap news agency.
The recent drop in profits hasn’t deterred Samsung from making bold investments — in March, it unveiled plans to contribute $227 billion over the next two decades to build the world’s largest chip center in Yongin, south of Seoul.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)