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On Thursday, Samsung Electronics announced its lowest quarterly profits in 14 years, attributing the decline to weakened consumer spending on electronics and a surplus of microchips worldwide that impacted its core memory business.
The South Korean corporation, which is among the biggest manufacturers of memory chips and smart phones globally, disclosed that its operating profit decreased by 95 percent. This is equivalent to 640 billion won ($478.6 million), compared to the previous year. Additionally, its net income for the first quarter fell by 86.1 percent to 1.57 trillion won, while sales experienced an 18 percent decline to 63.75 trillion won.
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Samsung Electronics attributed its worst quarterly profits in 14 years to slowing consumer spending, weakening demand for memory chips, and falling chip prices. The chip division reported an operating loss of 4.58 trillion won, the first since 2009.
Samsung Electronics announced a decrease in its first-quarter earnings due to declining prices and increased valuation losses caused by weakened market sentiments and extended customer inventory adjustments due to external uncertainties. However, demand for memory is expected to improve in the second half of 2023 as customer inventory levels decline. Samsung Electronics is the leading subsidiary of Samsung Group, which is the largest family-controlled conglomerate in Asia’s fourth-largest economy.
Samsung Electronics has experienced a third consecutive margin squeeze in the first quarter due to declining operating profits. Chipmakers, particularly Samsung, have had record profits over recent years as product prices increased. However, the global economic slowdown and declining memory sales have affected the Korean chipmakers. During the pandemic, consumers purchased new computers and smart phones, leading to increased demand and production by chipmakers.
Demand for memory chips declined rapidly as lockdowns lifted and further weakened due to increasing inflation and interest rates. To address the oversupply, Samsung Electronics announced it would significantly reduce memory chip production, a notable move by the company that previously stated it would only make minor adjustments. SK Hynix and Micron Technology have also scaled back production to address the oversupply.
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Samsung’s efforts to address its inventory issues have been positively evaluated, according to a report by Eugene Investment & Futures. The report also suggests that if chip makers cooperate on production cuts, the semiconductor industry is likely to recover in the second half of the year, even if demand remains slow. Although Samsung’s new flagship smart phones helped offset deficits in the chip sector in the first quarter, analysts predict that conditions will worsen in the April to July period, potentially leading to the company’s first profit loss since 2008.
An analyst at Samsung Securities has warned that Samsung could potentially suffer losses when the impact of its new smart phones diminishes. However, this has not stopped the company from announcing plans to invest $227 billion over the next two decades in building the world’s largest chip centre in Yongin, south of Seoul.
