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| An advertisement of Samsung Electronics' Galaxy S23 smartphone is seen at the company's store in Seoul, Friday. The company announced its second-quarter earnings guidance saying operating profit in the period is likely to plunge 95.7 percent year-on-year due to weak chip demand. Yonhap |
Tech giant's Q2 profit plunges 95.7% to 14-year low amid chip downturn
By Baek Byung-yeul
Samsung Electronics is forecast to post its worst quarterly earnings in 14 years in the second quarter of the year as the chipmaker was hit hard by the worst-ever semiconductor downturn and weak smartphone demand, the company said Friday.
Analysts forecast that starting in the third quarter, it will rebound on the back of chip production cuts and shrinking inventory at client companies, an industry analyst said Friday.
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Experts said Samsung had struggled with high inventories of DRAM and NAND flash memory chips, which led to a decrease in the price of the chips, and less demand from key customers such as smartphones and data centers in the period.
However, they said Samsung's second-quarter operating profit estimate was much higher than market expectations and showed signs that the company is now on the road to recovery from the third quarter. Before the second-quarter announcement, data from market tracker FnGuide showed that Samsung was expected to post sales of 61.8593 trillion won and an operating profit of 281.8 billion won in the second quarter.
They added that Samsung was able to decrease its deficit in the memory chip business, which reached 4.58 trillion won in the first quarter, by cutting chip production and focusing more on high-priced products such as high-bandwidth memory (HBM) chips and DDR5 DRAM chips.
"Memory inventories will begin to decline toward the end of the quarter. The pace of DRAM's average sales price improvement is expected to accelerate as the share of DDR5 increases from the third quarter, led by servers," Chae Min-sook, an analyst at Korea Investment & Securities, said, adding that "Samsung's DRAM share could exceed 45 percent next year for the first time since 2016, thanks to sustained investment, unlike its competitors during the downturn."
"It is expected that the decline of memory chip inventory will be in full swing from the third quarter," Han Dong-hee, an analyst at SK Securities, added.
The experts' outlooks are in line with that of Micron Technology, one of the three major players in the memory semiconductor industry along with Samsung and SK hynix.
"We believe that the memory industry has passed its trough in revenue, and we expect margins to improve as industry supply-demand balance is gradually restored," Sanjay Mehrotra, CEO of Micron Technology, said, announcing the company's third quarter earnings on June 28.
Samsung did not provide further details as it released the earnings estimate for the second quarter. The company will announce its final second quarter earnings and share its performance by each business division on July 27.
The operating profit of 60 billion won was the lowest in 14 years since the company posted 59 billion won in the fourth quarter of 2009. Samsung, which has been struggling with shrinking demand for semiconductors since the fourth quarter of 2022, posted an operating profit of 64 billion won in the first quarter of this year, down 95.5 percent year-on-year.
FnGuide estimated Samsung's operating profit in the third quarter and the fourth quarter of this year is forecast to be at 3.69 trillion won and 4.98 trillion won, respectively.
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