By
Mayowa Adebajo
April 10th, 2024
Analysts say that expected figures from Samsung will likely reveal a heavy crash in operating profit as the company struggles to sell chips.
Samsung Electronics Co Ltd is expected to see an unprecedented crash in first-quarter profit. According to a Reuters publication, Samsung will likely suffer its worst profit crash in 14 years as it struggles with excess memory chip production. Samsung is currently unable to sell its memory chips as demand continuously wanes.
The general market awaits Samsung’s preliminary first-quarter results this week, with detailed results expected later in the month. Speculations suggest that Samsung’s official figures will confirm what is already thought to be trying times for the multinational conglomerate.
For instance, 27 Refinitiv SmartEstimate analysts expect a 92% crash in operating profit, to 1.08 trillion. According to company figures cited by Reuters, this is the lowest since the 590 billion profit recorded at the end of 2009’s first quarter. It is also a far cry from the 14.12 trillion won operating profit recorded in 2022.
Samsung recently launched a new flagship smartphone, the Galaxy S23. Although analysts expect the new product to pull its weight in profit, it would likely not prevent Samsung’s profit from the crash caused by the chip surplus.
Crash in Expected Figures May Spell More Problems for Chip Industry
As of 2022, Samsung is the world’s largest memory chip, smartphone, and TV maker. Usually, the company is a strong enough predictor for related trends. Consequently, a plunge as heavy as the expected may be more than just a confirmation of the economic drag. Samsung has been unable to sell these memory chips as the usual buyers, including computer manufacturers and data centers, have significantly reduced their purchases. Instead of new purchases, these companies are simply selling up their reserves to meet demand.
The economic decline has also seen a crash in the price of memory chips. According to market intelligence provider TrendForce, the prices of DRAM memory chips, used for PCs and smartphones, fell nearly 20% in the quarter. TrendForce also says NAND flash chips, used for data storage, fell between 10% and 15% in the same period.
Samsung Continues with Investments Despite Struggling with Profit
In 2022, Samsung’s total revenue was 302.2 trillion won, an 8% increase from the 279.6 trillion recorded in 2021. However, the company’s operating profit for the quarter that ended in December was 4.3 trillion won. This was a 69% crash compared to the same period in 2021. In a January statement, Samsung said it “expects the impacts of the economic downturn to continue for the time being” in 2023. Regardless, the company expects that demand will “begin recovering” sometime in H2 2023.
Nevertheless, Samsung’s investments are not slowing down. Last month, Samsung Group said it would invest up to 300 trillion Korean won (nearly $228 billion) in South Korea for a new semiconductor complex. The complex is expected to be the world’s largest.
Samsung already has support from the South Korean government. The government wants the complex outside Seoul and hopes it would provide several jobs for residents in the area.