Samsung Elec posts 1st qtly earnings drop in nearly 3 years

Samsung Electronics Co Ltd flagged a worse-than-expected 32% drop in quarterly operating earnings on Friday, as demand for electronic devices and the memory chips that power them shrank due to an economic downturn.

The world’s largest memory-chip and smartphone maker estimated its profit fell to 10.8 trillion won ($7.67 billion) in July-September – its first year-on-year decline in nearly three years – from 15.8 trillion won a year earlier.

The profit was 8.5% below an 11.8 trillion won SmartEstimate from Refinitiv.

Revenue likely rose 3% from the same period a year earlier to 76 trillion won, Samsung said in a short preliminary earnings release.

Samsung is due to release detailed earnings on October 27.

Samsung’s chip profits suffered from plunging memory chip prices due to weakening demand for consumer electronics, hurt by rising inflation, higher interest rates and the impact of Russia’s invasion of Ukraine, analysts said.

This has led memory chip buyers such as smartphone and PC makers to reduce purchases and use up existing inventory, driving down shipments and ushering in an industry downcycle.

Analysts expect memory chip prices to continue to plunge in the current quarter, especially due to a slump in mobile demand, causing a further dip in Samsung’s fourth-quarter profits.

Demand for memory chips is not expected to recover until early next year.

Rival Micron Technology (MU.O) last week became the first memory-chip maker to officially cut its investment plans for next year, and larger rival SK Hynix (000660.KS) has hinted at a possible investment cut.

Samsung is currently not discussing a memory chip production cut, an executive told reporters in the United States on Wednesday, according to Yonhap news agency.

Analysts have said Samsung remains over-exposed to demand dependent businesses such as mobile phones and screens that are vulnerable to economic downturns, in the absence of a larger share in long-term chip contract manufacturing.

“Samsung needs product lines with a high share of long-term agreements, exclusive market dominance and a premium brand with high consumer preference, but it still needs time to get there,” said Greg Roh, head of research at Hyundai Motor Securities.

Foldable display panels and advanced foundry processes were “important” for the company to become less exposed to economic downturns, Roh added. Reuters