Samsung Chips Take a Beating, Profit Set to Slump 80%

Samsung Electronics’ third-quarter profit is expected to drop 80% from a year earlier as the effects of an ongoing global chip glut drive losses in what is usually the South Korean tech giant’s cash cow business. The world’s biggest maker of memory chips, smartphones, and televisions will announce its third-quarter preliminary earnings results on Wednesday. Operating profit likely fell to 2.1 trillion won ($1.56 billion) in the July-September period, according to an LSEG Smart estimate from 19 analysts, weighted toward those who are more consistently accurate.

Samsung, the largest maker of memory chips and a significant smartphone supplier for companies such as Apple and Xiaomi in China, saw its chip business slump last quarter as chip buyers cut back on purchases to reduce inventories, further hurting prices. Its mobile business also missed expectations, with lower shipments due to a slowdown in global demand and stiffer competition from local Chinese rivals and Apple’s latest iPhone models.

As a result, the world’s top chipmaker is facing the most challenging chip market conditions in years. Analysts expect memory chip prices to fall further this quarter as the lingering shortage pushes buyers to continue cutting back on purchases and use existing inventory. The prices of DRAM memory chips – widely used in smartphones, PCs, and servers – have fallen about 13% to 18% this year as buyers refrained from new purchases and slashed their inventory values.

Samsung’s cuts to chip production have also hurt economies of scale, lifting the costs of making chips. Demand for memory chips in artificial intelligence, such as high-bandwidth memory (HBM), remains a bright spot. Still, the company trails rival SK Hynix in developing chips and securing clients such as AI-chip leader Nvidia.

In addition, the company’s LCD panel business saw a rise in demand from premium foldable smartphones and strong seasonality this quarter. The firm aims to sustain growth in the segment by securing more market share with innovative products, such as foldable TVs and displays for automobiles, while bolstering sales of Galaxy Ecosystem devices like tablets and wearables.

Despite the difficult conditions, Samsung is strengthening its competitiveness and profitability by focusing on pre-emptive investments and innovation, including developing differentiated technologies and effective supply chain management. It also pursues stable earnings by strengthening its cost competitiveness through high-yield production, flexible manufacturing, and efficient business management.

Analysts said that the company’s efforts to become less vulnerable to demand fluctuations could boost earnings in the long run. “Samsung needs product lines with a high share of long-term agreements, exclusive market dominance, and a premium brand with high consumer preference to become less exposed to economic downturns,” HI Investment & Securities’ Song Myung-sup said. He added that technologies such as foldable display panels and advanced foundry processes are crucial to achieving that goal. In the meantime, analysts said investors should look for a steady improvement in chip pricing and a rebound in smartphone and tablet demand to mitigate the current weakness.

Anthony Jones

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