Samsung Expects a 35% Drop in Operating Profit: What’s Behind the Decline?

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Samsung Expects 35% Drop in Operating Profit for Q4 2023

Samsung Electronics, the world’s largest maker of memory chips, has announced that it anticipates a 35% decrease in operating profit for the fourth quarter of 2023. This projection falls short of expectations and is a significant decline from the same period the previous year. The company expects operating profit to be 2.8 trillion South Korean won (.13 billion), compared to 4.31 trillion won in the previous year’s Q4. The forecasted revenue for the quarter is 67 trillion won, a 4.9% decrease from the same period in 2022.

Missing Expectations by a Wide Margin

The projected operating profit of 2.8 trillion won for Q4 2023 falls significantly short of LSEG’s SmartEstimate of 3.7 trillion won. The SmartEstimate is based on the expectations of analysts who have consistently proven to be more accurate in their predictions.

Samsung is the world’s biggest maker of memory chips.

The Impact of Memory Chip Prices

The decline in Samsung’s operating profit can be attributed to the volatility of memory chip prices. Last year, these prices plummeted due to excess inventories resulting from the COVID-19 pandemic and weak demand for products such as smartphones and laptops.

However, there is hope for a rebound in memory chip prices. Analyst SK Kim from Daiwa Capital Markets predicts that prices began to recover in the fourth quarter of 2023 due to production cuts by suppliers and an increase in demand for mobile and PC devices.

“The demand for AI across all major applications will drive the overall semiconductor sales market to recover in 2024.”

Galen Zeng, IDC

A Challenging Year for Samsung

The decline in operating profit is not a new trend for Samsung. In the third quarter of 2023, the company’s operating profit dropped by 77.6% compared to the previous year, although it still exceeded expectations. The second quarter of 2023 saw an even greater decline of 95% compared to the same period in 2022.

Anticipated Recovery and Future Outlook

Samsung and SK Hynix, the second-largest DRAM memory chip maker, have indicated that weak demand may have reached its lowest point following production cuts. Analysts expect further price increases in the first half of 2024, leading to a significant rebound in earnings for memory makers in the second half of 2024 and into 2025.

Galen Zeng, a senior research manager at IDC, predicts that the demand for AI in various applications will drive the recovery of the semiconductor sales market in 2024. Zeng also believes that the semiconductor supply chain will bid farewell to the downturn in 2023.

Samsung is the world’s biggest maker of memory chips.

Overall, while Samsung’s projected drop in operating profit for Q4 2023 is disappointing, there is optimism for a recovery in the memory chip market. As the demand for AI continues to grow and memory chip prices stabilize, Samsung and other memory makers can expect improved earnings in the coming years.