Samsung, one of the biggest tech giants in the world, is expected to report its lowest profit in 14 years due to the fall in prices for memory chips, its biggest business. Despite high inventories, demand for memory chips remains weak, causing a memory chip glut in the market.
Lowest Profit since 2009
The South Korean company has guided that it will post operating profit of 600 billion Korean won ($449 million) for the first quarter, which would be Samsung’s worst profit since the first quarter of 2009. However, the company releases preliminary earnings guidance and does not provide detailed figures. The full first-quarter earnings report will be released on Thursday.
Memory Chip Glut
Samsung is the largest maker of memory chips in the world, which are used in everything from PCs to servers in data centers. During the pandemic, demand for consumer electronics was high, causing electronics companies to pile up chips. But due to inflation and macroeconomic concerns, buyers are now cutting back on purchases of these goods, leading to a memory chip glut. For instance, according to IDC data, PC shipments fell 29% year-on-year in the first quarter.
Production Cut and Future Expectations
To counter the current situation, Samsung has cut the production of its memory chips to a “meaningful level,” citing a worsening macroeconomic situation and falling consumer demand. Samsung had previously stated that it would not lower output, but has now followed its rivals SK Hynix and Micron in doing so. Analysts expect that this production cut will help boost prices.
Analysts at NH Investment and Securities predict that Samsung’s earnings should begin to rebound in earnest in the third quarter of this year, adding that production cuts will positively impact memory supply-demand dynamics. However, analysts at CrispIdea warn that memory chip losses are expected to persist in the coming quarters as inventories remain at all-time highs, putting further downward pressure on chip prices. Following the pandemic-era surge, tech demand has remained muted in the face of inflation and higher interest rates. Nevertheless, Mirae Asset Securities predicts that memory chip inventory levels at Samsung will peak in the second quarter, then decrease as demand for the company’s semiconductors picks up.
Samsung’s memory chip division is expected to post a 4.4 trillion Korean won loss in the first quarter, according to analysts at Mirae Asset Securities. Although Samsung’s profit is expected to hit a 14-year low, investors hope that the production cut will help boost prices. Nonetheless, analysts caution that Samsung’s business could face more pressure ahead as memory chip losses persist in the coming quarters.
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