Samsung, the South Korean electronics giant, witnessed a significant decline in its Q1 operating profit as prices for its memory chips continued to fall, and demand remained weak. The company’s revenue for the quarter stood at 63.75 trillion Korean won (approximately $47.6 billion), which is on par with its own guidance. However, it fell below the 63.9 trillion won estimated by analysts. Samsung’s operating profit for the quarter was 640 billion Korean won (roughly $478.55 million), down from 14.12 trillion won a year earlier. This is the company’s lowest operating profit since Q1 2009.
Production Cuts and Recovery Expectations
Samsung had earlier forecasted a massive drop in profit and announced a “meaningful” cut in memory chip production, following the lead of smaller rivals such as SK Hynix and Micron. This announcement was positively received by the market, despite the disappointing earnings number. SK Kim of Daiwa Securities Capital Markets mentioned that if there is a rebound, it will mostly be driven by the production cut and some restocking demand. SK Hynix also announced their disappointing numbers but guided for recovery, which further boosted investor sentiment.
Samsung is the world’s largest manufacturer of memory chips, which are used in personal computers, smartphones, and servers in data centers. The drop in prices of memory chips over the past few months is due to high inventories and a lack of demand. PC shipments witnessed a steep 29% year-on-year decline in Q1, leading to this drop in prices.
During the pandemic, smartphone and PC makers stockpiled chips as demand for consumer devices increased, but they are now grappling with excess inventories as consumers cut back on purchases due to rising inflation. Samsung expects limited demand recovery as large-scale data centers invest more conservatively, and customers continue to adjust inventories. However, the company also expects new smartphone launches, PC promotions, and expansion of new CPU adoption to boost memory chip demand gradually in the second half of the year.
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