Samsung Electronics on Thursday announced its poorest quarterly profits in 14 years, blaming a decline in consumer electronics spending and a global semiconductor glut that hurt its core memory division.
The South Korean firm, which is among the biggest producers of memory chips and cellphones worldwide, reported in a statement that operational profit dropped to 640 billion won ($478.6 million), or 95 percent less than a year ago.
Its revenues declined 18% to 63.75 trillion won in the first quarter, while its net income fell 86.1 percent to 1.57 trillion won.
According to the business, “overall consumer spending slowed amid the uncertain global macroeconomic environment”.
Samsung also attributed the decline in chip prices and the deteriorating demand for memory chips, which typically account for around half of company revenues.
The company’s semiconductor division posted losses of 4.58 trillion won, its first operating loss since 2009, when the global financial crisis of 2008 was only beginning to fade.
This, according to the report, was driven by “ongoing price declines and an increased valuation loss… amid deteriorating sentiment and ongoing effects of customer inventory adjustments brought on by protracted external uncertainties.”
In the second half of 2023, demand for memory was “expected to gradually recover,” it was stated, “amid projections that customer inventory levels will have decreased.”
The company is the flagship division of the enormous Samsung Group, by far the biggest of the family-controlled corporations that govern the fourth-largest economy in Asia.
Samsung’s operational profits fell by 70% year over year in the fourth quarter, and the first-quarter decline is the company’s third straight quarter of margin pressure.
Shares of Samsung were down 0.3% on Thursday morning.
– Scaling back production –
In recent years, Korean chipmakers, led by Samsung, saw record profits as prices for their products rose. However, the global economic slump has hurt memory sales.
Consumer demand increased throughout the epidemic as they purchased new smartphones and PCs during lockdowns, forcing chip manufacturers to increase production.
But when lockdowns weakened more in the face of skyrocketing inflation and rising interest rates, demand quickly decreased.
In a rare step for the company, Samsung announced this month that it will reduce memory chip output to a “meaningful” level to address the excess. Previously, the company had claimed it would only make mino
The United States’ Micron Technology and South Korea’s SK Hynix have both decreased their output.
According to a research published by Eugene Investment & Futures, Samsung’s “active” efforts to escape the inventory bottleneck were “positively evaluated” in light of their impact on market sentiment and memory chip demand.
“Even if the pace of recovery for demand remains slow, the semiconductor industry is highly likely to recover in the second half if cooperation among the chip makers on production cuts goes well,” it added.
In the first quarter, Samsung’s new flagship Galaxy 23 smartphones helped offset losses in the chip industry, but analysts anticipate conditions to deteriorate and potentially result in Samsung’s first earnings loss since 2008.
Samsung has continued to make risky investments despite the recent decline in profitability; in March, it announced plans to invest $227 billion over the next 20 years on the construction of the largest chip center in the world in Yongin, south of Seoul.
