Samsung beats market expectations with impressive resilience despite chip demand slump

Samsung has issued a warning, stating that its operating profit for the third quarter is expected to have dropped by approximately 78% due to reduced consumer demand for its devices. The South Korean company has projected an operating profit of around 2.4 trillion Korean won ($1.8 billion) for the quarter ending in September, in contrast to the 10.85 trillion won ($8 billion) achieved during the same period in the previous year.

Revenue was forecasted to decrease by 12.7% compared to the previous year, further extending the gloomy streak for the electronics manufacturer. Over the past few months, the company has witnessed significant losses due to the prevailing global economic uncertainty, causing consumers worldwide to prolong the usage of their cell phones and laptops.

Global smartphone shipments are expected to experience a 6% decline, falling below 1.2 billion units in 2023, making it the worst year in a decade, as per Counterpoint Research. The firm highlighted in an August report that consumers in key markets like North America show reluctance towards upgrading their devices.

Samsung is already experiencing the consequences of this situation. The company's operating profit declined by 95% in the first quarter, following a significant loss in its semiconductor business. The second quarter also revealed similar outcomes.

The 6.7-inch Z Flip 5 folds into a 3.4 inch device.

Samsung

Samsung, the world's largest memory chip and smartphone manufacturer, is currently experiencing losses due to a surplus in certain regions within the global semiconductor industry. This comes after a significant supply shortage during the Covid pandemic. Additionally, Samsung's latest foldable phone remains exorbitantly expensive.

Consultancy Bain indicates that the semiconductor industry has experienced a post-pandemic rebound, leading to an increased capacity that has prompted concerns of potential oversupply. In a recent report, Bain acknowledged this trend as a cyclical occurrence, attributing it to the normal fluctuations within the industry.

Samsung has informed its shareholders that it expects a gradual resurgence in worldwide demand during the latter half of the year. According to the company's July earnings statement, this is likely to result in enhanced earnings, primarily driven by their component business.

"However, continued macroeconomic risks could prove to be a challenge," the company cautioned.

TM Roh, President and Head of Mobile Experience Business at Samsung Electronics, Cristiano Amon, President and CEO of Qualcomm Incorporated, and Hiroshi Lockheimer, SVP of Platforms and Ecosystems at Google, take the stage at the unveiling of Samsung Electronics' newest flagship smartphones in San Francisco, California, U.S., on February 1, 2023. REUTERS/Peter DaSilva (CORRECTED ID)

Samsung flags massive drop in quarterly profit as chip glut drags on

Analysts believe a downturn in memory chips will also turn around, benefiting manufacturers like Samsung.

Nomura analysts, in a recent client note, predict an acceleration in the sector's recovery for the remainder of the year. They anticipate that memory prices will either remain stable or experience a slight increase in the third quarter, followed by robust growth in the fourth quarter. The analysts maintain a buy rating on Samsung's stock.

The companys shares climbed 3.5% in Seoul on Wednesday following its announcement.