Samsung expects profit dive as demand for memory and devices continues to slow
Analysts believe company may cut back on production like Micron and SK hynix
Samsung has released earnings guidance for its fourth quarter, and the prelim figures are sobering. The Korean tech giant said it expects an operating profit of ₩4.3 trillion ($3.4 billion) – a 69 percent drop from Q4 2021.
That's the largest profit drop the company has faced in nearly a decade, but it hasn't seemed to phase Samsung investors, with stock up today by around a percent as of writing, despite missing analyst predictions of ₩6.7 trillion ($5.32 billion) in profit for the quarter ending December 31, 2022.
Samsung provided little by way of actual data in its early earnings guidance for Q4 2022, only sharing that the company saw around ₩70 trillion ($55 billion) in consolidated sales, and the aforementioned ₩4.3 trillion in profit. Full details will be shared on January 31, Samsung said.
Still, it isn't hard to understand why the chaebol made so much less money in Q4: a crash in the price of memory late in 2022 has been on analysts' radars since 2021, when Gartner predicted oversupply due to easing pandemic restrictions, which would in turn lead to reduced prices.
Gartner's prediction was echoed in June by analyst Omdia, which said the semiconductor market would slow down, with the added factor of rising inflation rates tacked on as a factor in slowed growth.
Fast-forward to August, and signs of chip demand evaporation began. By September experts began warning of an industry-wide slump. The holiday season did little to spur additional sales, with Samsung telling Bloomberg that chip and consumer device sales remained weak.
Several analysts said they hoped it would signal a decision to cut capital spending or supply, which CLSA analyst Sanjeev Rana told the publication Samsung has been adamant it wouldn't do.
"Fast deterioration in demand and deteriorating profitability means that management might be forced to consider the unthinkable, that is, memory production cuts," Rana said.
Other analysts said Samsung could see a turnaround earlier than it predicted if it opted to cut production.
Fellow South Korean memory maker SK hynix, which in October last year posted operating profit that plummeted 60 percent year-on-year for Q3 2022 to ₩1.7 trillion ($1.2 billion), said it was not "unexpected" because the memory biz is cyclical, but also labeled the current downturn "unprecedented" thanks to macroeconomic uncertainties and geopolitical issues.
The company said it would reduce its investments by over half of planned spend in 2023. Production volumes of less profitable products would also be dropped.
Meanwhile, Samsung co-CEO and chief of the company's consumer gadgets division Han Jong-hee gave his first interview this week since assuming the job more than a year ago.
Speaking to The Wall Street Journal on Wednesday, Han said he expected demand for tech products to remain low, but believes Samsung will see improved profits by the second half of 2023.
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- Risk-averse Kyocera gambles nearly $10b of own shares on semiconductor growth
- Micron plans staff decimation as demand dips to Great Recession levels
"A crisis usually creates a new opportunity. When everything's stable, it's hard to shake up the market order," Han said.
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He said Samsung plans to weather the downturn by focusing on further connecting its devices and software, which he explained would include things like setting washer cycle timers on a smartphone, automatically configure a microwave to properly heat food based on a barcode scanned from a phone and additional ecosystem-building integrations.
Analysts still believe Samsung's steady stock price is due less to its short-term ambitions and more to what investors hope it might do, DB Financial Investment analyst Eo Kyu-jin told CNBC. "Investors are hoping Samsung will need to reduce production, like Micron or SK hynix said they would, which would help the memory industry overall." ®