Samsung profits fall in warning sign for global demand | Economy

Samsung Electronics Co reported a 32% drop in quarterly operating profits, worse than expected, as an economic slowdown reduced demand for electronic devices and the memory chips that go with them.

Estimated profit fell to 10.8 trillion won ($7.67 billion) in July-September – the first year-on-year decline in nearly three years – from 15.8 trillion won a year earlier, a the company announced Friday in a preliminary earnings release.

The result was 8.5% lower than an 11.8 trillion won SmartEstimate from Refinitiv.

Samsung’s memory chip shipments were likely below already lowered expectations and prices could fall further this quarter, analysts said, as customers react to rising inflation, higher interest rates interest and the effect of the Russian invasion of Ukraine.

Samsung, the world’s largest maker of memory chips, smartphones and TVs, is an indicator of global consumer demand and its disappointing early results come on top of a wave of earnings downgrades and bleak forecasts.

Businesses and consumers tightened their belts, with memory chip buyers such as smartphone and PC makers delaying new purchases and depleting existing inventories, driving down shipments and ushering in an industry downturn. .

“Memory chip activity is worse than expected, DRAM chip shipments could be down a higher percentage of teens from the second quarter,” said Park Sung-soon, an analyst at Cape Investment & Securities. .

“The trend in price negotiations seems to suggest that customer demand deteriorated rapidly during the quarter.”

Analysts expect memory chip prices to continue to plunge in the current quarter, leading to a further decline in fourth-quarter earnings for Samsung. Demand is not expected to pick up until early next year.

Investment projects

Rival Micron Technology last week became the first memory chipmaker to officially cut its investment plans for next year, and its biggest rival SK Hynix has hinted at a possible reduction in investment.

Chipmaker Advanced Micro Devices on Thursday provided third-quarter revenue estimates that were about $1 billion lower than previously forecast due to weak PC demand, signaling that the chip slump could be much worse than expected.

Samsung is not currently discussing a cut in memory chip production, an executive told reporters in the United States on Wednesday, according to the Yonhap news agency.

“Investors will be interested to know if Samsung is considering a reduction in capital expenditure, or planning a lot of chip equipment maintenance, or pursuing a profitability strategy. This will signal chip supply conditions,” Park said.

Samsung is due to release detailed results on October 27, when executives will also provide information to media and analysts.

Its shares, which have fallen nearly 30% this year, rose 0.2% in morning trade, compared with a 0.3% drop in the broader market.

Counterpoint Research said estimated third-quarter smartphone shipments by Samsung’s mobile business were around 66 million, down 5% year-on-year, as Samsung launched its new flagship foldable phones during the trimester.

“The high-end and high-end market is relatively resilient with solid demand despite the recent economic sluggishness,” said Liz Lee, associate director at Counterpoint. In the United States, “the initial sales of the Galaxy Z4 series were higher than those of the Galaxy Z3 series”.

Analysts said Samsung remains overexposed to demand-dependent businesses such as mobile phones and memory chips that are vulnerable to economic downturns, absent a larger share in long-term chip contract manufacturing. .

“Samsung needs product lines with a high share of long-term agreements, exclusive market dominance and a premium brand with strong consumer preference, but it still needs time to get there,” said said Greg Roh, head of research at Hyundai Motor Securities.

Foldable billboards and advanced foundry processes were “important” to making the company less exposed to economic downturns, Roh added.

Quarterly revenue likely rose 3% from the same period a year earlier to 76 trillion won, Samsung said.

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