Samsung Electronics has reported its worst quarterly profits in 14 years amid slowing consumer spending and a global microchip glut. The South Korean company, one of the world’s largest makers of memory chips and smartphones, revealed that its operating profit fell to KRW 640 billion and sales dropped 18% to KRW 63.75 trillion. Samsung attributed the decline to a general slowdown in consumer spending, weakened demand for memory chips and falling chip prices.
The Numbers
First-quarter net income fell 86.1% to KRW 1.57 trillion, down 95% from a year earlier, while the company’s chip division reported losses of 4.58 trillion won, its first operating loss since 2009. Samsung blamed the chip losses on “continued price declines and an increased valuation loss… amid weakening sentiment and continued impacts of inventory adjustments by customers caused by prolonged external uncertainties”.
Outlook
The global economic slowdown has dealt a blow to memory sales, with demand initially rising during the pandemic as consumers bought new computers and smartphones during lockdowns. Samsung expects memory demand to “gradually recover” in the second half of 2023. The firm, however, is not deterred from making bold investments. In March, it unveiled plans to contribute $227 billion over the next two decades to building the world’s largest chip centre in the south of Seoul.
Scaling Back Production
Both Samsung and other chipmakers have reduced production to address the oversupply. Earlier this month, Samsung announced plans to scale back memory chip production to a “meaningful” level. South Korean chipmaker SK Hynix and Micron Technology of the United States have also reduced production. Samsung’s “active” efforts to get out of the inventory rut were “positively evaluated” considering its effect on market sentiment and demand for memory chips, according to a report released by Eugene Investment & Futures.
The Future
Though the company posted solid sales of its new flagship Galaxy 23 smartphones in the first quarter that helped offset deficits in the chip sector, analysts expect conditions in the April to July period to worsen and even lead to Samsung’s first profit loss since 2008. Even so, the semiconductor industry is highly likely to recover in the second half of the year if cooperation among the chip makers on production cuts goes well, according to industry experts.
