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Samsung sees 32% drop in third-quarter earnings as demand for electronics and memory chips declines

On Friday, Samsung Electronics reported a worse-than-expected 32 percent drop in quarterly operating profit as the economic downturn reduced demand for electronic devices and the memory chips they contain. Samsung’s memory chip shipments are likely below already lowered expectations, analysts said, and prices could fall further this quarter as customers react to rising inflation, higher interest rates and the fallout from Russia’s invasion of Ukraine.

Samsung, the world’s largest maker of memory chips, smartphones and TVs, is a global consumer demand leader, and its disappointing preliminary results add to a flurry of earnings cuts and gloomy forecasts.

Estimated earnings fell to 10.8 trillion won (roughly Rs. 62,900 crore) in July-September – the first annual decline in nearly three years – from 15.8 trillion won (roughly Rs. 92,000 crore) a year earlier, the company said. in the preliminary income statement.

The result was 8.5% below Refinitiv’s SmartEstimate estimate of 11.8 trillion won (roughly Rs. 68,700 crore).

Companies and consumers have tightened their belts, and memory chip buyers such as smartphone and PC makers are holding off on new purchases and using up existing stocks, cutting supplies and opening up an industry downturn.

“Memory chip business worse than expected, DRAM chip shipments could drop by a higher percentage of teens compared to the second quarter,” said Pak Soon Soon, an analyst at Cape Investment & Securities.`

The price negotiation trend appears to suggest that customer demand deteriorated sharply during the quarter.”

Analysts expect memory chip prices to continue to fall in the current quarter, pushing Samsung’s fourth-quarter earnings down further. Demand is not expected to recover until early next year.

Rival Micron last week became the first memory chip maker to formally cut its investment plans for next year, while larger competitor SK Hynix hinted at a possible investment cut.

Chip maker Advanced Micro Devices on Thursday released third-quarter revenue estimates that were about a billion dollars less than previously forecast due to weak PC demand, suggesting the downturn in chip production could be much worse than expected. .

Samsung is not currently discussing cutting production of memory chips, one of its executives told reporters in the US on Wednesday, according to the Yonhap news agency.

“Investors will be interested to know if Samsung is considering cutting capital expenditures, if it is planning a large amount of maintenance work on chip equipment, or if it is pursuing a profitability strategy. This will signal the terms of delivery of the chips,” Park said.

Samsung is due to release detailed earnings reports on October 27, when executives will also hold media and analyst briefings.

Its shares, which have fallen nearly 30 percent this year, are up 0.2 percent in morning trading, compared with a 0.3 percent drop in the market as a whole.

Demand for high end phones

Counterpoint Research reported that estimated third-quarter smartphone shipments by Samsung’s mobile business were about 66 million, down 5% from last year, as Samsung launched its new flagship foldable phones during the quarter.

“The high end and premium market is relatively resilient with strong demand despite the recent economic downturn,” said Liz Li, Associate Director of Counterpoint. In the US, “initial sales of the Galaxy Z4 series were higher than those of the Galaxy Z3 series.”

Analysts say Samsung remains overly exposed to demand from demand-driven businesses such as mobile phones and memory chips, which are vulnerable to an economic downturn, in the absence of a greater share of long-term contract chip manufacturing.

“Samsung needs product lines with a high share of long-term agreements, exceptional market dominance, and a premium brand with strong consumer preferences, but it still takes time,” said Greg Roh, Head of Research at Hyundai Motor.

Folding display panels and advanced foundry processes were “essential” for the company to become less vulnerable to the economic downturn, Roh added.

Quarterly revenue was likely up 3 percent from the same period a year earlier to 76 trillion won (roughly Rs. 62,61,25,000), Samsung said.

© Thomson Reuters 2022


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