Samsung Profit Tumbles 35% as Chip Weakness Persists

Samsung Profit Tumbles 35% as Chip Weakness Persists·Bloomberg
Yoolim Lee
3 min read
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(Bloomberg) -- Samsung Electronics Co. posted its sixth straight quarter of declining operating profit, reflecting weak consumer demand and stoking uncertainty over the timing of a broader tech recovery.

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Korea’s largest company reported a 35% fall in operating income to 2.8 trillion won ($2.1 billion), about 24% shy of estimates. Revenue slid more than anticipated to 67 trillion won. For all of 2023, Samsung reported its slimmest operating profit in 15 years.

The results underscore how demand for smartphones and the memory chips that power modern electronics remains sluggish given economic uncertainty. It also muddies the outlook for a market recovery that many investors had hoped would emerge in 2024. In December, rival Micron Technology Inc. delivered a better-than-projected revenue forecast that suggested datacenter construction may make up for lukewarm computing and mobile device markets.

“This shows that the rebound is slower than we all thought,” said Tom Kang, research director at Counterpoint Technology Market Research. “Prices are not rising that fast and the demand from certain sectors is not that strong.”

Samsung in October predicted the long-depressed $160 billion memory market will bounce back gradually in 2024, driven by a boom in AI development. Prices should start climbing out of troughs around the latter part of 2023, executives said at the time.

The company’s shares fell 2.4% in Seoul on Tuesday. Its disappointing results stem partly from a low utilization rate in its foundry chipmaking business, said Sanjeev Rana, an analyst at CLSA Securities Korea Ltd.

Read more on financial analysts’ reactions to Samsung’s preliminary results.

The consumer electronics unit also took a hit from fierce competition and higher marketing costs, while profit from its smartphone business likely came in toward the lower end of analysts’ estimates, he said.

But there are signs of recovery. South Korea’s semiconductor industry in November recorded the largest gains in years in both production and shipments. Given rising memory prices and improving demand, “it is likely that Samsung’s chip business will return to profitability within the first half of 2024,” Rana added.

Investors will want to hear about Samsung’s longer-term investment plans, particularly in the field of AI, when executives preside over the release of its full results on Jan. 31.

The company now aims to catch up with rival SK Hynix Inc. in the burgeoning field of high-density memory chips, where it plans to increase capacity by 2.5 times in 2024. HBM, an advanced chip that handles data more quickly, works with hardware such as Nvidia Corp.’s accelerators to speed up data processing for intensive tasks like training AI models. Hynix Chief Executive Officer Kwak Noh-Jung told reporters he expected AI demand to help double the Korean firm’s market value over three years.

“Samsung may have to gain market share in AI chips to achieve solid profit growth in 2024,” Bloomberg Intelligence analysts Masahiro Wakasugi and Phu Pham wrote in a note after results.

Samsung is also counting on a new lineup of devices and foldables to drive growth in 2024. The Korean company is preparing to unveil its latest gadgets in the US later this month, at a time investors worry Apple Inc.’s iPhone 15 may be running out of steam mere months after launch.

--With assistance from Haidi Lun, Annabelle Droulers, Youkyung Lee and Mayumi Negishi.

(Updates with stock trading in the fifth paragraph)

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