Attendees check out Samsung Electronics’ Galaxy Z Fold 5 at the Galaxy Unpacked event at COEX on July 26, 2023. (Yonhap)
SEOUL, July 27 (Korea Bizwire) — Samsung Electronics Co. on Thursday reported a 95 percent fall in second-quarter operating profit, as macroeconomic woes have taken a toll on demand for chips used in electronic gadgets from mobile phones to computers to cars.
The world’s largest memory chip and smartphone maker logged a profit of 668.5 billion won (US$525.8 million) for the April-June period, the lowest in 14 years. It went significantly down from the 14.1 trillion won it reported a year ago.
Sales fell 22.3 percent to 60 trillion won from the previous year’s 77.2 trillion won, the company said in a regulatory filing. Its second-quarter net profit came to 1.72 trillion won, down 84.5 percent from a year earlier.
Samsung’s Device Solutions division, which oversees its cash cow chip business, made losses of 4.36 trillion won, marking the division’s second consecutive quarter of losses.
In the first quarter, Samsung’s chip division reported an operating loss of 4.6 trillion won, its first financial loss in 14 years, as chip inventories grew significantly amid tapering global demand. Prior to that, the division recorded losses in the first quarter of 2009.
The company’s slight on-quarter improvement in its quarterly profit is due to “its focus on high-bandwidth memory and DDR5 products” with robust demand for AI applications leading to higher-than-guided DRAM shipments, Samsung said in a statement.
“Global demand is expected to gradually recover in the second half of the year which should lead to an improvement in earnings driven by the component business,” it said while warning “continued macroeconomic risks could prove to be a challenge in such recovery in demand.”
The chipmaker has forecast the global chip market will shrink 6 percent on-year to $563 billion this year, due to a sharp drop in demand, and warned of difficult conditions continuing throughout the year.
There are, however, some positive forecasts that the chip cycle has bottomed out, with the prospect of a surge in demand for memory chips used in artificial intelligence (AI)-powered products and services, including the generative AI chatbot ChatGPT.
Samsung Electronics shares have surged more than 25 percent this year to date on that rosy prospect.
Roh Tae-moon, president and head of Samsung Electronics’ mobile division, introduces the Galaxy Z Flip 5 and the Fold 5 during the Galaxy Unpacked in Seoul on July 26, 2023. (Yonhap)
That global memory chip makers have slashed production for the past few months added to that optimistic view. Samsung joined its peers earlier this year to cut production to resolve a persistent supply glut.
Echoing the view, SK hynix, a smaller rival, said Wednesday the memory chip market is believed to “have entered a recovery phase after bottoming out in the first quarter.”
Late last month, Micron CEO Sanjay Mehrotra also said the memory market “has passed its trough in revenue, and we expect margins to improve as industry supply-demand balance is gradually restored.”
Samsung’s mobile division seeks to get a sales boost from the release of latest foldable phones, which were unveiled at the Galaxy Unpacked the previous night in Seoul.
In the second quarter, the Mobile eXperience (MX) division logged a profit of 3.04 trillion won, down from the 3.94 trillion won from the previous quarter, as the effect of the Galaxy S23 launch in February faded.
With the launch of the Galaxy Z Fold 5 and Flip 5, Samsung hopes to maintain the leading position in the premium phone segment longer before rival Apple releases new phones in fall.
Samsung expected the smartphone market to “return to year-on-year growth, especially in the premium market,” in the second half.
The company aims to raise the portion of foldable phones, which were first introduced in 2019, to half of its total smartphone sales by 2025, and to make them another pillar of the company alongside the Galaxy S flagship series and a key category in the high-end segment.
Samsung spent 14.5 trillion won on infrastructure investment, including 13.5 trillion won for chips, for the April-June period.
“Spending on memory was concentrated on completing the P3 infrastructure and the P4 framework for mid- to long-term supply. Foundry investments continued to focus on fabs in Taylor, Texas, and Pyeongtaek, Korea, to address the demand for advanced nodes,” Samsung said.
P3 and P4 refer to Samsung’s chip production lines in its Pyeongtaek campus, some 60 kilometers south of Seoul.
Spending on research and development came to a record quarterly high of 7.2 trillion won.
Samsung Electronics shares gained 2.72 percent to close at 71,700 won on the main Seoul bourse Thursday, versus the broader market’s 0.44 percent gain.
(Yonhap)
