Staff Writer
Due to the sluggish market for memory chips, Samsung Electronics reported a more than 95% drop in operational profits for the second quarter on Thursday.
The company is the flagship division of South Korean juggernaut Samsung Group, by far the biggest of the family-controlled corporations that rule the fourth-largest economy in Asia.
According to a statement from Samsung, operating profit from April to June was 668.5 billion won ($525.3 million), down from 14.1 trillion won a year earlier.
Since the first quarter of 2009, this represents the company’s worst quarterly profit.
Samsung’s net profit for the second quarter declined by 84.5% to 1.72 trillion won, and sales fell by 22.3% to 60 trillion won.
The company, which is among the biggest producers of memory chips and cellphones worldwide, attributed the decline to weak demand but provided a positive prognosis for the rest of the year.
It stated that “continued macroeconomic risks could prove to be a challenge,” but added that “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.”
On Thursday afternoon, shares of Samsung were trading 2.29 percent higher.
The global economic slowdown has hurt sales of memory chips, which were enjoying record profits in recent years because to rising pricing for their products made by South Korean chipmakers, led by Samsung.
During the pandemic, demand increased as people purchased PCs and smartphones during lockdowns, which encouraged chipmakers to increase production.
But once lockdowns were lifted, demand immediately decreased and further deteriorated as a result of skyrocketing inflation and rising interest rates.
A sluggish overall economy, according to Joanne Chiao, an analyst at the market research firm TrendForce, will cause output to fall this year by an estimated 9.3 percent.
Chiao continued, “Consumer demand has decreased, causing enterprises to slash budgets and continuously cancel orders.
As chipmakers tighten supply following price drops of up to 18% in the second quarter, TrendForce predicted that price declines of DRAM chips, which are frequently used in PCs and cellphones, will decelerate in the second half of the year.
In April, Samsung announced it would reduce memory chip output by a “meaningful” amount, following the example set by rivals SK Hynix and Micron.
The company has continued to make risky investments despite the recent decline in profitability.
It announced plans to invest $227 billion over the following two decades in the construction of the largest chip center in the world at Yongin, south of Seoul, in March.
The “silver lining”
In addition, Samsung has been struggling with a protracted downturn in the global smartphone market, which, according to Canalys, shrank by 11% in the second quarter from a year earlier.
According to Samsung’s statement released on Thursday, “mass market recovery was also delayed due to the continued economic downturn, affecting Q2 sales.”
The company said it anticipated a return to normal growth in the remaining months of the year, “especially in the premium market,” following Samsung’s announcement of a new lineup of high-end foldable smartphones, the Galaxy Z Fold 5 and Flip 5.
According to market research company Counterpoint Research, more than one in every five cellphones sold during the second quarter were higher-end devices. The company added that the premium category was a “silver lining” for the industry.
According to development in the premium market, which “offers higher profitability and resilience to economic downturns,” “the challenging atmosphere will reverse” in the second half of the year, according to Liz Lee, associate director at Counterpoint.
According to Lee, Samsung’s new foldable phones would “surpass traditional flagships in overall performance” and boost the business’s earnings momentum for the rest of the year.
Although the foldable smartphone industry is still a limited one, Samsung should focus on it because it has a lot of room to develop in this area and continue to be a market leader in innovation.
