Samsung's Q2 profit likely to hit 14-year low amidst chip market crisis

Samsung Electronics is projected to experience a significant decline in profit for the June quarter of 2023. Analysts predict that the company's operating profit will plummet by 96 per cent year-on-year to 555 billion won ($427 million). If this estimate holds true, it would mark Samsung's lowest profit in over 14 years according to Reuters, since the fourth quarter of 2008 when the company reported a consolidated operating loss of about 740 billion won. In contrast, during the same period last year, Samsung recorded an operating profit of 14.1 trillion won.

The main factor contributing to this decline is the persistent chip glut, which has led to substantial losses in Samsung's core chip business despite efforts to reduce supply. The chip division, which has traditionally been the company's primary revenue generator, is expected to report losses of approximately 3 trillion to 4 trillion won for the quarter. These losses can be attributed to the continuous fall in memory chip prices and the subsequent devaluation of inventory.

The prices of DRAM memory chips, extensively utilised in smartphones, PCs, and servers, continued to slide during the quarter. TrendForce reports a decline of around 13 per cent to 18 per cent, as chip buyers refrained from making new purchases and depleted existing inventories. Nevertheless, the pace of the price decline has slowed compared to previous quarters due to supply reductions implemented by Samsung Electronics and other memory chip manufacturers. Analysts anticipate that the prices will reach their lowest point around the third quarter, but a significant recovery might not materialise until 2024.

Despite the current downturn in the chip market, Samsung is actively seeking to increase its share of chip demand in the burgeoning field of artificial intelligence (AI). The company is focusing on technologies like high bandwidth memory (HBM) and chip contract manufacturing to capitalise on the growing demand for AI-related applications.

In the mobile business segment, Samsung is expected to report an operating profit of approximately 3.3 trillion won. This estimate is based on the average forecast of five analysts. The slight decline in smartphone shipments compared to the previous quarter is offset by cost-cutting measures in marketing expenses. 

Notably, Samsung plans to unveil its latest foldable smartphones earlier than usual, with a launch scheduled for later this month in Seoul. Industry analysts perceive this as an attempt by Samsung to solidify its dominance in the premium phone market before its competitor, Apple, releases its next iPhone.

Samsung will release its preliminary second-quarter earnings results on Friday, with the full earnings report expected later this month.

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