Samsung forecasts 85% drop in profit as chip sales falter

Industry

Published: 09 Jan. 2024, 09:17 Updated: 10 Jan. 2024, 14:40

Samsung forecasts 85% drop in profit as chip sales falter

A worker waters a flower bed beside the logo of Samsung Electronics at the company's headquarters in Suwon, Gyeonggi. [REUTERS]

Samsung Electronics forecast an 84.9 percent yearly decline in operating profit last year as a severe cyclical downturn in the semiconductor industry eroded its profitability.

The Suwon, Gyeonggi-based tech giant announced in a preliminary earnings report Tuesday that expects to post an operating profit of 6.5 trillion won ($5 billion), a number that is the lowest since 2008 and below the market consensus of 7.5 trillion won.

The company projects an annual sales figure of 258.2 trillion won, down 14.6 percent on year. That forecast falls short of the market estimate of 262 trillion won.

The preliminary forecast did not include detailed breakdowns.

But Kim Dong-won, an analyst at KB Securities, estimates that Samsung’s memory chip business generated a combined 15 trillion won of operating losses throughout the year, though profits in the smartphone and panel-making businesses helped the company remain in the black.

Experts and market analysts both in Korea and abroad believe the current downturn hit its bottom last year and will rebound this year with robust demand expected in the advanced AI segment.

“The memory chip business generated 15 trillion won of operating losses in 2023, but it will likely post 14 trillion won of profit in 2024 by adding 29 trillion won in total,” Kim said.

The market changes reflect progress that Samsung made in reducing inventory and increasing shipments in the fourth quarter.

Shipments of dynamic random-access memory and NAND flash memory chips increased by 30 percent based on bit growth, and inventory levels had fallen by more than 50 percent by the end of last year compared to the beginning, according to Kim.

In the fourth quarter alone, Samsung Electronics' operating profit dropped by 35 percent to 2.8 trillion won, while sales dropped 4.9 percent to 67 trillion won, according to the early earnings result.

Kim Young-gun, an analyst at Mirae Asset Securities, estimates that Samsung’s semiconductor business recorded 2.2 trillion won in operating loss during the quarter, while the smartphone and network equipment division posted 2.5 trillion won in profit. The panel-making business brought in 1.9 trillion won of profit, while consumer electronics made 400 billion won, according to Kim of Mirae Asset Securities.

He noted that the chip sector is recovering at a slower-than-expected pace because the growth of shipment and prices centers around a few high-performing semiconductors at a time when overall demand for electronic devices remains weak.

“There have been improvements in shipments and average selling prices, but the scale was weaker than expected, since a batch of high-end products had been shipped first,” Kim said.

The final result will be announced by the end of this month.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]