Samsung Electronics logs worst quarterly earnings in 14 years
On Thursday, Samsung Electronics reported its lowest quarterly profits in 14 years, citing a decline in consumer spending on electronics and an oversupply of microchips that negatively impacted its core memory business.
The South Korean company, one of the world's largest manufacturers of memory processors and smartphones, announced in a statement that its operating profit decreased by 95 percent to 478.6 million dollars, or 640 billion won.
The company's first-quarter net income decreased by 86.1% to 1.57 trillion won, while sales decreased by 18.0% to 63.75 trillion won.
The company reported that "global macroeconomic uncertainty slowed overall consumer spending."
Samsung also cited weaker demand for memory processors, which account for roughly half of its typical profits, and falling chip prices.
The chip division of the company reported a loss of 4.58 trillion won, its first operating loss since 2009, when the globe emerged from the 2008 financial crisis.
This was attributed to "continued price declines and an increase in valuation loss... amid weakening sentiment and continued impacts of inventory adjustments by customers as a result of prolonged external uncertainties," according to the report.
In the second half of 2023, it was anticipated that memory demand would "gradually recover," given that consumer inventory levels would have decreased.
The company is the flagship subsidiary of the enormous Samsung Group, by far the largest of the family-controlled conglomerates that dominate business in the fourth-largest economy in Asia.
The first-quarter decline is the third consecutive margin compression for Samsung, whose operating profits fell 70 percent year-over-year in the fourth quarter.
Thursday morning, Samsung's stock price was down 0.3%.
– Reducing production –
In recent years, Korean chipmakers, headed by Samsung, enjoyed record profits as the prices of their products skyrocketed, but the global economic slowdown has hurt memory sales.
During the pandemic, consumers purchased new computers and smartphones during lockdowns, causing semiconductor manufacturers to increase production.
However, demand decreased rapidly as lockdowns continued and weakened further in the face of increasing inflation and interest rates.
This month, Samsung announced it will reduce memory chip production to a "meaningful" level in response to the oversupply, an unusual step for the company, which had previously indicated it would make only minor adjustments.
Chip manufacturers SK Hynix of South Korea and Micron Technology of the United States have also reduced output.
According to a report by Eugene Investment & Futures, Samsung's "active" efforts to get out of the inventory impasse were "positively evaluated" in light of its effect on market sentiment and memory chip demand.
"Even if the pace of demand recovery remains sluggish, the semiconductor industry is very likely to recover in the second half if chip manufacturers cooperate well on production cuts," the report added.
In the first quarter, Samsung's new flagship Galaxy 23 smartphones helped offset deficits in the chip industry. However, analysts anticipate that conditions will deteriorate in the period from April to July, leading to the company's first profit loss since 2008.
The recent decline in profits has not dissuaded Samsung from making risky investments; in March, the company announced plans to contribute $227 billion over the next two decades to constructing the world's largest semiconductor centre in Yongin, south of Seoul.
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