Samsung Experiences Significant Profit Decline Amid Chip Market Challenges

Samsung Electronics, a leader in memory chip and smartphone manufacturing, has experienced a dramatic decrease in its operating profit for the second quarter, with an estimated 96 percent drop. This decline largely aligns with market forecasts and is attributed to the persisting oversupply of chips, despite efforts to reduce supply.

In a recent preliminary earnings statement, Samsung disclosed that its operating profit for the quarter spanning April to June likely fell to 600 billion won (approximately $458 million). This figure marks a steep decline from the 14.1 trillion won (around $10.8 billion) profit reported in the same period last year. If confirmed, this would be Samsung’s lowest quarterly profit since the first quarter of 2009, which was 590 billion won (about $451 million).

This estimated profit closely matches a 555 billion won ($427 million) Refinitiv SmartEstimate, which is based on projections from top-performing analysts.

Following this announcement, Samsung’s shares dropped 1.4 percent in early trading, a sharper fall compared to the broader market’s decline of 0.6 percent. The company is scheduled to release its detailed earnings on July 27.

In the first quarter, Samsung’s chip business reported significant losses of 4.58 trillion won ($3.5 billion) as memory chip prices continued to fall and inventory values decreased. However, analysts anticipate that losses in the chip sector might have reduced in the second quarter due to increased sales of DRAM chips, which are integral components in PCs, mobile phones, and servers.

Park Kang-ho, an analyst at Daishin Securities, noted, “While memory prices declined, the decrease wasn’t as steep as expected. Investors will be keen to see signals for the third quarter in the full earnings report, particularly regarding the impact of production cuts, potential demand recovery, and the possibility of higher-end DRAM and high bandwidth memory (HBM) products enhancing Samsung’s profit mix.”

Analysts predict that the downturn in the memory chip market, which began last year, might reach its lowest point in the third quarter. However, the rebound could start modestly, with expectations for a substantial recovery in DRAM memory prices from the fourth quarter and significant quarterly increases anticipated from the second half of 2024.

Samsung’s mobile division is gearing up to launch its latest foldable smartphones in Seoul later this month, ahead of its usual schedule. This move is seen as an attempt to capture a larger share of the premium phone market before Apple’s next iPhone release. However, analysts have mixed projections for Samsung’s mobile profits in the third quarter due to weak global smartphone market sentiment, despite some signs of economic recovery.

For the April to June period, Samsung estimates a 22 percent year-over-year decline in revenue, totaling 60 trillion won ($45.8 billion).

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