Samsung expected to report 80% profit plunge as losses mount at chip business

Samsung Electronics, the South Korean technology giant, is set to release its earnings guidance for the third quarter, and analysts are predicting a significant decline in profits. The company’s semiconductor business, which has traditionally been a major source of revenue, is facing challenges that have impacted its overall performance. Analysts polled by LSEG anticipate a year-on-year decline of 78.7% in operating profit, amounting to 2.3 trillion Korean won ($1.7 billion). Additionally, revenue is expected to drop by 11.6% to 67.8 trillion won.

As the world’s largest producer of memory chips, Samsung has been hit hard by the falling prices of these components. Oversupply and low demand for smartphones and laptops, which rely on memory chips, have contributed to this decline. Despite the company’s previous prediction of a chip demand recovery in the second half of the year, the anticipated rebound has been slower than expected. To mitigate the impact, Samsung has reduced production, although the effects are not likely to be seen in the third-quarter results.

Analyst forecasts indicate that the semiconductor business may report a loss of over 3 trillion won for the third quarter. The ongoing soft demand and higher cost burden from the memory production cut are contributing factors. However, there are potential bright spots for Samsung in the coming months. Firstly, the company’s display business could experience growth due to the release of Apple’s iPhone 15 series, as Samsung supplies displays to Apple for its iPhones. Secondly, Samsung’s smartphone unit could see improved margins thanks to the successful launch of its high-end foldable phones in July.

Investors will closely monitor signs of stabilization in Samsung’s core chip division during the current quarter. Looking ahead to the fourth quarter, analysts expect a smaller year-on-year decline in operating profit of 11.5%, with revenue projected to remain flat. This would mark a positive shift from the declining sales observed earlier this year. Analyst SK Kim from Daiwa Capital Markets suggests that the inventory glut will ease, leading to a rise in memory prices in the fourth quarter. Additionally, Samsung’s collaboration with U.S. semiconductor giant Nvidia in supplying advanced memory chips for graphics processing units used in artificial intelligence is expected to provide further opportunities for growth in 2024.

Despite the challenges faced by Samsung’s semiconductor business, the company’s diverse portfolio and strategic partnerships position it well for future success. The release of the iPhone 15 series and the popularity of Samsung’s foldable phones offer promising prospects for the company’s display and smartphone units. As the memory chip market stabilizes and demand for AI-related technologies grows, Samsung is poised to capitalize on these opportunities. With a positive outlook for the fourth quarter and beyond, Samsung continues to demonstrate its resilience and ability to adapt to changing market conditions.