Samsung Q3 profit set to slump 80% as chip losses persist

Samsung Electronics, the South Korean tech giant, is expected to announce a significant drop in third-quarter profit, with estimates suggesting an 80% decline compared to the previous year. This decline is primarily attributed to the ongoing global chip glut, which has impacted Samsung’s memory chip division, traditionally its most lucrative business segment.

Analysts predict that Samsung’s operating profit for the July-September quarter will likely fall to 2.1 trillion won ($1.56 billion), a substantial decrease from the 10.85 trillion won recorded in the same period last year. The chip division is anticipated to report losses ranging from 3 trillion to 4 trillion won due to persistently low memory chip prices. Despite optimistic projections for a recovery, the prices did not rebound as quickly as anticipated, leading to a challenging quarter for Samsung.

The company’s decision to reduce chip production further exacerbated the situation, impacting economies of scale and increasing manufacturing costs. Samsung had already implemented output cuts in April, and additional reductions were made in the third quarter to address inventory concerns and navigate the industry’s worst downturn in decades. Micron Technology, a key rival, also forecasted a quarterly loss recently, raising concerns about the recovery of the memory chip market.

However, there is hope on the horizon. Smartphone and personal computer manufacturers, who had refrained from purchasing new memory chips, are expected to resume buying as their existing inventory dwindles. Analysts predict that demand will rebound by early next year. In a positive development, Samsung recently received its first order in a year for server memory chips from a North American data center firm, indicating a potential resurgence in chip purchases from data center clients.

While the memory chip market faces challenges, there are bright spots for Samsung. The demand for memory chips used in artificial intelligence applications, such as high bandwidth memory (HBM), remains strong. Although Samsung lags behind rival SK Hynix in developing such chips and securing clients like AI-chip leader Nvidia, there is potential for growth in this area.

On a more positive note, Samsung’s mobile business is expected to report an operating profit of approximately 3 trillion won. This achievement can be attributed to the successful launch of its premium foldable smartphones during the quarter, which generated sales despite the sluggish global smartphone market.

Despite the challenges faced by Samsung’s chip division, the company continues to innovate and adapt to market conditions. With the anticipation of a rebound in demand and the success of its mobile business, Samsung remains a formidable player in the tech industry.