Samsung Reports Larger Profit Drop Than Expected

Samsung Electronics estimated on Tuesday that its operating profit for the fourth quarter of 2023 fell by more than a third over the same period a year earlier, a far greater decline than the roughly 14 percent drop analysts had expected.

Samsung’s shares, which have risen sharply over the past quarter as investors anticipate a recovery in the stagnant semiconductor market, were trading more than 2 percent down as of mid-morning GMT.

Analysts said they continue to expect Samsung’s profits to see a sharp rise later this year due to factors such as increasing demand for specialised artificial intelligence (AI) chips.

Samsung is the world’s biggest maker of memory chips, smartphones and televisions, and its performance is being closely watched for signs of a recovery in chips and consumer electronics.

Signs of a recovery

The company said its operating profit fell an estimated 35 percent year-on-year to 2.8 trillion won ($2.1bn, £1.7bn), compared to LSEG analysts’ estimates of 14 percent.

Sales fell 4.9 percent to 67tn won from a year earlier.

While the drop was greater than expected, it is still Samsung’s smallest year-on-year profit drop in five quarters.

The firm’s last year-on-year profit increase was in the second quarter of 2022.

The company’s 640bn won in profits for the first quarter of 2023 were the lowest since its 590bn won profit in the first quarter of 2009, in the wake of the global financial crisis.

Memory prices rise

For the second quarter it reported 670bn won in operating profits, a staggering 96 percent year-on-year drop.

Profits improved in the third quarter, rising to 2.4tn won, but still far below the previous year’s 10.85tn.

Electronics firms and chipmakers saw a surge of growth during the pandemic as people bought gadgets for entertainment or to work remotely, but that turned into the industry’s worst downturn in decades amidst slower demand triggered by high inflation, leading to high inventory levels.

Memory chip prices rose in the fourth quarter and analysts believe Samsung’s DRAM memory chip business has already returned to profitability, while its NAND flash memory operations remain in the red.

AI boost

Meanwhile the surge in demand for AI technologies is expected to give Samsung a boost this year, including demand for high-bandwidth memory (HBM) chips used in AI, AI server investments and AI built into smartphones and other electronics, HSBC analysts said.

The banking group said it expects a “huge earnings recovery” for Samsung this year amidst a “demand-driven upcycle”.

Samsung is due to present detailed fourth-quarter figures at the end of January.