Samsung Expects Q3 Profit to Tumble Amid Chip Market Downturn

Samsung said Thursday it expects its third-quarter operating profit to fall sharply, the first year-on-year decline in nearly three years, amid an economic downturn that has eroded consumer demand for PCs and phones and the chips they contain.

The Korea-based company predicted on Thursday that its operating profit for the three-month period ended Sept. 30 would be around 10.8 trillion won ($7.6 billion), down more than 31% from the same corresponds to the period of the previous year. It’s also expected to see slight sales growth of 2.7% to 76 trillion won ($53.9 billion).

Samsung may be best known for its phones and TVs, but the electronics giant also dominates the memory chip market — a key cash driver for the company. Samsung’s chip business got a boost from data centers that rely on the technology to store everything we do online during the pandemic, but consumer spending in the second half of this year was hit by the impact of high inflation, rising interest rates and geopolitical tensions.

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In August, IC Insights reduced its forecast for global integrated circuit market growth in 2022 to 7% from 11% — a downgrade almost entirely due to the memory market collapse in the second half of 2022.

“It was like someone flipped a switch to the off position for the memory market starting in June,” the company wrote in a report last month.

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The forecast marks Samsung’s first year-over-year earnings decline since the first quarter of 2020, when the pandemic boosted demand for devices while consumers were forced to stay at home. The sharp drop in chip demand prompted Samsung executives to give a bearish outlook for the market for the rest of this year and into 2023.

“The second half of this year is looking bad, and so far next year doesn’t really seem to show any clear momentum for big improvements,” said Kyung Kye-hyun, who heads Samsung’s semiconductor division and serves as the company’s co-CEO. the Wall Street Journal said at a press conference in September.

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Prices for NAND flash memory, which is widely used in portable consumer devices such as digital cameras, cell phones, and USB flash drives, are expected to fall 13% to 18% sequentially in the third quarter, according to market researcher TrendForce. The prices of DRAM chips used in smartphones and PCs are expected to suffer a similar drop.

The economic uncertainty is also expected to hurt profits in the company’s wireless division. The Samsung Galaxy Fold 4 was released during the quarter but was available for just over a month during the period.

Earnings guidance, released later this month ahead of full earnings, did not provide specific divisional results.

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