Financial news
Home
Knowledge Hub
Samsung flags 78% drop in Q3 profit as chip losses extend
2023-10-11 09:25:18

By Joyce Lee and Heekyong Yang


SEOUL (Reuters) -Samsung Electronics Co Ltd reported a likely 78% drop in third-quarter operating profit on Wednesday, as the effects of an ongoing global chip glut drive losses in what is normally the South Korean tech giant's cash cow business.


The world's largest memory chip and smartphone maker estimated its operating profit fell to 2.4 trillion won ($1.79 billion) in July-September, from 10.85 trillion won a year earlier in a short preliminary earnings statement.


The profit beat a 2.1 trillion won LSEG SmartEstimate, which is weighted toward forecasts from analysts who are more consistently accurate.


The earnings guidance sent shares up 3.3% in early trade, versus a 1.8% rise in the wider market.


Although down sharply from last year, Samsung (KS:005930)'s third quarter profit is higher than the first quarter's 640 billion won and the second quarter's 670 billion won.


Samsung's first quarter profit was the lowest since 2009, according to company data.


The company reported losses of 4.58 trillion won and 4.36 trillion in its chip business in the first and second quarter respectively, as memory chip prices plunged and its inventory values were slashed.


A global economic slowdown and high interest rates have dampened demand for most consumer goods following a pandemic-driven boom, forcing chipmakers to cut production in an attempt to stem falling prices.


But in the third quarter, analysts said losses in Samsung's memory chip business likely shrank to around 3 trillion won as Samsung focused on more profitable, higher-end chips such as DRAM chips used in artificial intelligence, while continuing to cut production of older legacy chips.


Rival Micron Technology (NASDAQ:MU) also forecast a quarterly loss last month, triggering concerns of a sluggish recovery in the memory chip maker's end markets such as data centres.


But prices of DRAM chips, used in tech devices, began rebounding near the end of last quarter, while prices of NAND Flash chips used in data storage may start recovering as early as the current quarter, winding down the severe industry downturn that began last year, analysts said.


The third quarter is normally strong for Samsung's mobile and display businesses given that is when it launches its flagship smartphones, and demand for display panels from clients like Apple (NASDAQ:AAPL) rises before the debut of the latest iPhone.


Samsung's revenue likely fell 13% from the same period a year earlier to 67 trillion won, Samsung said in the statement.


The company is due to release detailed earnings on Oct. 31.


($1 = 1,342.1900 won)