Samsung flags 69% drop in Q4 profit as chip prices plummet

Samsung flags 69% drop in Q4 profit as chip prices plummet
© Reuters.

By Ambar Warrick — South Korean conglomerate Samsung Electronics (KS:005930) said on Friday that it expects its operating profit to have fallen by at least 69% in the fourth quarter, amid an ongoing rout in memory chip prices as softening economic conditions dried up demand for electronics.

South Korea’s largest firm said in a statement that based on a preliminary estimate, its consolidated operating profit for the three months to December 31 fell to 4.3 trillion won ($1= 1,269.88 South Korean won) from 13.87 trillion won in the same quarter last year, and 10.85 trillion won in the third quarter of 2022.

Total sales also slipped to about 70 trillion won from 76.57 trillion won last year. The firm is set to release a more detailed results briefing later this month.

The sharp decline in profits comes as weakening economic conditions across the globe dried up demand for Samsung’s memory chips and other smartphone components.

IPhone maker Apple Inc (NASDAQ:AAPL), which is among Samsung’s biggest buyers of smartphone displays and memory chips, saw production delays due to COVID-linked disruptions in the firm’s Chinese suppliers, which in turn is expected to result in weaker sales for Samsung. A recent report also suggested that Apple plans to cut production in the face of sluggish demand and supply chain disruptions in China.

Slowing sales for Samsung reflect a drastic reversal of pandemic-era trends, where a chip shortage ramped up prices for electronic components, spurring widespread increases in production by major manufacturers.

But that trend was largely reversed in 2022, as rising inflation and a sharp slowdown in economic growth forced several major firms to slash spending and production.

This has also weighed on the South Korean economy, with the country seeing a prolonged decline in chip sales and overall exports through 2022.

Samsung’s shares were flat in early trade, while the broader KOSPI index rose 0.6%.