Samsung Electronics Expects 80% Drop in Q3 Profit Amid Chip Glut
Samsung Electronics, the South Korean tech giant, is projected to experience an 80% decrease in third-quarter profit compared to the previous year. The company’s chip division, which is typically its most profitable business, is anticipated to report losses due to the ongoing global chip glut. Despite being the largest manufacturer of memory chips, smartphones, and televisions, Samsung’s operating profit is expected to fall to 2.1 trillion won ($1.56 billion) in the July-September quarter. This is a significant decline from the 10.85 trillion won it earned during the same period last year.
Reasons for the Decline
The chip division’s losses can be attributed to the slow recovery of rock-bottom memory chip prices, which have not rebounded as quickly as predicted. Samsung’s decision to reduce chip production also negatively impacted its economies of scale, leading to higher manufacturing costs. To address the chip glut and the industry’s worst downturn in decades, Samsung implemented production cuts in the third quarter to reduce inventory.
Rival company Micron Technology also forecasted a quarterly loss recently, raising concerns about a sluggish recovery in the memory chip market. Smartphone and personal computer manufacturers have refrained from purchasing new memory chips, opting to utilize their existing inventory due to concerns about an economic downturn. However, analysts predict that demand will pick up in the near future as inventories are depleted.
Hopes for Recovery
Despite the challenges, there are positive signs for Samsung. The company recently received its first order in a year for server memory chips from a North American data center firm. This development has raised hopes that data center clients will resume their chip purchases. Additionally, there is strong demand for memory chips used in artificial intelligence applications, such as high bandwidth memory (HBM). Although Samsung is currently behind competitor SK Hynix in developing such chips and securing clients like AI-chip leader Nvidia, this market segment presents an opportunity for growth.
Mobile Business Performance
Samsung’s mobile business is expected to report an operating profit of approximately 3 trillion won. This positive performance can be attributed to the successful launch of premium foldable smartphones during the quarter, which generated sales despite the sluggish global smartphone market.
In conclusion, Samsung Electronics is facing a significant decline in third-quarter profit due to the ongoing chip glut. However, the company remains optimistic about the future as it explores new opportunities in the data center and artificial intelligence sectors.
