Samsung Electronics reported a Q3 profit decline of 78%, which was less severe than expected, thanks to early indications of a recovery in the memory chip market. Following this news, Samsung shares opened 3.3% higher, outperforming the broader market’s 1.4% rise. Analysts are suggesting that memory chip prices may have reached their lowest point in the third quarter, with certain types already showing signs of improvement.
In the preliminary earnings statement, the world’s largest memory chip and smartphone maker, Samsung, estimated that its operating profit for July-September was 2.4 trillion won ($1.79 billion), a significant drop from 10.85 trillion won in the same period the previous year.
This profit figure exceeded the 2.1 trillion won LSEG SmartEstimate, which places more weight on forecasts from consistently accurate analysts. Analyst Ko Yeongmin from Daol Investment & Securities commented,
“It’s better than expected. Although the situation is not great in the chip business… the decline in memory prices is easing, and further drops will be limited.”
In the initial and subsequent quarters of this year, the company reported significant losses of 4.58 trillion won and 4.36 trillion won, respectively, in its chip business. These losses were primarily due to the sharp decline in memory chip prices and the consequent reduction in the value of its chip inventory.
The overall slowdown in the global economy, coupled with high-interest rates, resulted in reduced demand for many consumer goods following the initial surge caused by the pandemic. As a result, chipmakers had to decrease production to counteract declining prices.
Attendees test Samsung Electronics’ latest Galaxy Z Flip 5 and Z Fold 5 foldable smartphones at the Samsung Galaxy Unpacked 2023 event in Seoul, South Korea, held on July 26, 2023.
The Samsung logo is visible atop the company’s office in Diegem, Belgium, on September 21, 2023.
However, in the third quarter, analysts believe that losses in Samsung’s memory chip business likely decreased to approximately 3 trillion won. Samsung achieved this by focusing on more profitable, higher-end chips such as DRAM chips used in artificial intelligence, all while continuing to reduce the production of older legacy chips.
There were also positive developments in chip prices. Prices of certain DRAM chips, commonly used in tech devices, began to rebound towards the end of the previous quarter. Additionally, analysts expect that prices of NAND Flash chips, used in data storage, may begin recovering as early as the current quarter. This suggests that the severe industry downturn that began last year may be coming to a close.
Investors are eagerly awaiting Samsung’s detailed earnings announcement later this month. They will be particularly interested in any information regarding price changes for legacy chips like NAND Flash or older DRAM chips. Such insights will be critical for forming an outlook on the chip industry’s broader recovery.
Samsung’s detailed earnings release is scheduled for October 31. The company estimates that its revenue likely dropped by 13% from the same period the previous year, amounting to 67 trillion won.
In the mobile business, Samsung anticipates reporting an operating profit of approximately 3 trillion won, similar to the previous year. This is in line with the average forecasts of five analysts. Despite the challenging global smartphone market, the company managed to generate sales momentum by launching its premium foldable smartphones during the quarter.
Historically, the third quarter has been a strong period for Samsung’s mobile and display businesses. This is due to the launch of flagship smartphones and the increased demand for display panels from clients like Apple before the introduction of the latest iPhone.
Please note that the currency exchange rate used in this report is 1,342.1900 won to 1 US dollar.
Reporting by Joyce Lee and Heekyong Yang; Editing by Jamie Freed
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