What’s going on with Samsung’s predicted profit plunge?

10 Jul 2023

Image: © Arcansél/Stock.adobe.com

The company is expecting a 96pc drop to its quarterly profits, as macroeconomic issues continue to hamper Samsung’s sales.

It has been a tough year for Samsung, as various macroeconomic issues have eaten into the chip manufacturer’s profits in recent quarters.

The company’s upcoming results look like they could be some of the worst yet, based on an estimated forecast provided by Samsung on 7 July. This forecast predicts a quarterly operating profit of roughly 600bn won, a decline of nearly 96pc compared to the same period last year.

If this is true, this will mark one of its worst profit drops in years and will continue a trend of steep profit drops seen in recent quarters. There are estimates that this will be the company’s lowest profit since 2009.

Samsung saw a similar profit drop of roughly 96pc in the first quarter of the year, while its profits for the last quarter of 2022 were Samsung’s lowest since 2014.

But what has caused the company’s profits to dip so low and when will the company pull out from this pit?

What caused the Samsung profit plunge?

At the start of the year, Samsung attributed its bleak earnings drop to prolonged macroeconomic issues, such as rising cost of living and interest rates. This led to a reduced demand for computer chips.

This came during a period of economic slowdown across the tech sector, with many companies sharing plans to tighten their belts and cut costs, with many announcing layoffs as a result.

The global chip industry has also been hampered for years with supply chain impacts and an ongoing shortage. Meanwhile, the smartphone and PC markets have taken a hit this year, with sales on the decline according to market research company IDC.

These reports found that Apple is managing to close the gap between itself and Samsung, though the latter retained the top position in smartphone sales.

However, there is evidence that Apple has a strong dominance in the premium smartphone market – phones with a wholesale price of more than $600 – a section that Samsung predicted would remain “relatively solid” for 2023.

From pushing forward to production cuts

While other companies were pushing to cut costs, Samsung opted to keep up spending in its semiconductor and smartphone businesses at the start of 2023. This was due to a belief that market demand would largely recover towards the second half of the year.

This was in contrast to competitors, such as semiconductor maker TSMC which warned that it would prudently manage its business and cut spending where appropriate. Instead, Samsung appeared to have plans to capitalise on the global cutbacks and “expand its leadership” in the smartphone market.

However, these plans were altered in April once Samsung’s first quarter results were revealed, as the company suffered a massive hit to its profits. The company said it would cut its memory chip production to a “meaningful level” as a result.

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Leigh Mc Gowran is a journalist with Silicon Republic