Samsung’s operating profit takes a hit amidst subdued demand for tech

South Korean giant Samsung Electronics Co reported its sixth consecutive quarter of falling operating profits, underlining subdued consumer demand and fuelling uncertainty about a broader tech recovery timeline.

The company witnessed a 35% decline in operating income to 2.8 trillion won (US$2.1 billion), falling short of estimates by 24%. Moreover, revenue slid to 67 trillion won, a steeper plunge than projected. In 2023, Samsung recorded its thinnest operating profit in 15 years.

The performance highlights the stagnant demand for smartphones and memory chips, the driving force behind modern electronics due to economic uncertainty. This also clouds the prospects for a market recovery that many investors anticipated would surface in 2024.

In contrast, rival Micron Technology Inc. offered a stronger-than-expected revenue forecast in December, suggesting that data centre construction could compensate for lukewarm computing and mobile device markets.

Tom Kang, Research Director at Counterpoint Technology Market Research, commented on the situation.

“This shows that the rebound is slower than we all thought. Prices are not rising that fast and the demand from certain sectors is not that strong.”

In October, Samsung projected a gradual recovery in the long-depressed US$160 billion memory market in 2024, spurred by a surge in AI development. Executives expected prices to begin rising from the latter part of 2023.

However, Samsung’s shares took a hit, declining as much as 0.9% in Seoul today, Tuesday, January 9. Analyst Sanjeev Rana from CLSA Securities Korea Ltd attributed the disappointing results partly to a low utilisation rate in its foundry chip-making business. The consumer electronics unit also experienced fierce competition and rising marketing costs, while earnings from its smartphone business likely came in at the lower end of analysts’ estimates.

Despite the downturn, there are signs of a turnaround. South Korea’s semiconductor industry witnessed the largest gains in both production and shipments in November. Rana added that it is likely that Samsung’s chip business will return to profitability within the first half of this year, citing rising memory prices and improving demand.

Investment Plans

Investors are keen to learn about Samsung’s long-term investment plans, particularly in the AI sector, during its full results release on January 31. Samsung now aims to compete with rival SK Hynix Inc. in the burgeoning field of high-density memory chips, where it plans to boost capacity by 2.5 times this year.

Samsung also hopes its new lineup of devices and foldables will spur growth in 2024. The company is preparing to launch its latest gadgets in the United States later this month. However, investors are concerned that Apple Inc’s iPhone 15 may lose momentum just months after its launch, reported Bangkok Post.