What just happened? Samsung’s quarterly profit forecast showed the impact of the global economic downturn and weakening consumer demand, with the Korean giant facing its lowest operating profit in eight years. It is also not expected that the situation will improve in the near future; Analysts believe that profits will decline again in the current quarter.
Samsung’s broad portfolio has already faced global industry crises in the past, including a shortage of chips in 2021, when its profits hit a new record. But, according to preliminary estimates, operating profit for the quarter from October to December fell by 69% year-on-year from 13.87 trillion Korean won (about $10.9 billion) to 4.3 trillion Korean won (about $3.4 billion), which was the lowest quarterly profit of the company since the third quarter of 2014.
Samsung’s semiconductor business has long provided most of the company’s revenue and profits. But falling demand for DRAM and NAND chips has led to falling contract prices and oversupply. Global DRAM revenue fell by almost 30%, the biggest decline since the 2008 financial crisis, and rival memory manufacturers SK Hynix, Kioxia and Micron announced plans to reduce production and capital costs this year.
Smartphones, Samsung’s other major source of revenue, are also suffering. According to IDC, Samsung leads the market with 64 million phones shipped in the third quarter, but that’s still down 7.8% year-on-year. Inflation and the cost of living continue to rise, and more and more companies are laying off a record number of employees, consumers are less inclined to make large purchases of secondary goods, such as technical devices.
“Amid ongoing external uncertainty, including a potential global economic downturn, overall profit declined sharply compared to the previous quarter as we saw a significant decline in memory business results due to sluggish demand and weaker smartphone sales,” Samsung said in a statement.
Samsung and other major chip makers are also facing an escalating semiconductor war between the U.S. and China. The US sanctions imposed at the end of last year restrict the supply of American-made electronics or other goods that China can use to create tools or equipment for the production of chips. They also prohibit non-Chinese companies in other countries from using American equipment to serve Chinese customers unless the U.S. has granted a license. TSMC, Samsung and SK Hynix have received annual licenses that will allow them to maintain or expand their Chinese factories, but concerns remain that the US may impose tougher restrictions.