On Friday, Samsung Electronics reported a less-than-expected decrease in quarterly operating earnings, owing to a slashed demand for electronic devices and the memory chips that go in them. Samsung''s memory chip deliveries are likely to fall even below expectations, and prices are likely to rise this quarter, according to analysts. Customers are reacting to rising inflation, higher interest rates, and Russia''s invasion of Ukraine.
Samsung, the world''s leading manufacturer of memory chips, smartphones, and televisions, is a bellwether for global consumer demand, and its disappointing preliminary findings add to a slew of earnings downgrades and gloomy predictions.
In a preliminary earnings release, the company reported a profit estimate of KRW 10.8 trillion (roughly Rs. 62,900 crore) in July-September - the first year-on-year decrease in over three years from KRW 15.8 trillion (roughly Rs. 92,000 crore).
Refinitiv''s SmartEstimate totaled 8.5 percent below KRW 11.8 trillion (roughly Rs.68,700 crore)
Companies and consumers have tightened their belts, with memory chip purchasers, such as smartphone and PC manufacturers, keeping off on new purchases and utilizing up existing inventory, causing downtimes and staking a downcycle.
"Memory chip business is worse than expected," says Park Sung-soon, an analyst at Cape Investment & Securities.
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The trend of price negotiation appears to indicate that customers'' demand would have been significantly worsened during the quarter."
Analysts predict memory chip prices to continue to fall in the current quarter, resulting in a greater decline in Samsung''s fourth quarter earnings. Demand isn''t expected to recover until early next year.
Rival Micron was the first memory-chip maker to officially cut its investment plans for next year, and larger rival SK Hynix has indicated that a potential investment decrease would be made.
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Chipmaker Advanced Micro Devices provided on Thursday a third-quarter revenue estimate that was roughly a billion dollars less than previously forecast due to weak PC demand, indicating that the chip slump might be much worse than expected.
According to Yonhap news agency, Samsung is currently not discussing a reduction in memory chip production.
"Investors will be interested in hearing if Samsung envisages a capex reduction, or plans a lot of chip equipment maintenance, or pursues a profitable strategy. This will improve chip supply conditions," said Park.
Samsung is due to issue detailed earnings on October 27, when executives will also provide briefings for journalists and analysts.
Its stock, which has decreased by nearly 30 percent this year, rose by 0.2 percent in morning trading, versus a 0.3 percent drop in the wider market.
Phone demand in high quality
According to Counterpoint Research, smartphone deliveries by Samsung''s mobile business in the third quarter saw 66 million people, a 5 percent drop on-year, as Samsung launched its new flagship foldable phones in the quarter.
Despite the recent economic loom, the high- and premium-tier market is relatively resilient with strong demand, according to Liz Lee, Counterpoint''s Associate Director. In the United States, "the initial sales for the Galaxy Z4 series were higher than the Galaxy Z3 series sales."
Samsung has been over-exposed to demand for dependent businesses, such as mobile phones and memory chips, that are vulnerable to economic downturns, if not more.
"Samsung has to come up with high-quality products, exclusive market dominance, and a high-quality brand, according to Greg Roh, head of research at Hyundai Motor.
Roh added that folding display panels and advanced findry processes were "important" for the company to become less sensitive to economic downturns.
Samsung said quarterly earnings were expected to increase 3% from the same period the previous year to KRW 76 trillion (roughly Rs. 62,61,25,000).
2022 Thomson Reuters