Samsung Electronics Co Ltd flagged on Friday its quarterly profit tumbled by two-thirds to an eight-year low as a weakening global economy hammered memory chip prices and curbed demand for electronic devices.
The dismal profit estimate by the world's largest memory
chip, smartphone and TV maker - a bellwether for global consumer demand - sets
a weak tone for other technology firms' quarterly results.
Samsung's profits are expected to shrink again in the current
quarter, analysts said, after the South Korean company announced its
October-December operating profit likely fell 69% to 4.3 trillion won ($3.37
billion) from 13.87 trillion won a year earlier.
It was Samsung's smallest quarterly profit since the third
quarter of 2014 and fell short of a 5.9 trillion won Refinitiv SmartEstimate,
which is weighted toward forecasts from analysts who are more consistently
accurate.
"All of Samsung's businesses had a hard time, but chips
and mobile especially," said Lee Min-hee, analyst at BNK Investment &
Securities.
Quarterly revenue likely fell 9% from the same period a year
earlier to 70 trillion won, Samsung said in a short preliminary earnings
statement. Asia's fourth-biggest listed company by market value will release
detailed earnings on Jan. 31.
Rising global interest rates and cost of living have
dampened demand for smartphones and other devices that Samsung makes and also
for the semiconductors it supplies to rivals such as Apple Inc.
"For the memory business, the decline in fourth-quarter
demand was greater than expected as customers adjusted inventories in their
effort to further tighten finances...," Samsung said in the statement.
Its mobile business' profit declined in the fourth quarter
as smartphone sales and revenue decreased due to weak demand resulting from
prolonged macroeconomic issues, Samsung added.
"Memory chip prices fell in the mid-20% during the
quarter, and high-end phones such as foldable didn't sell as well," said
BNK Investment's Lee, adding its display business was hurt due to client
Apple's production delays at the world's biggest iPhone factory in China during
the quarter.
Three analysts said they expected Samsung's profits to dive
again in the current quarter, with a likely operating loss for the chips
business as a glut drives a further drop in memory chip prices.
Samsung shares closed 1.4% higher on Friday, versus a 1.1%
rise of the wider market. Shares of rival memory chip maker SK Hynix rose 2.1%.
"The reason shares are rising despite the poor earnings
result is.. investors are hoping Samsung will need to reduce production, like
Micron or SK Hynix said they would, which would help the memory industry
overall," said Eo Kyu-jin, an analyst at DB Financial Investment.
Samsung had said in October that it did not expect much
change to its 2023 investments. Analysts said that Samsung has a history of not
announcing memory chip production cuts, but could organically adjust investment
by delaying bringing in equipment or in other ways.
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