With consumers and businesses reducing spending and
investment in the face of high inflation and climbing interest rates,
smartphone makers and other clients held back memory chip orders, while
smartphones sold for less as demand suffered, analysts said.
Samsung, as the world's biggest maker of memory chips,
smartphones and TVs, is a bellwether for global consumption trends. It is
expected to announce preliminary results on Friday and full results later this
month.
Operating profit for Asia's fourth most valuable listed
company likely fell to 5.9 trillion won ($4.62 billion) in the October-December
quarter, according to a Refinitiv SmartEstimate from 21 analysts.
That would be Samsung's lowest quarterly profit since the
third quarter of 2016 and compares with an operating profit of 13.87 trillion
won a year earlier.
"The main reason for the performance... is a sharp drop
in demand. Both shipments and prices of chips and smartphones are expected to
fall short of previous expectations," said Kim Roko, analyst at Hana
Financial Investment.
SmartEstimates are weighted toward forecasts from analysts
who are more consistently accurate.
Operating profit for Samsung's chip business likely tumbled
by 78% to 1.9 trillion won, an average of seven analyst estimates showed.
Chips usually account for about half of the tech giant's
profits.
Prices of some DRAM memory chips, widely used in smartphones
and PCs, plunged 40% over the year, while prices for NAND flash chips, used in
data storage, fell 14%, according to TrendForce data.
Memory chip rivals SK Hynix and Micron Technology have
sharply cut planned 2023 investments in response to the memory downcycle, which
is expected to last at least until the second half of 2023.
However, Samsung is expected to use its deep pockets during
this downturn to expand market share by largely maintaining its investment
plans, analysts said, so it can be in place to take advantage when the memory
chip market eventually rebounds.
Samsung said in October that it did not expect much change
to its 2023 investments. It had about 128.82 trillion won ($100.83 billion) in
cash as of end-September.
Samsung's mobile business is also expected to see profits
shrink, with forecasts calling for a 14% fall to 2.3 trillion won for the
quarter.
Its handset shipments likely reached 63 million in the
quarter, including 62 million smartphones, according to data provider
Counterpoint's estimate. That compares with 72 million handsets shipped in the
fourth quarter of 2021.
Samsung shares fell about 29% in 2022 before rebounding this
week as South Korea announced planned tax breaks for semiconductor investments.
That compared with a 36% slump for the Philadelphia Semiconductor index last
year.
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