The South Korean company — one of the world’s largest makers
of memory chips and smartphones — said in a statement that operating profit
fell to 640 billion won ($478.6 million) — down 95 percent from a year earlier.
Its first-quarter net income fell 86.1 percent to 1.57
trillion won, and sales dropped 18 percent to 63.75 trillion won.
The company said that “overall consumer spending slowed amid
the uncertain global macroeconomic environment”.
Samsung also blamed weakening demand for memory chips —
which usually generate about half of its profits — and falling chip prices.
The firm’s chip division reported 4.58 trillion won in
losses, its first operating loss since 2009 — when the world was emerging from
the 2008 financial crisis.
It said this was due to “continued price declines and an
increased valuation loss… amid weakening sentiment and continued impacts of
inventory adjustments by customers caused by prolonged external uncertainties”.
Demand for memory was “expected to gradually recover” in the
second half of 2023, it added, “amid projections that customer inventory levels
will have declined.”
The firm is the flagship subsidiary of the giant Samsung
Group, by far the largest of the family-controlled conglomerates that dominate
business in Asia’s fourth-largest economy.
The first-quarter drop is the third consecutive margin
squeeze for Samsung, which saw a 70 percent fall in operating profits in the
fourth quarter on-year.
Samsung shares were down 0.3 percent Thursday morning.
Scaling back production
Korean chipmakers — led by Samsung — enjoyed record profits
in recent years as prices for their products soared, but the global economic
slowdown has dealt a blow to memory sales.
Demand swelled during the pandemic as consumers bought new
computers and smartphones during lockdowns, prompting chip makers to ramp up
production.
But demand quickly diminished as lockdowns lifed and
weakened further in the face of soaring inflation and rising interest rates.
Samsung said this month it will scale back memory chip
production to a “meaningful” level to address the oversupply, an unusual move
by the firm, which previously said it would make only small adjustments.
South Korean chip maker SK Hynix and Micron Technology of the
United States have also reduced production.
Samsung’s “active” eforts to get out of the inventory rut
were “positively evaluated” considering its efect on market sentiment and
demand for memory chips, said a report released by Eugene Investment &
Futures.
“Even if the pace of recovery for demand remains slow, the
semiconductor industry is highly likely to recover in the second half if
cooperation among the chip makers on production cuts goes well,” it added.
While solid sales of its new flagship Galaxy 23 smartphones
helped ofset deficits in the chip sector in the first quarter, analysts expect
conditions in the April to July period to worsen and even lead to Samsung’s
first profit loss since 2008.
The recent drop in profits has not deterred Samsung from
making bold investments — in March, it unveiled plans to contribute $227
billion over the next two decades to building the world’s largest chip centre
in Yongin, south of Seoul. AFP
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