Samsung profit slumps 70% as weak economy hits demand

Samsung Electronics said profit for the last quarter plummeted nearly 70 per cent as the weak global economy depressed demand for its consumer electronics products and computer memory chips.

The company’s operating profit of 4.3 trillion won (€3.2 billion) for the three months to December fell 69 per cent compared with a year earlier, representing its lowest quarterly profit since the third quarter of 2014.

Revenue fell 8 per cent to 70.46 trillion won.

The South Korean tech giant thrived during the first two years of the pandemic thanks to its dual strengths in parts and finished products, benefiting from robust demand for PCs, TVs and chips powering computer servers as Covid-19 forced millions to work at home.

But it has been harder for the company to weather the economic shock unleashed by Russia’s war on Ukraine, which disrupted industrial supply chains and left major economies grappling with higher inflation and slower growth.

“The business environment deteriorated significantly in the fourth quarter due to weak demand amid a global economic slowdown,” Samsung said in a statement.

Samsung said gadgets with more storage would drive recovery in the second half of the year, but it warned that in the current quarter, earnings would likely decline and factory usage rates in its contract chipmaking business would fall.

While noting that the business environment “deteriorated significantly in the fourth quarter, Jaejune Kim, executive vice president in charge of the company’s memory division, said the company’s stance on chip spending remained unchanged.

“Our capex approach this year is to continue to make the infrastructure investments that are necessary to respond to mid to long-term demand, he said during an earnings call. “Therefore, this year’s capex plan is expected to be similar to the previous year.

The company made a surprisingly aggressive decision to keep capital spending at the same level as last year, defying expectations that it go along with rivals in pulling back to alleviate pressure on an already-battered semiconductor industry.

Samsung warned that it expected a recovery in chips to begin only in the second half of the year, while smartphone demand would likely contract in 2023. But despite pressure on the world’s largest memory chipmaker to slow down spending on new capacity, the company said it would keep on spending on chips, which last year came to 47.9 trillion won (€35.8 billion). The result will be more pressure on chip pricing than if the Korean giant had pulled back spending on new machinery and factory capacity.

Samsung’s plan to keep spending into the downturn will likely widen the company’s lead over smaller rivals who are scaling back, but at the cost of profitability.

Kim did say the company’s line optimisation and equipment layout adjustments would “inevitably impact supply, signaling the pace of memory production would slow in coming months.

Artificial intelligence chatbot services — such as OpenAI’s ChatGPT — would likely stir new demand for memory chips, as well as for high-performance CPUs that generative AI requires, executives said.

A recovery in demand from clients will be key, said Jeff Kim, head of KB Securities’ research center.

“At this point, the most important factor for the memory sentiment is when clients finish digesting inventory, he said. - PA, Bloomberg