South Korean multinational company, Samsung Electronics said on Thursday that it expects operating profit to slide by 70 percent in the fourth quarter. According to the preliminary numbers, the operating profit of the company fell 69 percent to €3.3 billion in the past three months. In the fourth quarter of the previous financial year, the operating profit was posted at €10.5 billion.
If the preliminary estimates are correct, it is the worst profit decline suffered by Samsung Electronics since 2014. Financial and market data company, Refinitiv was expecting Samsung Electronics to post an operating profit of €4.4 billion in the fourth quarter.
Analysts are of the opinion that Samsung suffered a huge decrease in operating profits as economic instability and high inflation in the economies are reducing demand for semiconductors and other electronic items. The company also stated that overall sales went down by 9 percent to €52.4 billion.
Samsung Electronics, which is the largest producer of memory chips, smartphones, and TVs in the world said that declining demand and fall in prices of electronics products were worse than what was expected by the company. Global macroeconomic issues also resulted in decreased demand for smartphones and revenue from sales.
Analysts say Samsung has been contributing to the current supply glut with its increased spending on chip manufacturing, as it pursues a strategy of investing in a downturn to gain market share.
Oversupply problems have been exacerbated by US sanctions on chip exports to China and iPhone production delays at Foxconn’s Chinese plant due to a massive outbreak of Covid-19. While Apple is one of the major rivals of Samsung in the smartphone market, it is also one of the largest customers of chips and other electronics products manufactured by Samsung.
According to market analysts, supply issues with memory chips are set to get worse in the current quarter and will rebound during the second half of the financial year. Kim Dong-won, an analyst at KB Securities said that inventories of Memory chips are likely to peak in the second quarter while prices of Dram and Nand chips will only rebound in the second half.
Statistics suggest that sales of chips in South Korea have tumbled by nearly 30 percent when compared to the previous year. There is a reversal of trend in demand for chips as in 2021, a large number of electronic sales was due to pandemic-induced demand for electronic equipment.
