Samsung's Sluggish Demand and Sliding Profits

Samsung Electronics Co. is a South Korean electronics company headquartered in Seoul. The company is known for its smartphones, tablets, and other consumer electronics.

Analysts expect that demand for semiconductors and smartphones will remain sluggish as macroeconomic challenges and fears of a recession continue to hurt sales. However, they say that a recovery could be possible in the second half of the year.

Kim Jae-june, executive vice president for global sales and marketing at Samsung's memory business, said on Tuesday that economic uncertainties are weakening momentum for any short-term rebound in demand for memory chips, the company's main cash cow.

South Korean tech giant Samsung has reported a 69% drop in operating profit for the fourth quarter of 2020 compared to the same period a year ago.

Daniel Araujo, vice president at Samsung’s mobile business division, has said that demand for smartphones across all price ranges is expected to decrease on a quarterly basis in the first three months of this year. This is due to the continuing economic slowdown and other factors contributing to macroeconomic instability.

According to Mr. Kim, conditions may improve in the second half of this year depending on macroeconomic shifts that could revive global chip demand. Memory orders could pick up as corporate and consumer spending bounces back based on changes in interest rate policies, China’s reopening and the potential for governments to unleash economic stimulus packages.

Next-generation smartphones, servers and PCs require more advanced memory in larger volumes, which can have a positive effect on demand, according to an industry expert.

After Samsung reported that its fourth-quarter operating profits had slumped, analysts revised their outlook for the company downward. This is in line with the broader trend in the tech industry, which has seen disappointing earnings from companies such as Intel Corp.

Samsung's operating profit for the fourth quarter came to 4.31 trillion won, equivalent to $3.5 billion. Revenue for the three-month period fell by roughly 8% from a year ago to 70.5 trillion won.

Samsung reported that its net profit for the last three months of 2022 more than doubled to 23.84 trillion won, thanks to a one-time tax reduction based on new accounting procedures under a recent change in South Korean tax laws regarding dividends from subsidiaries.

Samsung's full-year net profit for 2022 totaled 55.6 trillion won, a 39.5% increase from the previous year. Revenue for the full year came to 302.2 trillion won, up 8% from the previous year.

Samsung shares fell by around 3.6% on Tuesday.

Global demand for tech products dropped sharply in the second half of 2022, prompting big profit falls at semiconductor firms that had enjoyed a boom earlier in the pandemic. Memory chips saw prices fall significantly as supply exceeded demand by a large margin, hurting profits for players including Samsung.

Samsung is the world's largest producer of two major types of memory chips: DRAM, which enables devices to multitask, and NAND flash, which provides storage on devices.

Industry analysts expect average contract prices for both DRAM and NAND memory to keep falling through the first half of the year. This is due to sluggish demand and high inventory levels, amid continued macroeconomic challenges and widening recessionary fears.

Samsung's semiconductor business, led by memory-chip sales, saw operating profit for the October-December quarter drop by 96.9% from the prior year to 270 billion won, the company said. Semiconductor revenue for the three-month period declined 23.6% from last year to 20.07 trillion won.

Despite the current downturn, Samsung said it would keep its capital expenditure plans for 2023 similar to last year’s. The company is looking to prepare for mid- to long-term demand, which contrasts with the plans of its rivals. Many of Samsung's competitors have already pulled back their capacity expansion plans or lowered output for this year to ease the supply glut.

Samsung has signaled a near-term reduction in production through line maintenance and other adjustments. The firm also plans to increase the research and development portion of its capital expenditure compared with prior years. This indicates that Samsung is focusing on improving its product offerings and making its operations more efficient.

The global smartphone industry is in a slump, prompting profits to sink at Samsung, the world’s largest smartphone maker by shipments. The company’s mobile-and-networks division logged fourth-quarter operating profit of 1.7 trillion won, a 36.1% decline from a year earlier.

Samsung's smartphone business saw greater-than-expected declines in sales of mass-market devices, but sales of its pricier flagship models held up relatively well compared to the overall economic environment, according to Mr. Araujo of Samsung's mobile business division.

According to International Data Corp., worldwide smartphone shipments during the fourth quarter declined by 18.3%, from the prior year to 300.3 million units. This is the largest-ever decline in a single quarter.

According to Mr. Araujo, the smartphone market is expected to contract in 2023 due to the global economic slowdown, inflation, and geopolitical tensions. Mass-market devices will be the most affected by these conditions.

Samsung is set to launch its new Galaxy S23 smartphone series this week, in what will be the first major launch of the year for the industry. Despite tough market conditions, Samsung is pressing ahead with its new product launch.