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Samsung Flags 78% Profit Drop as Chip Demand Remains Weak

Samsung, the South Korean technology giant, has issued a warning that its operating profit for the third quarter is likely to experience a significant drop of approximately 78%. This projection comes as the company grapples with weaker demand for consumer devices than usual.

According to earnings estimates released by Samsung on Wednesday, the expected operating profit for the three months ending in September is around 2.4 trillion Korean won ($1.8 billion). This marks a substantial decrease compared to the 10.85 trillion won ($8 billion) recorded in the same period the previous year. Furthermore, the revenue for this quarter is also anticipated to decrease by 12.7% compared to the previous year.

Samsung’s recent financial challenges reflect an ongoing difficult period for the electronics manufacturer. The company has reported significant losses in recent months, largely due to global economic uncertainties, causing consumers worldwide to hold onto their smartphones and laptops for more extended periods.

According to Counterpoint Research, the year 2023 is shaping up to be the worst year for global smartphone shipments in a decade, with shipments expected to decrease by 6% to fewer than 1.2 billion units. In crucial markets such as North America, consumers are showing reluctance to upgrade their devices.

Samsung experienced a 95% drop in operating profit during the first quarter, following a record loss in its semiconductor business. The second quarter also presented similar results.

The semiconductor industry, which faced a historic supply shortage during the COVID-19 pandemic, is now grappling with oversupply issues. This shift has led to losses for Samsung, which is the world’s largest memory chip and smartphone producer.

Consultancy firm Bain suggests that this oversupply is a cyclical trend, with ups and downs typical for the industry. In its July earnings statement, Samsung informed shareholders that it anticipates a gradual recovery in global demand in the second half of the year, which could improve earnings through its component business. However, the company remains cautious, recognizing ongoing macroeconomic risks that could pose challenges.

Industry analysts expect a turnaround in the memory chip sector, benefiting manufacturers like Samsung. In a recent client note, Nomura analysts predicted an acceleration of recovery in the sector throughout the rest of the year. They expect memory prices to remain stable or slightly increase in the third quarter and demonstrate strong growth in the fourth quarter. As a result, Nomura analysts maintain a buy rating on Samsung’s stock.

Following this announcement, Samsung’s shares increased by 3.5% in Seoul.

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