Samsung To Record An 80% Profit Decline in Q3 Due to Continuous Chip Losses

The leading global tech giant, Samsung Electronics, is preparing to unveil its Q3 preliminary earnings results, and industry analysts closely track the figures.  

However, there is an anticipation that the firm might record a staggering 80% decline compared to the previous year due to an ongoing challenge from a “global chip glut.”

Samsung Q3 profit set to slump 80% as chip losses persist https://t.co/vSSQWs7ss7 pic.twitter.com/ikkqDTlbbc

— Reuters (@Reuters) October 9, 2023

This situation has disturbed the normal activity of the South Korean conglomerate, which depends on Samsung’s semiconductor solutions to make money. 

Samsung Q3 Loss in Profits

Samsung is one of the world’s most renowned manufacturers of smartphones, televisions, and memory chips. As the company readies to unveil its Q3 preliminary earnings results, the estimations from the analysts were not encouraging. 

The analysts projected an operating profit of approximately 2.1 trillion won ($1.56 billion) for the July-September quarter. These projections are based on data from 19 analysts, known for their consistent accuracy.

Notably, during the same period the previous year, Samsung recorded an operating profit of 10.85 trillion won. The primary reason behind this reversal is the company’s chip division, which had been the pillar of its financial success. But now, it is expected to report quarterly losses from 3 trillion to 4 trillion won.

These losses resulted from the sluggish recovery of memory chip prices, which failed to rebound as quickly as anticipated. Samsung had to reduce the quantity of chips it produced, which resulted in an unexpected increase in production costs, thereby reducing its profits.

Also, according to reports in April, Samsung made further cuts in the third quarter to reduce oversupply in the market as demand for chips tanked. However, in a more positive development, Reuters reports showed that five analysts estimated that Samsung’s mobile business likely reported an operating profit of approximately 3 trillion won. 

This is attributed to the successful launch of premium foldable smartphones during the quarter, which helped drive sales despite the challenges posed by the sluggish global smartphone market.

The Ripple Effect on the Industry

The ripple effects of this challenging environment are not limited to Samsung alone. Notably, Micron Technology also projected a quarterly loss, raising concerns about a slow recovery within the memory chip industry. This is particularly troubling for sectors like data centers, which rely heavily on memory chips.

Besides this, the industry has witnessed a trend where smartphone and personal computer manufacturers have refrained from purchasing new memory chips. Rather, they reduce their inventory due to concerns about an impending economic downturn.

However, with inventory levels now fading, analysts anticipate a rebound in demand as early as the beginning of next year. Despite these challenges, a positive change is possible, as evidenced in Samsung’s recent first order for server memory chips from a North American data center company.

This development has sparked optimism that data center clients will gradually resume chip purchases. Despite the difficulties in the semiconductor market, there remains a strong demand for memory chips used in artificial intelligence applications, such as high bandwidth memory (HBM).

However, Samsung faces stiff competition from rivals like SK Hynix in developing these chips and securing clients like AI-chip leader Nvidia.

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