Samsung Warns Of Imminent Profit Plunge

Samsung Electronics issued a warning Friday that its Q2 profit would likely drop 96 percent, year over year – probably due to a lingering oversupply of memory plus overall economic malaise.

The chaebol predicted consolidated operating profit for the quarter would fall approximately $459 million. A year prior, the quarterly operating profit stood at around $10.8 billion. And in Q1 2023, $490 million.

The estimate represents Samsung's lowest quarterly profit since the reported $451 million in Q1 2009.

Predicted consolidated sales also continued to drop from Q2 2022 at $59 billion to Q1 2023 at $49 billion and a predicted $46 billion for Q2 2023. The latest quarterly estimate represents a 22 percent decrease year-on-year.

The short preliminary earnings statement noted that the predicted figures represented a range, in compliance with Korean disclosure regulations. A full earnings release is set to land July 27.

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In Q1, Samsung's cash cow memory business experienced a whopping 56 percent drop in demand that meant it earned a measly $6.6 billion, thanks to ongoing inventory adjustments, economic slowdown and weakened customer spending.

Memory prices were on the decline industry wide as the COVID-era semiconductor gold rush sputtered and suppliers were left with products on the shelf.

Samsung did stop the bleeding somewhat as it, along with its peers, cut chip supply and consequently slowed a price decline.

Both Samsung and rival SK hynix predicted memory market recovery in the second half of 2023 as customer inventory levels decline. It vowed to stay on top of demand by producing more pricey high end products.

But according to analyst firm TrendForce last March, recovery in 2023 is unlikely without "a significant decrease in production." The industry watcher was also doubtful that a rise in AI demand would make a considerable impact.

TrendForce pegged Samsung's impending shift to 16 gigabit GDDR6 modules – up from the current 8GB parts – as promising because the move would leave SK hynix alone pushing older product.

Samsung has some other likely hits in its pipeline. The Korean giant is set to announce its latest foldable smartphone on July 26. The Galaxy S23 series, launched in February of this year, also retains much allure.

But mobile may not be the savior Samsung is looking for. Analysts have long waited for a smartphone marketrebound, and IDC research director Nabila Popal has decried consumer demand as much slower than expected in all regions.

"If 2022 was a year of excess inventory, 2023 is a year of caution," said Popal.

India and China represent bright spots, as both have bucked the downward decline of handset sales in the premium segment.

Also in India, Samsung leads the premium market. It took 22 percent share of shipments in 2022, according to Counterpoint Research.

And despite mostly universal decline in demand, Samsung still takes the biggest piece of smartphone market share globally, meaning it may not be hurting as much as rivals.

Samsung's mobile segment reportedly accounts for around 22 percent of its profit structure, making it the second biggest business for the chaebol after memory. ®