To enhance profitability and mitigate the impact of cyclical downturns, Samsung is focusing on advanced memory chips, particularly high bandwidth memory chips that are crucial for AI servers and processors.
Samsung Electronics, the South Korean tech giant, released its preliminary earnings guidance for the third quarter (Q3 2023), indicating a notable 77.9% drop in operating profit compared to last year.
According to the company, the decrease in profitability is primarily attributed to the lingering effects of a prolonged slump in memory chip prices, which have posed challenges for the semiconductor industry. However, analysts remain optimistic, believing the fourth quarter may witness a turnaround driven by significant production cuts across the sector.
Samsung Q3 2023 Revenue to Likely Drop by 2.7%
Samsung’s earnings guidance suggested that the operating profit for the third quarter is estimated to be approximately 2.4 trillion won, equivalent to $1.8 billion. This announcement also predicts a decline in revenue by 12.7% to 67 trillion won for the quarter compared to the previous year. Remarkably, when viewed on a quarter-on-quarter basis, the operating profit is projected to have surged by a remarkable 258.2%, with revenue increasing by 11.7%.
Traditionally, the company has not been forthcoming with detailed explanations for its earnings reports. However, the South Korean tech giant is expected to release a comprehensive earnings report later this month, providing a more in-depth analysis of its financial performance, including net profit and earnings within different sectors.
The projected operating profit of 2.4 trillion won has drawn significant attention for surpassing the market consensus offered by FnGuide.
The market had expected a third-quarter profit of 2.1 trillion won, along with revenue reaching 67.9 trillion won, based on assessments by 22 securities firms operating in South Korea.
Samsung Stocks Price Jumps to 68,200 Won
In response to the preliminary earnings announcement, Samsung’s stock prices increased by 2.7%, closing at 68,200 won. The stock market reacted positively, driven mainly by expectations of a potential recovery from the ongoing downturn.
Analysts are optimistic that the company’s earnings may have bottomed out despite the expected significant loss in the semiconductor division for the third quarter. This optimism is rooted in Samsung’s strong performance in its mobile and display divisions, particularly thanks to the successful launch of the new Galaxy Z Flip 5 and Fold 5 models.
Liz Lee, associate director at Counterpoint Research, commented on the situation, noting that:
“Its semiconductor division likely incurred a loss of 3 trillion won as the company focused on higher-end chips, such as DRAM chips for artificial intelligence, while continuing to cut production of older legacy chips. However, the loss was mostly offset by the outperformance of its mobile and display divisions. With the eased inventory burden and rebound in memory prices, its fourth-quarter earnings are expected to improve further.”
Samsung to Focus on Advanced Memory Chips to Drive Profitability
To enhance profitability and mitigate the impact of cyclical downturns, Samsung is focusing on advanced memory chips, particularly high bandwidth memory (HBM) chips that are crucial for AI servers and processors.
The company is set to unveil its HBM chip roadmap at an event in San Jose, California, next week to attract more customers.
It is important to note that Samsung’s semiconductor division has faced significant challenges throughout the current downturn, resulting in a consistent decline in operating profit over the past four quarters.
The first quarter of the year saw a 95.5% drop in operating profit to 640.2 billion won, the lowest in 14 years, followed by another 95.4% decline in the second quarter to 668.5 billion won, marking the second-worst performance in 14 years.
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