Samsung warns fourth-quarter profit could fall 35%, beats expectations

Samsung is the world’s largest manufacturer of memory chips.

Jakub Porzycki | Nurphoto | Getty Images

Samsung Electronics said on Tuesday it expected a 35% drop in operating profit in the fourth quarter of 2023, well below expectations, as a recovery in semiconductor prices likely narrowed losses in the South Korean company’s biggest profit-pulling segment.

Samsung said operating profit for the October-December quarter is likely to be 2.8 trillion South Korean won ($2.13 billion), down 35% from the same period a year ago, when the company reported operating profit of 4.31 trillion won. Operating profit was 2.43 trillion won in the previous quarter.

The profit forecast fell far short of LSEG’s SmartEstimate of 3.7 trillion won, which is more heavily weighted by analysts’ expectations, which are consistently more accurate.

Fourth-quarter revenue likely fell 4.9% from the same period a year ago to 67 trillion won, the firm said in a preliminary earnings statement.

Samsung is the world’s largest manufacturer of dynamic random access memory chips found in consumer devices such as smartphones and computers.

“(Samsung is) very good at making some of the best semiconductors in the world, at least in manufacturing and realizing them. But their returns are much worse than competitors like TSMC,” Cory Johnson, chief market strategist at The Futurum Group, said in Tuesday.

“…so bad revenue can turn into really bad earnings results,” he told CNBC’s “Squawk Box Asia” after previewing Samsung’s earnings.

The company is scheduled to announce detailed results on January 31, according to the announcement.

Memory prices are rising

Memory chip prices fell drastically last year due to excess inventory after Covid and weak demand for end products such as smartphones and laptops.

“We estimate that memory prices have started to rebound since 4Q23 due to reduced production by suppliers and a revival in demand for mobile devices and PCs,” Daiwa Capital Markets analyst SK Kim said in a Jan. 4 note.

This has hit Samsung’s revenue hard. Samsung’s third-quarter operating profit fell 77.6% from a year earlier, although it was better than expected. Operating profit fell 95% in the second quarter compared to the same period a year ago.

Demand for AI across all major applications will drive the overall semiconductor sales market to rebound in 2024.

In late October, Samsung and SK Hynix — the world’s second-largest maker of DRAM memory chips — signaled during their third-quarter earnings that weak demand may have finally bottomed out after production cuts.

“We expect further price increases in 1H24 and a significant recovery in earnings for memory makers in 2H and 2025,” said Daiwa Capital Markets’ Kim, referring to the first and second halves of this year.

“We expect stock prices to be negative in the near term.”

Memory chip prices have started to rise since early November due to “tight supply and output control by memory manufacturers,” according to Galen Zeng, senior research manager of semiconductor research at IDC.

“The demand for AI across all major applications will drive the overall semiconductor sales market to rebound in 2024,” Zeng said in a Dec. 21 report.

“The semiconductor supply chain, including design, manufacturing, packaging and testing, will say goodbye to decline in 2023.”

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