Latest Business News
Samsung Expects 96% Profit Plunge in Q2 2023 as Demand for Memory Chips Dips
The Second Quarter Outlook
Samsung Electronics, the largest dynamic random-access chip maker in the world, has projected a 96% drop in profit for the second quarter of 2023. The decline is due to weak demand for memory chips. The company estimates its operating profit for the April to June period to be 600 billion Korean won ($459 million), a significant decrease from last year's 14.1 trillion Korean won. This projected profit would be Samsung's lowest since the first quarter of 2009.
The estimated profit for the second quarter aligns closely with analysts' predictions of 555 billion Korean won. According to Refinitiv SmartEstimate, the projected revenue for this period is 63.75 trillion Korean won, down 17.4% from 77.2 trillion Korean won the previous year. Samsung will release its full earnings report on July 27.
The Impact of Weak Demand and Excess Chip Inventories
The increase in demand for consumer devices during the pandemic led smartphone and PC manufacturers to stockpile memory chips. However, the rising inflation has caused consumers to purchase fewer electronics, resulting in excess chip inventories. Consequently, the prices of memory chips have decreased.
Kim from Daiwa Securities Capital Markets noted that the weak demand is a persistent issue. Additionally, the supply of memory chips plays a significant role in shaping the market. Samsung Electronics announced a significant production cut in April, following the lead of smaller rivals. The expectation is that this production cut will have an impact in the third quarter. Industry experts anticipate a rebound in memory chip prices either by the end of this year or early next year.
Additional Demand Opportunities for Samsung and SK Hynix
Samsung and SK Hynix, South Korea's second-largest chipmaker, may benefit from the U.S. barring sales of Micron products in China. Micron, based in the U.S., is the third-largest DRAM chipmaker globally. However, weak demand from China due to production uncertainties poses a potential challenge.
Waivers for Samsung and SK Hynix
The U.S. has granted Samsung and SK Hynix one-year waivers to import advanced tools for their China plants. Initially set to expire in October, it is reported that these waivers will be renewed for the foreseeable future. This enables the companies to continue their operations in China and potentially take advantage of any emerging opportunities in the market.
First Quarter Performance and Future Outlook
In the first quarter of 2023, Samsung reported an operating profit of 640 billion Korean won, which was significantly lower than the previous year's 14.12 trillion won. The company's shares fell 2% in Friday morning trade, indicating market concerns. Nevertheless, industry experts remain cautiously optimistic about the future, with expectations of a rebound in memory chip prices in the coming months.
Conclusion: How the Profit Plunge in Memory Chips Could Impact New Businesses
The anticipated 96% profit plunge for Samsung in the second quarter of 2023, driven by weak demand for memory chips, highlights a challenging landscape for businesses that rely on this technology. This situation presents both risks and potential opportunities for new businesses entering the market.
With excess chip inventories and decreased prices due to reduced consumer electronics purchases, businesses looking to invest in memory chips may find a more favorable pricing environment. Lower costs could enable them to acquire the required components at a more affordable rate, potentially reducing production costs and improving profit margins. This could be especially beneficial for emerging tech startups looking to incorporate memory chips into their products.
On the other hand, the persistently weak demand raises concerns for businesses focused solely on the production and sale of memory chips. The decline in profit signals a challenging market scenario that requires strategizing to minimize losses and maintain sustainability.
Furthermore, the potential increase in demand for Samsung and SK Hynix products due to the U.S. restrictions on Micron sales in China offers a glimmer of hope. New businesses operating in these markets could explore partnerships or collaborations with these South Korean chipmakers to tap into the opportunities arising from this situation.
Overall, the current dynamics in the memory chip market present a mixed bag for new businesses. While the decreased prices and potential demand opportunities may provide advantageous conditions for some entrepreneurs, the overall climate of weak demand requires businesses to carefully navigate their investments and explore alternative strategies for sustained growth.
Article First Published at: https://www.cnbc.com/2023/07/07/samsung-estimates-profits-plunged-96percent-in-the-second-quarter.html