Analyst: Samsung quarterly profit could plummet 58% to lowest level in six years

Samsung Electronics' quarterly profit may plunge 58 percent to its lowest level in six years, Reuters reported on Jan. 5, as a sluggish global economy dented demand for electronic equipment and clouded the outlook for the memory chip industry.

As consumers and businesses cut back on spending and investment amid high inflation and rising interest rates, smartphone makers and other customers held off orders for memory chips, while selling prices for smartphones fell due to lower demand, analysts said.

Samsung, the world's largest maker of memory chips, smartphones and televisions, is a bellwether for global consumer trends. Samsung is expected to announce preliminary results on Friday and full results later this month.

Samsung, Asia's fourth most valuable listed company, may see its operating profit fall to 5.9 trillion won ($4.62 billion) in the October-December quarter of 2022, according to estimates from more than two dozen analysts. That would be Samsung's lowest quarterly profit since the third quarter of 2016, compared with an operating profit of 13.87 trillion won a year earlier.

"The main reason for the decline is a sharp drop in demand. Both chip and smartphone shipments and prices are expected to be lower than previously expected," said Hana Financial Investment analyst Kim Roko.

Operating profit at Samsung's chip business could fall 78 percent to 1.9 trillion won, the average estimate of seven analysts showed.

Chips typically account for about half of the tech giant's profits.

Prices for some DRAM memory chips widely used in smartphones and PCs have plummeted 40 percent in a year, while prices for NAND flash memory chips used for data storage have fallen 14 percent, according to TrendForce.

Memory chip rivals SK Hynix and Micron Technology have slashed planned investments for 2023 in response to a memory downcycle that is expected to last at least until the second half of 2023.

However, analysts said Samsung is expected to use its deep pockets during the downturn to expand its market share by largely maintaining its investment plans to gain an edge when the memory chip market eventually rebounds.

Samsung said in October that it did not expect much change in its investments in 2023. As of the end of September 2022, it had about 128.82 trillion won ($100.83 billion) in cash.

Profits in Samsung's mobile business are also expected to shrink, with profit expected to fall 14 percent to 2.3 trillion won in the current quarter.

It may have shipped 63 million handsets this quarter, including 62 million smartphones, according to estimates from data provider Counterpoint. This compares to 72 million mobile phone shipments in the fourth quarter of 2021.

Shares of Samsung have fallen about 29% in 2022 before rebounding this week as South Korea announced a tax cut plan for semiconductor investment. By comparison, the Philadelphia Semiconductor Index plunged 36% last year.