Samsung Q4 2023 Profits Drop 35% amid Market Slump

January 9, 2024 - Samsung Electronics has released its business update for the fourth quarter of 2023, highlighting key insights into the performance of its core businesses amid global market challenges.

In the past year, Samsung Electronics faced headwinds in its smartphone, storage chip, and wafer foundry services due to the ongoing slump in the global consumer electronics market. This has resulted in a discernible impact on the company's overall performance.

Despite initial expectations for a turnaround in Q4 2023, driven by inventory optimization, production adjustments, and demand recovery since October 2023, the pace of Samsung Electronics' recovery appears to be slower than anticipated. The company forecasts a 35% year-on-year decline in operating profit for the fourth quarter, falling short of previous projections and dampening hopes for a resurgence in the semiconductor business and associated profitability.

Last year, challenges stemming from the aftermath of the COVID-19 pandemic, including excess inventory and weak demand for end products like smartphones and laptops, led to a substantial decrease in storage chip demand and prices. This had a profound impact on Samsung's profitability, with a 77.6% year-on-year drop in third-quarter operating profit and a staggering 95% decline in second-quarter operating profit.

While storage chip prices began to rebound in the fourth quarter of 2023 due to upstream suppliers like Samsung reducing production and downstream demand recovering, profits did not meet expectations. Samsung Electronics' preliminary financial forecast for Q4 2023 projects a 35% year-on-year decline in operating profit to 28 trillion Korean won, marking the sixth consecutive quarter of decline. Revenue is expected to be 670 trillion Korean won, reflecting a 4.9% year-on-year decrease, which is below market expectations. These challenges underscore the broader issues faced by the technology industry, including reduced consumer spending and potential oversupply in the semiconductor market.

Looking ahead, Samsung Electronics anticipates a 15% year-on-year decrease in revenue and an 85% decrease in operating profit for the full year of 2023.

During the third-quarter earnings conference call, Samsung and SK Hynix, the world's second-largest memory chip manufacturer, noted that after production cuts, weak demand may have reached its lowest point. They expect further increases in storage chip prices in the first half of 2024, with significant profit rebounds for chip manufacturers in the second half of 2024 and 2025.

Market analysts also predict that the demand for AI will drive the recovery of the entire semiconductor sales market in 2024. The semiconductor supply chain, including design, manufacturing, packaging, and testing, is poised to bid farewell to its downturn in 2023. According to preliminary financial forecasts, Samsung Electronics' chip division is exhibiting signs of recovery, with expected quarterly losses reducing to around 1.2 trillion Korean won.

Samsung Electronics is strategically focusing on the emerging High Bandwidth Memory (HBM) chip sector, aiming to catch up with competitors by increasing capacity by 2.5 times by 2024. HBM is an advanced chip capable of faster data processing, compatible with hardware such as Nvidia's AI chips, used for accelerating data processing tasks like AI model training.