Samsung's Profits Drop by 95% Amid Ongoing Chip Demand Slump

Published: Thursday, July 27, 2023, 17:45 [IST]

Samsung Electronics recently reported a significant 95% decline in operating profits in the last quarter. This decline was attributed to an oversupply of memory chips, causing a sharp drop in prices despite production cuts. Despite the challenging situation, Samsung managed to surpass analysts’ earnings projections.

Impact of Ongoing Inflation on Consumer Demand

The ongoing inflationary pressures have negatively affected consumer demand for electronic devices, leading to a minimal recovery in memory chip prices this year. As the world’s largest chip and smartphone manufacturer, Samsung faces the brunt of this situation.

To address the downturn in the semiconductor industry, the company announced a substantial reduction in memory chip production in April. While the full impact of this decision is yet to be realized, Samsung remains optimistic about a gradual global demand recovery in the second half of the year, as stated in its earnings report.

Positive Outlook for Samsung’s Semiconductor Business

Analysts at CFRA Research share Samsung’s optimism and anticipate positive effects on the company’s core semiconductor business. Increased demand for 5G, cloud services, and artificial intelligence is expected to drive growth in this segment.

Rivalry with TSMC

In contrast, Samsung’s rival, Taiwan Semiconductor Manufacturing Co. (TSMC), reported a 23.3% decline in net income compared to the previous year. This marks TSMC’s first profit drop in four years. The company also revised its revenue forecast for 2023, signaling the possibility of a prolonged downturn in the global electronics market, despite the rapid growth in AI.

Samsung’s Venture into the Mobile Space

Amid the challenges in the semiconductor segment, Samsung is exploring opportunities in the mobile market. Recently, the company launched two new foldable smartphones, Galaxy Z Fold5 and Flip5, in Seoul.

Although foldable phones constitute only 5% of the premium smartphone market, they experienced remarkable growth of up to 64% in the first quarter, according to research firm Counterpoint.

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