Samsung’s Q4 Profits Dipped Amid Slump in Chip Manufacturing

SUMMARY

  • Samsung Electronics, a leading global producer of memory chips, smartphones, and TV sets, surprisingly, reported a reduction in operating profits, falling from 4.31 trillion won a year prior to 2.8 trillion won ($2.13 billion).

  • The estimated profits fell short of the expected 3.7 trillion won LSEG SmartEstimate, an amalgamation of forecast estimates from consistently accurate analysts.

  • Factors contributing to the fall included a lower profit margin in chip contract manufacturing, mobile processors, TV & home appliance divisions, fostering discrepancy with projected forecasts.

  • Samsung’s rival, LG Electronics also reported an operating profit well below estimates primarily due to stiff competition and augmented marketing spending.

MEMORY CHIP MARKET PERFORMANCE

To offset this downward trend, Chinese PC and mobile manufacturers have started restocking memory chips in Q4, after depleting their reserve. Despite this restocking, consumer demand remains sluggish, according to Lee Min-hee, an analyst at BNK Investment & Securities.

Unless there are measures to stimulate the economy and lower interest rates, the scenario might not change much, particularly in the consumer sector.

Performance of Samsung’s mobile division was affected as the shipments of its two flagship foldable models decreased by around one-million units each compared to the previous quarter, leading to a slight decline in earnings.

PROSPECTS IN CHIP AND DRAM MARKETS

The drop in Samsung’s profit, despite being lower than expected, is in fact, the smallest in five quarters following a reported 31% drop in Q3 of 2022. This downturn resulted from a glut in memory chips due to slow gadget demand, leading to a significant industry downfall last year.

However, a rebound is expected in 2023 as memory chip prices rose after production cuts were made. Mobile DRAM chip prices witnessed an estimated increase of 18%-23% in Q4, while mobile NAND flash chip prices grew by 10%-15% according to data provider TrendForce, signaling potential positive prospects in the market.

Shares in Samsung Electronics started off strong, opening up 1.2%, however, gains were modest with a 0.1% increase early Tuesday morning, compared to a 0.6% rise in the broader market. The company is set to release more detailed earnings on January 31.

A probable development in 2023 includes investments in on-device AI that will increase demand for more memory chips per device, stirring anticipation among investors.

($1 = 1,311.7800 won)

In conclusion, with a higher memory chip demand anticipated due to a rebound in the industry, this shifting landscape might impact the trading of specific assets such as Samsung Electronics stocks. With a reinforced demand for memory chips, investors dealing in the technology and semiconductor markets should closely monitor the situation.

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