Samsung operating profit falls 95%: What’s behind the big plunge, and the ‘bright spot’ – Times of India

Samsung Electronics has reported its worst quarterly profits in 14 years. The South Korean company said in a statement that operating profit fell to 640 billion won ($478.6 million) — down 95 percent from a year earlier. Samsung is one of the world’s largest makers of memory chips and smartphones. Its first-quarter net income fell 86.1 percent to 1.57 trillion won, and sales dropped 18 percent to 63.75 trillion won. The first-quarter drop is the third consecutive margin squeeze for Samsung, which saw a 70 percent fall in operating profits in the fourth quarter on-year. Samsung Electronics is the flagship subsidiary of the giant Samsung Group, by far the largest of the family-controlled conglomerates that dominate business in Asia’s fourth-largest economy.
What’s behind the deep plunge
The company said that “overall consumer spending slowed amid the uncertain global macroeconomic environment”. Samsung also blamed weakening demand for memory chips — which usually generate about half of its profits — and falling chip prices. The company’s chip division reported 4.58 trillion won in losses, its first operating loss since 2009. It said that this was due to “continued price declines and an increased valuation loss… amid weakening sentiment and continued impacts of inventory adjustments by customers caused by prolonged external uncertainties”.
Demand for memory was “expected to gradually recover” in the second half of 2023, it added, “amid projections that customer inventory levels will have declined.”
Samsung mobile sales a ‘bright spot’
Samsung’s mobile business was a brighter spot, reporting 3.94 trillion won profit in Q1, up from 3.82 trillion won a year earlier. Good sales of Samsung’s new flagship Galaxy 23 smartphones helped offset deficits in the chip sector in the first quarter. However, analysts expect conditions in the April to July period to worsen and even lead to Samsung’s first profit loss since 2008.
Cutting down production
Samsung is the world’s biggest memory chipmaker. Chipmakers — led by Samsung — have been hit by a global economic slowdown that has dealt a blow to memory sales. South Korean chip maker SK Hynix and Micron Technology of the United States too have also reduced production. Samsung said this month that it will scale back memory chip production to a “meaningful” level to address the oversupply. This is a rare announcement from the company.
These companies enjoyed record profits in recent years as demand swelled during the pandemic. Consumers globally bought new computers and smartphones during lockdowns, prompting chip makers to ramp up production. However, demand diminished as lockdowns lifted and weakened further in the face of soaring inflation and rising interest rates.
(With agency inputs)