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Samsung expected to report 80% profit plunge as losses mount at chip business

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Samsung expected to report 80% profit plunge as losses mount at chip business

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Customers experience Samsung’s new flagship fold-screen phone Galaxy Z Fold5 at a Samsung sales store in Hangzhou, East China’s Zhejiang province, Aug. 14, 2023.

Costfoto | Nurphoto | Getty Images

Samsung Electronics earnings are expected to plunge nearly 80% in the third quarter, according to analyst forecasts, as the company’s biggest profit-driving segment — semiconductors — continues to come under pressure.

The South Korean technology giant will issue earnings guidance on Wednesday. Analysts polled by LSEG expect operating profit of 2.3 trillion Korean won ($1.7 billion) for the September quarter, a 78.7% year-on-year decline. Revenue is expected to come in at 67.8 trillion won, a fall of 11.6%, according to LSEG consensus forecasts.

Samsung is the world’s largest maker of memory chips, used in products ranging from laptops to servers. It is also the world’s biggest smartphone player.

Samsung’s semiconductor business — typically the company’s cash cow — is expected to post a more than 3 trillion won loss for the third quarter, according to analyst forecasts, as it continues to face headwinds.

Memory chip prices have fallen dramatically this year due to a glut caused by oversupply and low demand for end products like smartphones and laptops.

This has hit Samsung’s profits hard. In its last earnings reports in July, the company predicted a pick-up in demand for chips in the second half of the year, although this does not appear to be playing out as fast as many had hoped.

The tech giant has cut production in a bid to help shore up prices, though the effect is not likely to be seen in the third-quarter results.

Daiwa Capital Markets said in a note earlier this month that it expects Samsung earnings to miss consensus estimates “due to the higher cost burden from the memory production cut and ongoing soft demand” for its chip manufacturing unit, known as the foundry business.

Daiwa analyst SK Kim sees operating profit for the third quarter at 1.65 trillion won, much lower than the average analyst estimate of 2.3 trillion won.

There could be two potential bright spots for Samsung in the September quarter, however.

Firstly, its display business could see quarter-on-quarter growth due to the release of Apple‘s iPhone 15 series; Samsung sells displays to Apple for iPhones.

Secondly, Samsung’s smartphone unit could see improving margins due to the high-end foldable phones it launched in July.

Recovery ahead?

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