Samsung is the largest manufacturer of memory chips in the world.
Jakub Porzycki | Nurphoto | Getty Images
Samsung Electronics said on Tuesday it expects a 35% drop in operating profit in the fourth quarter of 2023, missing expectations by a wide margin as a recovery in semiconductor prices likely pared losses in the South Korean company’s biggest profit-making division.
Samsung said that for the October-December quarter, operating profit is likely to be 2.8 trillion South Korean won ($2.13 billion), down 35 percent from the same period a year ago, where the company reported operating profit of 4.31 trillion won. Operating profit was 2.43 trillion won in the previous quarter.
The earnings guidance was well below LSEG’s SmartEstimate of 3.7 trillion won, which is more heavily weighted against analysts’ expectations which have been consistently more accurate.
Fourth-quarter revenue likely fell 4.9 percent from the same period a year ago to 67 trillion won, the company said in preliminary earnings. statement.
Samsung is the world’s largest manufacturer of dynamic random access memory chips found in consumer devices such as smartphones and computers.
“[Samsung is] very good at making some of the best semiconductors in the world, at least at making and making them. But their returns are much worse than competitors like TSMC,” Cory Johnson, chief market strategist at The Futurum Group, said on Tuesday.
“… such bad returns can turn into really bad earnings results,” he told CNBC’s “Squawk Box Asia” after Samsung’s earnings preview.
The company is set to announce its earnings in detail on January 31, according to deposition.
Memory values recover
Memory chip prices fell sharply last year as a result of post-Covid overstocks and weak demand for end products such as smartphones and laptops.
“We estimate that memory prices have started to recover from 4Q13 due to production cuts by suppliers and a recovery in mobile and PC demand,” Daiwa Capital Markets analyst SK Kim said in a report January 4th.
This has hit Samsung’s profits hard. Samsung’s Third-quarter operating profit fell 77.6% from a year earlier, although it was better than expected. Operating profit in the second quarter fell 95% compared to the same period last year.
Demand for artificial intelligence in all major applications will drive the overall semiconductor sales market to rebound in 2024.
In late October, Samsung and SK Hynix – the world’s second-largest maker of DRAM memory chips – signaled during third-quarter earnings calls that weak demand may have finally bottomed out after production cuts.
“We expect further price increases in 1H24 and a significant recovery in earnings for memory makers in 2H and 2025,” said Daiwa Capital Markets’ Kim, referring to the first and second halves of this year.
“Therefore, we expect wind turbines for share prices in the near term.”
Memory chip prices have started to rise since early November, thanks to “tight supply and production control by memory manufacturers,” according to Galen Zeng, senior research director for semiconductor research at IDC.
“Demand for artificial intelligence in all major applications will drive the overall semiconductor sales market to rebound in 2024,” Zeng said in a Report 21 December.
“The semiconductor supply chain, including design, manufacturing, packaging and testing, will say goodbye to recession in 2023.”