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Samsung Electronics has reported its worst quartely profits in 14 years as cost-of-living pressures smash its business.
The South Korean company — one of the world’s largest makers of memory chips and smartphones — said in a statement that operating profit fell to 640 billion won ($720 million) — down 95 per cent from a year earlier.
Its first-quarter net income fell 86.1 per cent to 1.57 trillion won, and sales dropped 18 per cent to 63.75 trillion won.
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 firm’s chip division reported 4.58 trillion won in losses, its first operating loss since 2009 — when the world was emerging from the 2008 financial crisis.
It said 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”.
While solid sales of its new flagship Galaxy 23 smartphones helped offset deficits in the chip sector in the first quarter, analysts expect conditions in the April to July period to worsen and even lead to Samsung’s first profit loss since 2008.
A man walks past an advertisement for Samsung Galaxy S23 phones at an underground shopping area in Seoul on April 27. (Photo by Jung Yeon-je / AFP)
The firm 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.
The first-quarter drop is the third consecutive margin squeeze for Samsung, which saw a 70 per cent fall in operating profits in the fourth quarter on-year.
Korean chipmakers — led by Samsung — enjoyed record profits in recent years as prices for their products soared, but the global economic slowdown has dealt a blow to memory sales.
Demand swelled during the pandemic as consumers bought new computers and smartphones during lockdowns, prompting chip makers to ramp up production.
But demand quickly diminished as lockdowns lifted and weakened further in the face of soaring inflation and rising interest rates.
Jay Y. Lee, co-vice chairman of Samsung Electronics Company, arrives for a State Dinner in honour of South Korean President Yoon Suk Yeol at the White House on April 26. (Photo by Stefani Reynolds / AFP)
Chief rival Intel also posted a massive fall in sales for the first quarter of 2023 because of a steep drop in the demand for semiconductors, especially those for PCs.
Intel’s revenue fell 36 per cent to $11.7 billion in the three-month period and the semiconductor giant posted a loss of $2.8 billion, its biggest ever for a quarter.
The loss and sales collapse were slightly less catastrophic than expectations, and the stock rallied three per cent in post-session trading.
“Intel is heavily dependent on the PC market and as we still seem to be seeing a slowdown in the PC market, consumer PCs especially, I would expect Intel to be having challenges,” said Alan Priestley, an analyst at Gartner.
Intel is one of the world’s leading semiconductor makers that makes a wide range of products, including the latest generation chips along with Taiwan’s TSMC and South Korea’s Samsung.
It was also affected by falling demand for chips that power data centres and is struggling to compete with Nvidia for the semiconductors that undergird ChatGPT-style generative AI, a major new and chips-hungry sector for the industry.
— with AFP
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