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Samsung Braces for 80% Drop in Q3 Profit Amid Lingering Chip Woes

Samsung Braces for 80% Drop in Q3 Profit Amid Lingering Chip Woes
A view shows Samsung Electronics' chip production plant at Pyeongtaek, South Korea| Samsung Anticipates 80% Q3 Profit Drop Due to Chip Glut|-Samsung Electronics/Handout via REUTERS /File Photo

Samsung Electronics (005930.KS) is anticipating an 80% year-on-year decline in third-quarter profits, attributing the slump to the enduring global chip surplus. This unexpected downturn significantly impacts the normally robust chip division, a cornerstone of the South Korean tech giant’s business.

As the world’s leading producer of memory chips, smartphones, and televisions,Samsung is set to unveil its third-quarter preliminary earnings this Wednesday. According to a SmartEstimate by LSEG, a consensus from 19 analysts forecasts an operating profit of approximately 2.1 trillion won ($1.56 billion) for the July-September period, with preference given to analysts with a history of accuracy.

This projection is starkly contrasted by last year’s September quarter operating profit of 10.85 trillion won. The reversal in fortunes stems from the chip division’s expected quarterly losses, ranging between 3 to 4 trillion won. This downturn is mainly due to slower-than-anticipated recovery in memory chip prices, which have remained persistently low.

Market experts point out that Samsung‘s decision to cut chip production has also led to increased costs, negating economies of scale. This measure was taken in response to a severe industry downturn driven by a surplus of chips, prompting one of the worst crises in the sector in decades.

Rival Micron Technology (MU.O) recently predicted a quarterly loss, raising concerns about a protracted recovery in memory chip markets, especially in segments like data centres. Manufacturers of smartphones and personal computers have been holding off on procuring new memory chips, utilizing their existing stockpiles amidst concerns of a looming economic downturn. Analysts predict that with inventories now sufficiently depleted, demand is poised for a rebound by early next year.

Recent orders for server memory chips from a North American data centre firm have sparked optimism, suggesting an impending resurgence in chip procurement. However, in the realm of artificial intelligence, where there is a steady demand for memory chips, Samsung faces stiff competition. SK Hynix (000660.KS) holds the lead in this sector, having secured prominent clients like AI-chip leader Nvidia (NVDA.O).

In a separate development, Samsung’s mobile business is anticipated to report an operating profit of approximately 3 trillion won. This is attributed to the successful launch of premium foldable smartphones during the quarter, driving sales despite the sluggish global smartphone market.

($1 = 1,347.1300 won)

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