Samsung Electronics headquarters in Seoul / Korea Times file

Samsung Electronics' operating profit down 69% to 4.3 trillion won in Q4

By Kim Hyun-bin

Samsung Electronics and other semiconductor makers are expected to face greater difficulties going forward as demand for memory and other chips continues to decline amid a deepening economic downturn, according to company officials and analysts, Friday.

"The outlook for the semiconductor industry does not look very bright for 2023. Even foundry demand, which was good last year, is predicted to struggle during the first half," Lee Seung-woo, an analyst at Eugene Investment, said. "As most of the major countries go into austerity mode while debts have increased significantly around the world, asset prices are falling, and consumers' ability to spend is inevitably reduced."

Lee said the drop in semiconductor prices is inevitable as inventories are at a record high.

"Semiconductor inventories across the industry are higher than ever before. Semiconductor prices will fall and corporate profits will deteriorate significantly due to such an unprecedented inventory burden," he said.

This devastating reality has been taking a toll on the country's leading chipmaker's profitability.

In its earnings guidance Friday, Samsung Electronics said its operating profit plunged 69 percent in the fourth quarter from a year earlier due to lower demand for chips, handsets and home appliances amid recession worries.

The world's largest memory chip and smartphone maker estimated its fourth-quarter operating profit at 4.3 trillion won ($3.4 billion), down from 13.87 trillion won a year ago.

This is the first time in eight years that Samsung has reported a quarterly operating income of less than 5 trillion won after posting 4.06 trillion won for the third quarter of 2014.

"With external business conditions set to remain uncertain, chip sales plummeted due to lower demand from server clients, data centers and handset makers. Chip suppliers, including Samsung Electronics, SK hynix and Micron Technology, readjusted their inventories during the fourth quarter, driving chip prices down further," the company said. "Smartphone and home appliance sales also declined due to decreased consumer spending amid mounting worries over a global recession this year."

The company expected that sales would fall 8.6 percent year-on-year to 70 trillion won in the fourth quarter from 76.57 trillion won a year earlier.

Some experts predict that Samsung Electronics' operating profit could decrease further in the first quarter, noting that its semiconductor division marked its first quarterly loss in 14 years since the first quarter of 2009.

"We estimate Samsung Electronics' operating profit at 3.3 trillion won for Q1 this year. Excluding the MX (mobile experience)/network division, where earnings should improve on new smartphone launches and seasonal cost reduction, operating profit is expected to decline in most major business divisions," Song Myung-sup, an analyst at Hana Securities, said.

For the whole of 2022, the company's operating profit is estimated to have fallen 16 percent to 43.37 trillion won from 51.63 trillion won the previous year.

However, sales are expected to rise 7.9 percent to 301.77 trillion won from 279.6 trillion won during the same period. This marks the first time Samsung Electronics' sales will exceed 300 trillion won.

Meanwhile, LG Electronics is expected to record operating profits of 65.5 billion won ($51.6 million), down 91.2 percent from a year earlier, according to its fourth-quarter preliminary earnings report, Friday. Revenue increased 5.2 percent to 21.85 trillion won. The company estimated its 2022 operating earnings at 3.54 trillion won ($2.8 billion), down 12.6 percent from a year earlier. Annual sales increased 12.9 percent to 83.46 trillion won.