Samsung Q3 Profit Faces 80% Decline Amid Global Chip Glut
Samsung Electronics, the South Korean tech giant, is expected to witness an astonishing 80% drop in its third-quarter profit compared to the previous year. This decline is primarily attributed to the ongoing global chip glut, which is negatively impacting the company’s cash cow business.
As the world’s largest producer of memory chips, smartphones, and televisions, Samsung will be unveiling its preliminary earnings results for the third quarter on Wednesday. Market analysts predict that the company’s operating profit likely fell to 2.1 trillion won ($1.56 billion) between July and September. In the same quarter last year, Samsung recorded an operating profit of 10.85 trillion won.
The significant reversal in its fortunes can be attributed to the chip division, which has traditionally been the company’s top revenue generator. Analysts suggest that the chip division is likely to report losses ranging from 3 trillion to 4 trillion won during this quarter. The memory chip prices hit rock-bottom and did not recover as quickly as anticipated, resulting in substantial losses for Samsung.
Additionally, Samsung’s decision to reduce chip production levels further exacerbated its challenges. While the company implemented output cuts in April, it intensified the reduction in the third quarter to alleviate inventory concerns and mitigate the impact of a chip glut. The global chip industry is currently experiencing one of the worst downturns in decades.
Rival company Micron Technology had already predicted a quarterly loss last month, raising concerns about the sluggish recovery of the memory chip market, particularly in sectors like data centers. To cope with the economic uncertainties and concerns of a downturn, smartphone and personal computer manufacturers have refrained from purchasing new memory chips. Instead, they are utilizing their existing inventory. However, analysts anticipate that demand is expected to rebound by early 2020 as inventories reach lower levels.
In a positive development, Samsung recently received its first order in a year for server memory chips from a North American data center company. This development has raised hopes that data center clients will resume chip purchases soon. Furthermore, there is still a strong demand for memory chips used in artificial intelligence, particularly high bandwidth memory (HBM). However, Samsung lags behind its competitor, SK Hynix, in developing such chips and securing key clients like AI-chip leader Nvidia.
The mobile business division of Samsung is expected to report an operating profit of approximately 3 trillion won. This estimation comes from an average of forecasts by five analysts. During the quarter, Samsung launched its premium foldable smartphones, which managed to generate sales despite the overall sluggishness in the global smartphone market.
While Samsung faces significant challenges due to the chip glut and declining profit figures, the company continues to explore opportunities for growth. By focusing on emerging sectors such as artificial intelligence and innovative smartphone designs, Samsung aims to navigate through the current industry downturn and maintain its position as a global technology leader.
In conclusion, Samsung Electronics’ third-quarter profit is projected to experience a substantial 80% decline due to the adverse effects of a global chip glut. The company’s chip division, historically its biggest earner, is likely to report significant losses. However, Samsung remains hopeful for a turnaround in the memory chip market, especially with expected rebounds in demand and new orders from data center clients. Furthermore, the company’s mobile business division has shown resilience through the successful launch of its premium foldable smartphones. As Samsung embraces opportunities in AI and other emerging sectors, it strives to overcome the challenges posed by the chip glut and maintain its dominance in the technology industry.
