Science & Technology

Samsung Electronics Posts Drop in Operating Profit

Samsung Electronics on Wednesday, January 31, published data according to which the company’s operating profit for the fourth quarter of last year showed a decline of 34.57% compared to the result for the same period in 2022.

Samsung Electronics Posts Drop in Operating Profit

The mentioned brand’s revenue for the last three months of 2023 was 67.78 trillion Korean won (about $51 billion). This figure is 3.8% lower than the result for the fourth quarter of 2022. LSEG analysts had expected the company’s revenue to be 69.27 trillion Korean won for the final three months of last year.

Samsung’s operating profit for the last quarter of 2023 was 2.82 trillion Korean won. This result also did not coincide with the expectations of LSEG analysts, who predicted that the corresponding figure would be fixed at around 3.43 trillion Korean won. As mentioned above, the company’s operating profit fell 34.57% year over year in the last three months of 2023.

LSEG data shows that for the whole of last year, Samsung’s semiconductor business suffered a record loss of 14.88 trillion Korean won. This clearly negative result is explained by such an external circumstance as weak consumer demand for relevant products at the global level. It is worth noting that for 2022, the company’s semiconductor business recorded a profit of 23.82 trillion Korean won.

Samsung is currently the world’s largest manufacturer of dynamic random-access memory chips. These products are used in consumer devices, including computers and smartphones.

In its operating profit forecast, the company said it expected the figure to be 2.8 trillion Korean won. In this case, the forecast largely coincided with the actual result. The company also said its revenue and operating profit in the fourth quarter of 2023 improved compared with the July-September period last year. Samsung explains the increase in these indicators by the recovery in prices for memory microcircuits and an increase in sales of premium displays.

In its earnings report Wednesday, the company said it plans to focus on improving sales of value-added devices. Successful implementation of this plan will contribute to the growth of brand profits. The company is also confident that the mentioned approach will allow it to capture increasing consumer demand for advanced products and technology goods that are aimed at generative artificial intelligence. Moreover, Samsung is committed to strengthening AI features in smartphones and some other devices included in its product line.

A Daiwa Capital Markets report published in early January noted that Samsung’s revenue and operating profit estimates were below market estimates of this company. SK Kim, an employee of the mentioned firm, said earnings at the memory chip business improved at the end of last year compared with most of 2023 as a result of higher shipments of related products and a recovery in prices.

At the same time, problems in the macroeconomic environment remain. This unfavorable external background may have a negative impact on Samsung’s performance. The company, while the macroeconomic environment is not a source of optimism or sustained confidence in the future, expects its earnings in the first half of 2024 to show what can be described as moderate improvement. Samsung also predicts even greater growth in financial indicators in the second half of the current year.

The company on Wednesday reported that its smartphone sales volumes and related business profits declined in the fourth quarter of 2023 compared to the previous three months. Samsung claims that the corresponding dynamics are partly due to the so-called fading of the effect of new models. In this case, we mean devices presented in the third quarter of 2023.

Data from the International Data Corporation (IDC) shows that Apple displaced Samsung as the global smartphone market leader last year. In 2023, Tim Cook’s company demonstrated the largest volumes of supplies of the mentioned devices among other manufacturers of these products. Apple currently has a 20% share of the global smartphone market.

Bryan Ma, vice president of device research at IDC, says the Tim Cook company’s specified leadership is partly because 2023 saw an increase in consumer interest in premium mobile phones. At the same time, the expert noted that Samsung had a broader breadth in 2023.

Bryan Ma also stated that the average selling price of smartphones from the South Korean manufacturer increased by about $100 from 2020 to 2023. Currently, Samsung is the second most popular brand in the global smartphone market.

According to Bryan Ma, the current balance of power in the mentioned market is a significant example of how this commercial space has shifted toward the premium class. According to the expert, the corresponding tendency will continue to be one of the reasons for the increase in margins. The analyst also suggests that Samsung in the first quarter of the current year will face a decrease in demand for smartphones due to the seasonality factor. At the same time, in his opinion, in the premium segment of the market for the corresponding devices, sales growth will likely be recorded compared to the same period in 2023.

Samsung expects its new AI-enabled Galaxy S24 smartphones to drive consumer demand. The company has officially declared its ambition to establish itself as a leading brand in the machine intelligence mobile phone market.

Last year there was a sharp drop in the cost of memory chips. In this case, the negative impact factor was inflationary pressure, due to which consumers were forced to reduce purchases of smartphones and personal computers.

Also, the sharp drop in the cost of memory chips was partly due to the excess inventories of the corresponding microcircuits, which many companies stockpiled during the coronavirus pandemic. These external circumstances caused Samsung’s operating profit to show a year-on-year decline of 77.6% in the third quarter of 2023. Other chip makers, including Taiwan’s TSMC and South Korea’s SK Hynix, also recorded a drop in the mentioned figure between July and September last year.

In the fourth quarter of 2023, the global personal computer market began to signal a gradual recovery, showing moderate growth of 3% compared to the final three months of 2022. The relevant data was made public by Canalys.

In October 2023, there was widespread consensus among analysts that weak demand in the memory chip industry had bottomed out. This point of view was based on the fact that manufacturers of the relevant microcircuits have been running down excess inventories through production cuts.

The RAM market and demand for it is expected to continue to show recovery in the current year. The implementation of this scenario is likely, but not guaranteed, since macroeconomic uncertainty has not weakened and continues to be a sensitive influencing factor.

Samsung said it meets the demand for artificial intelligence chips in apps. The company intends to enter AI-enabled consumer markets. The manufacturer also hopes to strengthen its leadership in the premium product segment and enhance its competitiveness in semiconductors with advanced nodes.

Samsung currently produces 3-nanometer chips. The company also plans to launch mass manufacturing of 2-nanometer microcircuits next year. Reducing the nanometer size allows for more powerful and efficient chips.

SK Kim said in early January that he expected further price hikes in the first half of 2024 and a marked rebound in earnings for memory microcircuit makers in the second half of this year and 2025.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.