Samsung warns that fourth quarter profit could fall by up to 35%, lower than expectations

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Samsung Electronics said on Tuesday it expects its operating profit to fall 35% in the fourth quarter of 2023, beating expectations by a wide margin, as the peak spike in semiconductor costs is likely to reduce losses in the South Korean company’s peak-profit segment.

Samsung said that for the October-December quarter, operating profit is expected to be 2. 8 trillion won ($2. 13 billion), down 35 percent from the same period last year, when the company reported an operating profit of 4. 31 trillion won. 2. 43 trillion won in the last quarter.

The profit guidance fell far short of LSEG’s SmartEstimate of 3.7 trillion won, which is weighted more heavily toward expectations of analysts who have been consistently more accurate.

Fourth-quarter profit likely fell 4. 9 percent from the same period last year to 67 trillion won, the company said in an initial earnings release.

Samsung is the world’s largest maker for dynamic random-access memory chips which are found in consumer devices such as smartphones and computers.

“[Samsung is] very smart about making some of the semiconductors in the world, at least when it comes to making and manufacturing them. But their returns are much worse than competitors like TSMC,” said Cory Johnson, market lead strategist at The Futurum Group. Tuesday.

“. . . so poor resolution can lead to very bad results,” he told CNBC’s “Squawk Box Asia” after Samsung’s earnings call.

The company is expected to announce its detailed effects on January 31, according to a statement.

Memory chip prices fell sharply last year, due to post-Covid overstocking and weak demand for products such as smartphones and laptops.

“We estimate memory prices started to rebound from 4Q23, driven by production cuts by suppliers and a recovery in demand for mobile and PC,” said SK Kim, analyst at Daiwa Capital Markets, in a Jan. 4 report.

Samsung’s third-quarter operating profit plunged 77. 6% from a year earlier, although it was higher than expected. Operating profit in the second quarter fell 95% compared to the same period last year.

In late October, Samsung and SK Hynix, the world’s second-largest maker of DRAM memory chips, signaled in their third-quarter earnings forecasts that weak demand may have bottomed out after production cuts.

“We expect further price increases in 1H24 and a strong rebound in souvenir maker earnings in 2H24 and 2025,” said Daiwa Capital Markets’ Kim, referring to the first and second parts of this year.

“As such, we expect tailwinds for inventory costs in the near term. “

Memory chip prices have been rising since early November, thanks to “strict sourcing and production from memory manufacturers,” according to Galen Zeng, senior director of semiconductor research at IDC.

“Demand for AI across all primary programs will drive a recovery in the overall semiconductor sales market in 2024,” Zeng said in a Dec. 21 report.

“The semiconductor chain, adding design, manufacturing, packaging and testing, will say goodbye to the economic crisis in 2023. “

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