Samsung’s chips division’s profits shrink by 97 percent

Tokyo Weak demand for smartphones and computers is hitting Samsung Electronics, the world’s largest maker of cell phones and memory chips, hard. The largest Korean group reported record sales for the year as a whole on Tuesday.

But in the fourth quarter, profits plummeted 69 percent year-on-year to just 4.3 trillion won (3.2 billion euros). This is the weakest quarterly result since 2014.

The main reason was an unprecedented slump in Samsung’s previous earnings engine, its semiconductor division. Operating profit fell in the previous quarter by 97 percent to just 270 billion won (around 200 million euros). Meanwhile, sales fell by 23 percent. The reason: Manufacturers of mobile phones and computers are buying fewer memory chips and are reducing their inventories. In previous years, the chips division had accounted for more than half of the group’s profits.

A quick turnaround is not in sight. Because of the great economic uncertainties, the company will not make a profit forecast this year, said Samsung’s investor relations chief Ben Suh. However, Samsung assumes that the demand for memory will remain weak in the first half of the year and will only recover in the second half of the year.

Top jobs of the day

Find the best jobs now and
be notified by email.

Samsung also expects a difficult year for other important business areas such as displays for smartphones and televisions as well as its own smartphone business. The group said demand for mobile devices could even shrink in 2023.

The chip industry is suffering across the board

Samsung is doing similar to the chip manufacturer Intel: The US rival even slipped into the red in the Christmas quarter. Only Taiwan’s largest contract manufacturer for computer chips, TSMC, recently increased surprisingly significantly. But the Taiwanese also warned of a drop in sales for the first quarter of this year.

>> Read here: Europe’s most valuable tech company ASML promises rapid growth

Market researchers predict that sales in the chip industry could shrink significantly for the first time after many years of growth. The Organization for Semiconductor Statistics (WSTS) forecast in January that sales could fall by 4.4 percent to $556.6 billion this year.

Some analysts are therefore already warning that Samsung’s chip division could make losses this quarter. In many industrialized countries, high inflation and fears of recession continue to put pressure on consumers’ buying mood.

Suh only gave hope for autumn and winter: “Although the macroeconomic uncertainties remain high, we expect a recovery in the second half of the year.” TSMC is also hoping for this.

Although macroeconomic uncertainties remain high, we expect a recovery in the second half of the year. Samsung’s Investor Relations chief Ben Suh

However, Samsung’s chip divisions are affected to varying degrees. DRAM memory and NAND memory for permanent data storage are suffering from falling demand. On the other hand, the company was able to sell more memory chips with high data density for server applications.

The relatively young foundry business, ie the contract manufacturing of computer chips, even grew to a new record level in the past quarter. Only this quarter will Samsung’s competitor business to TSMC be caught up by the economic downturn in the technology sector.

Division head Jeong Gibong predicted a drop in capacity utilization in the first half of 2023. For the second half of the year, he hopes that demand for high-performance computers and cars will fill production capacities again. The company wants to focus on winning new customers for the second generation of its 3-nanometer chips and on developing 2-nanometer chips.

Samsung intends to continue investing heavily in the chip industry

Despite the slump, Samsung apparently does not want to drastically cut its investments. “We will invest as much as last year,” announced Vice President Kim Jaejune, head of the memory chip division.

>> Read here: the USA is subsidizing itself to be the world leader when it comes to chips

Out of concern about the weak economy, companies would pay attention to financial health and reduce inventories. That’s not good for Samsung, Kim said. “But the downside is that it gives us a good opportunity to prepare for the future.”

This is based on Samsung’s assessment that the chip market will continue to grow as a result of increasing digitization. Because in order to cope with the growing flood of data, more and more servers with ever higher performance have to be built.

The Koreans have particularly high hopes for new applications of artificial intelligence, such as the ChatGPT program from the US start-up Open Ai, whose prototype caused a sensation around the world because of its almost natural conversation.

A new level of development has thus been reached for Samsung. “The models have now reached a level where they can be used commercially,” says a company spokesman. However, they require powerful processors and high-density memory to evaluate and learn from the data. “Therefore the demand will increase.”

More: High losses for Intel are a bad omen for new plants in Magdeburg

source site-12