Samsung Faces Weakest Quarter Since 2009 As Memory Chip Market In 'worst Slump In Decades'
- Earlier this month, Samsung said it would report operating profit of 600 billion Korean won ($449 million) in the first quarter.
- If Samsung posts that figure, it will be the company's lowest profit since the first quarter of 2009.
- Memory chip prices have fallen in recent months due to high inventories and lack of demand. Samsung is the largest producer of such semiconductors in the world.
© Provided by CNBC Samsung is the world's largest maker of memory chips. Lack of demand and a glut of chips are putting pressure on memory prices, which could squeeze Samsung's profits.Samsung could report its worst profit in 14 years this week as prices for memory chips, its biggest business, continue to fall and demand remains weak.
Earlier this month, the South Korean tech giant said it would post an operating profit of KRW 600 billion ($449 million) in the first quarter. If Samsung posts that figure, it will be the company's lowest profit since the first quarter of 2009.
Samsung publishes a preliminary revenue forecast, but does not provide detailed figures. The company reports full first-quarter earnings on Thursday.
Samsung is the world's largest maker of memory chips, used in everything from computers to servers and data centers.
At the height of the pandemic, demand for consumer electronics was high as people stayed at home. Electronics companies assembled chips for use in these products. But buyers are now discounting these products due to inflation and macroeconomic concerns, causing memory chips to overheat.
For example, PC shipments fell 29% year over year in the first quarter, according to IDC.
Memory chip prices have fallen in recent months due to high inventories and lack of demand.
“The memory market is experiencing its worst decline in decades. Despite growth in the electrical engineering markets, the consumer electronics and traditional server markets are experiencing one of the most severe declines,” said a CrispIdea research note published last week.
Samsung's chip unit will post a K$4.4 trillion loss in the first quarter, according to analysts at Mirae Asset Securities.
This month, Samsung announced it was reducing memory chip production to a "significant level," citing worsening macroeconomic conditions and lower consumer demand. Samsung previously said it would not reduce performance, but has now followed the lead of rivals SK Hynix and Micron.
Investors are hoping that production cuts at Samsung, the world's largest maker of memory chips, will boost prices as the companies examine existing inventories.
Analysts at NH Investment and Securities said Samsung's revenue should "begin serious growth" in the third quarter of this year, adding that production cuts "will positively affect the dynamics of memory demand and supply."
Meanwhile, Mirae Asset Securities said it expects Samsung's memory chip inventories to peak in the second quarter, after which demand for the company's semiconductors will decline.
However, analysts warn that Samsung's business could come under severe pressure in the future.
"Memory chip losses are expected to continue over the coming quarters as inventories remain at record levels, putting further downward pressure on chip prices," said analysts at CrispIdea. "After the pandemic-era boom, tech demand has remained subdued due to rising inflation and interest rates."
