The global electronic giant, Samsung recorded its lowest quarterly profits in 14 years, citing slow consumer spending on electronics and an oversupply of microchips worldwide that affected its core memory business.
Agence France-Presse reported that the company, a major producer of smartphones and memory chips globally, announced that its operating profit dropped by 640 billion won ($478.6 million), representing a 95 per cent decrease compared to the 2022.
In the first quarter, Samsung Electronics experienced an 86.1 per cent decline in net income to 1.57 trillion won, and sales declined by 18 per cent to 63.75 trillion won.
According to the company, “overall consumer spending slowed amid the uncertain global macroeconomic environment”.
In addition, Samsung attributed the decline in profits to the reduced demand and low prices for memory chips, which typically account for around 50% of the company’s profits.
The chip sector of Samsung reported losses of 4.58 trillion won, marking the first time the company experienced an operating loss since 2009, which was a period of recovery from the 2008 global financial crisis.
Samsung Electronics said, “continued price declines and an increased valuation loss … amid weakening sentiment and continued impacts of inventory adjustments by customers caused by prolonged external uncertainties.”
Demand for memory was “expected to gradually recover” in the second half of 2023, “amid projections that customer inventory levels will have declined.”
According to the report, Samsung announced that it plans to significantly reduce the production of memory chips in response to the oversupply in the market. This is an uncommon decision for the company, as it had previously stated that it would only make minor adjustments.
Other chip manufacturers, such as South Korea’s SK Hynix and the United States’ Micron Technology, have also reduced their chip production.
Meanwhile, in first quarter, the successful sales of Samsung’s new flagship Galaxy 23 smartphones helped mitigate losses in the chip sector. However, analysts predict that the April to July period will experience more challenging market conditions, potentially resulting in Samsung’s first profit loss since 2008.
Speaking about the development an analyst at Samsung Securities, told Yonhap news agency, Hwang Min-seong, “We cannot rule out the possibility of Samsung swinging to the red when the effect of new smartphones diminishes.”
