Samsung Electronics’ preliminary estimates show that its operating profit plummeted 69% to $3.4 billion in the December quarter, its lowest level in eight years. High inflation and a slowing economy are reducing global demand for memory chips and smartphones.
In a statement, the company said, “Amid continued external uncertainty, including a potential downturn in the global economy, weak demand and weak smartphone sales led to a significant decline in performance in the memory business, resulting in an overall decline in earnings. “It was down significantly from the previous quarter,” he said.
The memory chip maker and smartphone maker had sales of 70 trillion won ($55 billion) in the fourth quarter, down about 8.6% year-on-year.
A sharp drop in demand for memory chips such as DRAM and NAND used in gadgets and data centers is also forcing manufacturers and vendors to cut prices, according to TrendForce.
“For the memory business, the decline in demand in the fourth quarter was better than expected as customers adjusted their inventories in an attempt to further tighten their fiscal policies amid fears of deteriorating consumer sentiment,” said a market researcher. “Profits from our mobile experience business declined as weaker demand due to persistent macro issues reduced smartphone sales and revenue.”
Many semiconductor companies, including Micron and SK Hynix, plan to cut capital expenditures. We will reduce our inventory this year. Samsung previously said it had no plans to cut capital expenditures.
Geopolitical risk is another concern for semiconductor companies embroiled in the tech war between the US and China. Last October, the United States rolled out new export controls that require companies to obtain licenses to sell semiconductor chips for supercomputers and artificial intelligence to Chinese companies.
Samsung has reportedly received a one-year exemption from the U.S. government to continue ordering U.S.-made chip-making equipment from its Chinese fabs, including its NAND flash memory chip factory in Xi’an and its chip packaging facility in Suzhou. . Despite exemptions to maintain facilities in China, there is always the risk that US restrictions could hit chip companies with customers in China broadly.
Earlier this week, South Korea said it planned to increase tax cuts for semiconductor companies to support South Korean chip companies and strengthen the country’s key industries. The move comes after Samsung and SK Hynix paid the highest corporate tax among other top 100 global chipmakers including TSMC, Intel and SMIC in 2021.
A major South Korean chip conglomerate will benefit from a planned 8% to 15% tax credit on investments in manufacturing facilities. According to South Korea’s Ministry of Finance, small and medium-sized semiconductor companies will receive a tax cut of 16% to up to 25%.
The tech giant will release its full earnings statement, including its fourth-quarter net profit, and will provide more details later this month.
