Samsung Reports 78% Profit Fall as Markets Seek Signs of Bottom

Samsung Electronics Co. reported a 78% plunge in quarterly profit, reflecting the severity of a sector-wide slump that continues to weigh on the world’s biggest maker of memory chips.

(Bloomberg) — Samsung Electronics Co. reported a 78% plunge in quarterly profit, reflecting the severity of a sector-wide slump that continues to weigh on the world’s biggest maker of memory chips.

South Korea’s largest company has been struggling with an industry downturn alongside smaller rivals SK Hynix Inc. and Micron Technology Inc. Mainstay customers, including makers of personal computers and smartphones, have been cutting orders to deal with weak demand for gadgets and excess inventory of chips. 

Operating income dropped to about 2.4 trillion won ($1.8 billion) on a 13% drop in sales in the three months to September, according to Samsung’s preliminary results. But the numbers, in line with analyst estimates, reflects an improvement from the record 95% plunge the previous quarter, bolstering shares which rose as much as 3.3% in Seoul Wednesday.

“The result was better than expected,” said Lee Seung-Woo, an analyst at Eugene Investment & Securities. “The bottom for the memory chip industry is behind us and Samsung’s results showed that.” 

The results come days after the US granted the company and Hynix an exemption to acquire the equipment they need to sustain and expand their chipmaking operations in China. That’s lifted some uncertainty hanging over the two memory leaders, allowing them to operate in the world’s biggest chip arena and make longer-term bets.

Samsung now seeks to position itself to benefit from a long-anticipated AI-related boom in tech spending, fueled by investor and consumer excitement over OpenAI’s ChatGPT debut last fall.

The two South Korean chipmakers are locked in a race to develop tools needed to train AI, with Samsung now playing catchup to Hynix, the sole-supplier of next-generation DRAM to AI chipmaker Nvidia Corp. Samsung has said it plans to double its capacity to make high-bandwidth memory, which has the capacity needed to speed up AI training, by 2024.

Hynix’s shares have gained almost 60% this calendar year before Wednesday’s trading, compared with Samsung’s 20% rise.

Until that demand kicks in, Samsung and Hynix have said they will weather economic uncertainty by cutting output of NAND chips used in PCs and phones. That’s helped support prices of both DRAM and NAND, in a sign that the market may at long last be bottoming out.

The company, a bellwether for the tech industry because of its leading position in chips, electronics and smartphones, has also benefited from robust sales of its foldable phones. 

The world’s largest smartphone maker introduced the fifth generation of its foldable phones, pressing into a territory as yet untapped by rival products from Apple Inc. Its display sales are expected to have gotten a boost from smartphone users’ preference for bigger screens, such as those used in new iPhones by Apple — which is a customer as well as a competitor. 

The company will report a more comprehensive snapshot of its earnings later this month. Samsung previously said that it expected a recovery in sales in the second half of the year.

Samsung is also trying to catch up in the foundry business, where it trails Taiwan Semiconductor Manufacturing Co. Quarterly sales at TSMC fell less than feared, thanks to nascent demand from AI players.

Investors are looking to the tech industry’s largest companies for hints on when orders for AI chips will translate into sales, but climbing inflation and geopolitical turbulence are clouding forecasts. 

Samsung is a stalwart of a memory sector that built capacity rapidly to meet pandemic-fueled demand. The company spent well into the downturn, saddling itself and its biggest customers with bulging inventories. 

–With assistance from Youkyung Lee.

(Updates with share price reaction from third paragraph.)

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