In yet another confirmation of the depth of the global downturn in computers and memory chips, Samsung Electronics reported its first profit decline since 2019.
Operating profit loses 32%
South Korea’s largest company said in a statement on Friday, October 7, 2022, that operating profit fell 32% to 10.8 trillion won ($7.7 billion) during the third quarter of 2022, which is below analysts’ estimate of an average of 12.1 trillion won.
Sales also missed estimates, reaching 76 trillion won.
A crisis in the computer and memory chip market
Global memory chip makers have warned in recent weeks that their industry is suffering from increasingly tight market constraints as a result of stockpiling and declining orders for data center and consumer technology customers following weaker-than-expected demand for computers and smartphones.
Both Micron Technology and Qixia Holdings are cutting production in an effort to rebalance supply and avoid a price crash.
Macroeconomic conditions have lower than expected PC demand and corrected inventories significantly. At the same time, Samsung shares fell by about 2% in the capital, Seoul, at the end of Friday’s session, October 7, after Samsung’s announcement.
What is happening today is a new cycle of decline that did not occur due to the usual supply and demand dynamics but differs from previous cycles as a result of geopolitical risks.
US government export controls are expected to limit sales of IT companies in China and a significant portion of chip demand will weaken. If AMD and Nvidia can’t sell their chips in China, memory makers’ profits will plummet even further.
Shortage of chip supply chains
Data from Statistics Korea indicated that South Korea, home to the world’s two largest memory chip makers, reported a drop in chip production in August for the first time in more than four years.
The sudden crash in the electronic memory market follows a series of macroeconomic shocks ranging from the Russia-Ukraine crisis to high inflation, gas prices, and interest rate hikes by the US Federal Reserve.
Consumer sentiment rapidly deteriorated and memory buyers, including computer manufacturers, cut back on their orders and replaced them with their existing stocks.
Morgan Stanley also updated its analysis of the semiconductor sector in the first week of October, raising the share prices of Samsung and Hynix with expectations of a market recovery in the latter half of 2023.
Samsung said that the memory market will likely not find momentum for recovery over the next year. The South Korean company, the leading electronics maker, cut its guidance on chip sales for the second half of this year by 32% compared to its forecast in April.