Samsung Electronics, the flagship subsidiary of South Korean conglomerate Samsung Group, reported a significant decline of over 95 percent in operating profits for the second quarter. The company cited weak demand for memory chips as the primary reason behind the drastic drop.
Q2 Operating Profits Plummet:
According to Samsung’s statement, the operating profit from April to June stood at KRW 668.5 billion (approximately Rs. 3,800 crores), which is a sharp decrease from KRW 14.1 trillion (roughly Rs. 89,072 crores) in the same period last year. This marks Samsung’s worst quarterly profit since the first quarter of 2009.
Net Profit and Sales Drop:
Samsung’s net profit for Q2 also experienced an 84.5 percent decline, amounting to KRW 1.72 trillion. Additionally, the company’s sales saw a 22.3 percent drop, totaling 60 trillion won.
Chips and Mobile Phones Impacted:
As one of the world’s largest producers of memory chips and smartphones, Samsung attributed its profit plunge to weakened demand for both chips and mobile phones. However, the company remains optimistic about the latter half of the year.
Outlook for the Future:
Samsung anticipates a gradual recovery in global demand during the second half of the year, which could lead to an improvement in earnings, particularly in the component business. The company is hopeful, but it acknowledges the presence of macroeconomic risks that may present challenges.
Chip Market Woes:
Samsung and other South Korean chipmakers enjoyed record profits in recent years due to surging chip prices. However, the global economic slowdown has taken a toll on memory chip sales. During the pandemic, demand surged as consumers purchased computers and smartphones during lockdowns, prompting chip makers to ramp up production. Yet, as restrictions eased, demand tapered off, further weakened by soaring inflation and rising interest rates.
Forecasts and Challenges:
Market research firm TrendForce predicts a 9.3 percent decrease in output for this year, primarily due to the prevailing weak overall economy. Consumer demand has softened, leading to budget cuts by companies and a wave of order cancellations, as noted by Joanne Chiao, an analyst at TrendForce.
TrendForce also expects the price decline of DRAM chips (commonly used in PCs and smartphones) to slow down in the second half of the year as chipmakers tighten supply after a plunge of up to 18 percent in the second quarter.
Bold Investments Amidst Profit Drop:
Despite the recent profit downturn, Samsung remains committed to significant investments. In March, the company unveiled plans to contribute $227 billion over the next two decades to build the world’s largest chip center in Yongin, south of Seoul.
Samsung’s current challenges reflect the ever-changing landscape of the semiconductor industry, but its long-term vision and investments demonstrate the company’s determination to remain at the forefront of technological advancements.
