Samsung Electronics recently announced an anticipated 35% decrease in operating profit for the fourth quarter of 2023, a considerable shortfall from expectations. This forecasted decline comes as a surprise, considering the expected recovery in semiconductor prices, which typically forms the crux of the South Korean conglomerate’s profits.
Expected Operating Profit and Revenue
For the period spanning October to December 2023, Samsung Electronics estimates its operating profit to be approximately 2.8 trillion South Korean won ($2.13 billion). This is a significant decrease from the 4.31 trillion won reported during the same period the previous year and slightly lower than the 2.43 trillion won in the preceding quarter.
However, this projection falls notably short of the LSEG’s SmartEstimate, which anticipated a figure closer to 3.7 trillion won. Additionally, the firm estimates a 4.9% decrease in revenue, amounting to 67 trillion won for the fourth quarter compared to the previous year.
Impact on Semiconductor Segment
As the largest manufacturer of dynamic random-access memory (DRAM) chips globally, Samsung’s profitability heavily relies on this segment, commonly found in devices like smartphones and computers. Despite their prowess in semiconductor manufacturing, concerns have arisen regarding the company’s yields compared to competitors like TSMC.
Cory Johnson, Chief Market Strategist at The Futurum Group, highlighted Samsung’s strength in chip production but pointed out concerns about their yields impacting earnings significantly.
Memory Price Fluctuations and Outlook
Last year witnessed a drastic decline in memory chip prices due to excess inventories post-Covid and subdued demand for tech products. Analysts project a rebound in memory prices, starting from the fourth quarter of 2023, attributed to production cuts by suppliers and recovering demand for mobile and PC devices.
This downturn in memory prices heavily impacted Samsung Electronics’ previous earnings, with the third-quarter operating profit plummeting by 77.6% year-on-year. However, signs from Samsung and SK Hynix indicate a potential bottoming out of weak demand following production adjustments.
Optimistic Market Expectations
Analysts like SK Kim from Daiwa Capital Markets anticipate further price hikes in the first half of 2024, leading to a significant earnings rebound for memory manufacturers in the latter half of 2024 and 2025. The expected turnaround in memory chip prices has led to optimism regarding near-term stock performance.
Galen Zeng, Senior Research Manager of Semiconductor Research at IDC, supports this sentiment, citing the strict control of supply and output by memory manufacturers as the reason behind the price increase since November.
Prospects for Semiconductor Market Recovery
Zeng predicts an upturn in the semiconductor market, driven by increased demand for AI applications across various sectors. The turnaround is anticipated to signify the end of the downturn in the semiconductor supply chain, including design, manufacturing, packaging, and testing, by 2023.
As Samsung Electronics gears up to announce its detailed earnings on January 31, the market remains watchful of the semiconductor giant’s performance amidst these fluctuations in memory chip prices and anticipated market recoveries in 2024 and beyond.