Giant tech company Samsung recorded a $3.4 billion loss in its first quarter report following the slump in the demand for microchips, which often generate about half of its profits.
The South Korean company which reported its worst quarterly profits in 14 years, disclosed that its operating profit fell 640 billion ($478.6 million) down from 95 percent from a year earlier. The company’s chip division reported 4.58 trillion won in losses, its first operating loss since 2008.
Samsung said in a statement, “The slump in the Microchip division was due to continued price declines and an increased valuation loss, amid weakening sentiment and continued impacts of inventory adjustments by customers caused by prolonged external uncertainties.”
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Samsung’s first-quarter net income fell 86.1 percent to 1.57 trillion won, and sales dropped 18 percent to 63.75 trillion won. It stated that overall consumer spending slowed amid the uncertain global macroeconomic environment.
Samsung’s first-quarter revenue decline is the third consecutive margin squeeze, which saw a 70 percent fall in operating profits in the fourth quarter-on-year. The South Korean giant tech company has for a long time enjoyed record profits in recent years as prices for its products soared, unfortunately, the global economic slowdown has dealt a blow to memory sales.
While increased sales in its new flagship mobile device Galaxy S23, helped offset deficits in the chip sector in the first quarter (Q1), analysts predict that from April to July, the company would experience the worst first profit loss since 2008. Samsung is focusing on profit rather than shipments as it meets more resilient demand for premium smartphones rather than volume. The tech giant has forecasted that the smartphone market would increase in both shipment and revenue.
Despite the decline in profits in its chip division, Samsung has remained committed to pushing forward after it unveiled that its investment in memory chips this year will be similar to last year because it is seeking to safeguard its longer-term competitiveness.
The company revealed plans to contribute $227 billion over the next two decades to building the world’s largest chip center in Yongin. Samsung is optimistic about its long-term outlook, noting that the proliferation of electric vehicles, artificial intelligence, and high-performance computing would fuel demand for chips.
On the other hand, shoppers around the world have slowed down on their purchases of tech devices due to the uncertain economy and surging inflation. As a result, smartphones, PCs, and server companies have run down inventories, causing chip prices to plunge by about 70 percent over the past nine months.
Samsung’s first-quarter profit has tumbled 95% from a year ago, its steepest decline since 2009, due to plummeting chip demand. The memory chips that are found in computers, phones, and a wide range of other electronics are the company’s mainstay, but after a period of high demand and stockpiling during the pandemic, buyers have pulled back amid economic uncertainty. Samsung is cutting production in line with demand, but the South Korean firm expects sales to gradually pick up in the second half of the year.
Samsung’s mobile business was a bright spot, with revenue up 22% from last quarter as customers snapped up its premium smartphone, the $1,200 S23 Ultra. (LinkedIn News)