Samsung, the electronics giant from South Korea, experienced a significant decrease in its operating profits during the first quarter due to a continuous drop in prices for its memory chips alongside falling demand.
Samsung, a company that holds the top position in the manufacturing of memory chips globally, supplies these chips to a wide range of devices such as personal computers, smartphones and data center servers. However, due to a decline in PC shipments by 29% year-on-year in the first quarter, the prices of memory chips have fallen over the past few months due to excessive inventories and a lack of demand as per the International Data Corporation's report.
During the pandemic, the demand for consumer devices increased, leading to stockpiling of chips by manufacturers of smartphones and PCs. However, the rising inflation has resulted in consumers cutting back on their purchases, leading to an excess of inventory that these companies are now struggling to manage.
In the first quarter, Samsung's revenue amounted to 63.75 trillion Korean won (about $47.6 billion), which is close to the company's estimated guidance of around 63 trillion Korean won. However, it fell short of the estimates of Refinitiv’s consensus of 63.9 trillion won as predicted by analysts.
The operating profit for the first quarter was 640 billion Korean won (roughly $478.55 million), a significant decline from 14.12 trillion won reported during the same period in the previous year. The company had anticipated a Q1 profit of 600 billion Korean won as per its guidance issued earlier this month.
This is the company's lowest operating profit since the first quarter of 2009.
Followed by a significant drop in profit prediction this month, the company announced it would be making “meaningful” cuts in the production of memory chips.
Samsung has stated its expectation of a slow recovery in demand as significant data centres invest more cautiously and customers continue to manage their inventories. However, the company believes that demand will gradually increase in the second half of the year.
In addition, Samsung is hopeful that the launch of new smartphones, promotions for personal computers and the adoption of new CPUs will boost the demand for memory chips.
