The South Korean giant Samsung Electronics has reported its worst quarterly profits in a duration of 14 years.
In a statement, the flagship subsidiary of the giant Samsung Group revealed that the operating profit fell to 640 billion won ($478.6 million) — down 95 percent from a year earlier.
One of the world’s largest makers of memory chips and smartphones, 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.
The largest of the family-controlled conglomerates that dominates business in Asia’s fourth-largest economy has seen a 70 percent fall in operating profits in the fourth quarter on-year.
Reduced Consumer Spending & Falling Chip Demand
Now there is a cause and effect relation behind everything and Samsung is attributing to the poor numbers to the overall slowed consumer spending amid uncertain global macroeconomic environment.
Half of the profits of Samsung comes from the memory chips and Samsung has also said that the demand for memory chips is also weakening and the chip prices are also falling.
The company has posted its first operating loss since 2009 as the company’s chip division reported 4.58 trillion won in losses.
Company said that it 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”.
It added that the demand for memory was “expected to gradually recover” in the second half of 2023, it added, “amid projections that customer inventory levels will have declined.”
Silver Lining in the Mobile Business
Samsung found its bright spot in the mobile business was a brighter spot, reporting 3.94 trillion won profit in Q1, up from 3.82 trillion won a year earlier.
The deficits in the first quarter due to the chips was offset by the good sales numbers of the new flagship Galaxy 23 smartphones.
However, all is not well as the analysts anticipate the conditions in the April to July period to worsen and even lead to Samsung’s first profit loss since 2008.
Samsung, which is the world’s biggest memory chipmaker is cutting down on production due to a blow to memory sales.
Other chipmakers like the South Korean SK Hynix and the US’s Micron Technology are also reducing production.
In order to address the oversupply, Samsung said that this month they will scale back memory chip production to a “meaningful” level to address the oversupply. This announcement, in itself, was rare for the company.
In the pandemic, the demand swelled for the chips as more and more consumers bought new computers and smartphones during lockdowns globally. This led to sharp rise in the chip production numbers.
However, fast forward to now, the picture is not rosy and rather precarious amid the soaring inflation and rising interest rates which has pushed the production further down.
