Samsung has faced pressure from plunging memory prices which has impacted its key profit driving DRAM and NAND business.
Josep Lago | AFP | Getty Images
Samsung’s profit could nosedive when it reports fourth-quarter earnings guidance this week as prices for key memory chips proceed to plunge amid weak demand.
Analysts expect Samsung to report 7.18 trillion South Korean won ($5.64 billion) in operating profit within the December quarter, in line with Refinitiv consensus estimates. That may be a near 50% fall versus the fourth quarter of 2021.
Nonetheless, some analysts are more bearish than the consensus.
Analysts at Macquarie Research forecast Samsung to report fourth-quarter operating profit of 5.5 trillion won, which can be the bottom for the reason that third quarter of 2016. Daiwa Capital Markets analysts see operating profit at 4.9 trillion won, a 65% year-on-year plunge and can be the bottom for the reason that fourth quarter of 2015.
The pessimism stems from a rapid fall in memory prices. Samsung is the world’s biggest player in so-called NAND and DRAM chips that are utilized in devices corresponding to laptops and smartphones, through to data centers.
NAND and DRAM prices fell sharply within the fourth quarter as a result of a scarcity of demand for the products they eventually go into, corresponding to PCs. This has led to electronics manufacturers and other firms that use such chips holding onto their inventory, further lowering demand for Samsung’s chips.
Samsung will not be exempt from the “memory market carnage,” Macquarie analysts said in a note published Tuesday.
“The magnitude and speed of the memory price decline is parallel to the worldwide financial crisis in 2008,” Macquarie said.
“A toxic combination of an end demand slump and excessive channel inventory led to a high inventory level not seen in a decade,” it added.
The analysts said they expect Samsung’s NAND business to be loss making within the fourth quarter while DRAM is “more likely to have a razor thin profit margin” in the primary half of 2023.
Samsung’s semiconductor business, which incorporates NAND and DRAM, accounts for nearly 50% of the corporate’s operating profit. Subsequently, any hit to the memory division can have a huge impact on the general profit the corporate reports.
Analysts also expect weakness in other parts of Samsung’s business including smartphones, which could weigh on earnings.
Samsung will release fourth-quarter earnings and revenue guidance on Friday before its full financial report, likely later this month.
Recovery ahead?
Analysts at Macquarie and Daiwa think the primary half of the 12 months will probably be tough for Samsung as a result of continued pressure on memory prices.
But earnings could bottom within the second quarter of 2023, in line with Refinitiv consensus estimates.
Daiwa analysts said there will probably be a rebound in earnings within the second half of 2023 “together with an improving memory cycle and recovery in mobile demand.”
Macquarie analysts said a downturn in memory prices “tends to supply a chance for the memory leader got here back stronger in a latest cycle.”
“History has also shown that investors mustn’t wait until the cyclical turnaround has already begun. For these reasons, we recommend investors hold onto SEC (Samsung Electronics), despite the negative near-term news.”
