In another confirmation of the depth of the global computer and memory chip recession, Samsung Electronics recorded its first earnings decline since 2019.
Operating profit loses 32%
South Korea’s largest company said in a statement on Friday 7 October 2022 that operating profit fell 32% to 10.8 trillion won ($ 7.7 billion) during the third quarter of 2022, a lower than analysts’ estimate of an average of 12.1 trillion won.
Sales also missed estimates, reaching 76 trillion won.
A crisis in the computer and memory chip market
Global memory chip makers have warned in recent weeks that their industry is suffering from increasingly tight market constraints due to inventory build-up and declining orders for data center and consumer technology customers as a result of demand. of computers and smartphones weaker than expected.
Both Micron Technology and Qixia Holdings are cutting production in an effort to rebalance supply and avoid a price collapse.
Macroeconomic conditions have lower-than-expected PC demand and significantly corrected stocks. At the same time, Samsung shares fell around 2% in the capital, Seoul, at the end of the session on Friday, October 7, following Samsung’s announcement.
What is happening today is a new cycle of decline that did not occur due to the usual dynamics of supply and demand but differs from previous cycles due to geopolitical risks.
US government export controls are expected to restrict sales of IT companies to China and a significant portion of the chip demand will weaken. If AMD and Nvidia can’t sell their chips to China, the profits of the memory makers will drop further.
Shortage of chip supply chains
Statistics Korea data indicated that South Korea, home to the world’s two largest memory chip manufacturers, experienced a decline in chip production in August for the first time in more than four years.
The sudden collapse of the electronic memory market follows a series of macroeconomic shocks ranging from the Russia-Ukraine crisis to high inflation, gas prices and a rise in interest rates by the US Federal Reserve.
Consumer sentiment rapidly deteriorated, and memory shoppers, including computer manufacturers, reduced orders and replaced them with existing stocks.
Morgan Stanley also updated its semiconductor industry analysis in the first week of October, raising Samsung and Hynix stock prices with expectations of a market recovery in the second half of 2023.
Samsung said the memory market likely won’t find momentum for recovery in the next year. The South Korean company, the leading electronics manufacturer, has cut its chip sales estimates by 32% for the second half of this year from its April forecast.
