Samsung Electronics Announces 86% Drop in 1st Quarter Profits Due to Global Economic Slowdown and Weak Demand for Chips

The South Korean tech giant is feeling the pinch. Samsung Electronics on Thursday April 27 announced a plunge in its profits of more than 86% in the 1st quarter of 2023, the lowest in 14 years, citing the global economic slowdown which has dealt a blow to sales of chips and electronic products. The South Korean tech giant reported that its operating profits for the January-March period fell 9.75 trillion won (6.6 billion euros) from the same period a year earlier.

They stood at 1.570 billion won (1.06 billion euros), against 11.320 billion over the same period last year (7.7 billion euros). Samsung Electronics’ net operating income plunged 95% compared to last year, to 640 billion won (428 million euros). Sales fell 18% over the period, to 63.750 billion won (42.5 billion euros), according to the company’s press release.

The latter cited a decline in demand for electronic chips, which usually account for half of its profits, as well as the fall in their price. Samsung’s chip arm suffered losses of 4.58 trillion won (3.1 billion euros), its first net loss since 2009, when the world was just emerging from the financial crisis of 2008. However, the tech giant expects a “gradual recovery” in demand for semiconductors in the second half of the year, due to inventory reductions at its customers and their adjustment needs. Thursday morning, the value of Samsung shares lost 0.3% on the Seoul Stock Exchange.

Smartphone effect

Samsung Electronics is the flagship of the Samsung Group and by far its largest subsidiary. South Korean chipmakers, led by Samsung, had posted record profits in recent years, fueled by soaring prices, but a slowing global economy has put a damper on the sector. Initially supported by electronics purchases during the pandemic, it then slowed down, affected in particular by inflation and the rise in interest rates.

Also in April, Samsung announced that it would “significantly” cut memory chip production to tackle oversupply. Samsung’s “active” efforts in this direction have been received “positively”, given the importance of the South Korean giant, which weighs on demand and influences general market sentiment, note experts from Eugene Investment & Futures in a report. “Even if the pace of demand recovery remains slow, the semiconductor industry will likely recover in the second half of the year if cooperation between chipmakers on production cuts is good,” the document explains.

In the meantime, analysts predict an even more difficult April-July period and do not exclude that Samsung will experience its first net losses since 2008 during these few months. And this despite the good health of its smartphone sector in the first quarter, boosted by the “solid sales” of the new Galaxy S23 range. However, the economic situation did not seem to cool the tech giant, which revealed in March a massive investment plan of 227 billion dollars (205 billion euros) over twenty years, for the construction of the largest factory. flea market in Yongin, south of Seoul.