Samsung is the world's largest manufacturer of memory chips.
Jakub Porzycki | Photo only | Getty Images
Samsung Electronics said on Tuesday it expects operating profit to fall 35% in the fourth quarter of 2023, falling well short of expectations, as a recovery in semiconductor prices is likely to narrow losses in the South Korean company's largest profit-making segment.
Samsung said operating profit in the October-December quarter is expected to be 2.8 trillion South Korean won ($2.13 billion), down 35% from the same period last year, in which the company reported operating profit of 4.31 trillion won reported. Operating profit was 2.43 trillion won in the previous quarter.
The profit forecast fell far short of LSEG's SmartEstimate of 3.7 trillion won, which is more closely aligned with analysts' expectations, which were consistently more accurate.
Fourth-quarter sales were expected to have fallen 4.9% to 67 trillion won compared to the same period last year, the company said in a preliminary earnings release.
Samsung is the world's largest maker of dynamic random access memory chips, which are found in consumer devices such as smartphones and computers.
“[Samsung is] very good at making some of the best semiconductors in the world, at least at making and finishing them. But their returns are much worse than those of rivals like TSMC,” Cory Johnson, chief market strategist at The Futurum Group, said on Tuesday.
“… such poor returns can lead to really poor earnings results,” he told CNBC's “Squawk Box Asia” after Samsung's earnings preview.
The company will report detailed earnings on Jan. 31, according to a filing.
Memory chip prices have fallen dramatically over the past year, reflecting excessive inventory levels following the coronavirus crisis and weak demand for end products such as smartphones and laptops.
“We expect memory prices to begin recovering from 4Q23, driven by supplier production cuts and a recovery in demand for mobile devices and PCs,” Daiwa Capital Markets analyst SK Kim said in a report from January 4th.
This has taken a toll on Samsung's profits. Samsung's third-quarter operating profit fell 77.6% year-on-year, although it came in better than expected. Operating profit fell 95% in the second quarter compared to the same period last year.
Demand for AI in all major applications will cause the overall semiconductor sales market to recover in 2024.
In late October, Samsung and SK Hynix – the world's second-largest DRAM memory chip maker – signaled in their third-quarter earnings reports that weak demand following production cuts may have finally bottomed out.
“We expect further price increases in 1H24 and a significant recovery in revenues for memory manufacturers in 2H24 and into 2025,” said Daiwa Capital Markets' Kim, referring to the first and second halves of this year.
“We therefore expect a tailwind for share prices in the short term.”
According to Galen Zeng, senior research manager for semiconductor research at IDC, memory chip prices have been rising since early November thanks to “memory manufacturers' tight control of supply and production.”
“Demand for AI in all major applications will lead the overall semiconductor sales market to recover in 2024,” Zeng said in a Dec. 21 report.
“The semiconductor supply chain, including design, manufacturing, packaging and testing, will emerge from the downturn in 2023.”