Samsung’s profit can nosedive 50% while posting Q4 earnings guidance

Samsung Electronics, the South Korean electronics giant, can reportedly expect a drop in profits when it releases its fourth-quarter sales forecast this week, as prices for critical memory chips remain low due to sluggish demand.

As per Refinitiv consensus forecasts, analysts anticipate Samsung to record an operating profit of around 7.18 trillion South Korean won (US$5.64 billion) in the December quarter. These statistics would represent a decrease of about 50% from Q4 of 2021.

However, some analysts have a more pessimistic outlook than the majority.

According to analysts at Macquarie Research, the fourth quarter operating profit that Samsung is expected to announce will be the poorest since Q3 of 2016, coming in at 5.5 trillion won (US$4.3 billion). Operating profit would drop by 65% year over year to 4.9 trillion won (US$3.8 billion), the lowest level since Q4 of 2015.

The downward trend in memory pricing is the cause of concern. Samsung is the dominant supplier of so- and DRAM and NAND chips, which are found in everything from data centers to smartphones and laptops.

NAND and DRAM prices decreased dramatically in the fourth quarter owing to a lack of demand for the devices they ultimately go into, such as PCs. This has caused electronics makers and other businesses that utilize these semiconductors to hold onto their stock, which has further decreased demand for Samsung's chips.

According to analysts, Samsung is not immune to the memory market catastrophe.

Samsung's NAND division would likely post a loss in Q4, while the first half of 2023 will most probably experience a razor-thin profit margin for DRAM.

Approximately 50% of Samsung's operating profit comes from its semiconductor division, which also comprises NAND and DRAM. Therefore, any damage to the memory segment will have a significant effect on the company's reported overall earnings.

Analysts predict a decline in Samsung's other business segments, notably smartphones, which could hurt profits.

Prior to its comprehensive financial report, which is likely to be released later this month, Samsung will disclose its fourth-quarter profits and earning guidance on Friday.

Source credit: https://www.cnbc.com/2023/01/05/samsung-q4-2022-earnings-guidance-preview-memory-prices-to-weigh-on-profit.html