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Samsung Expected to Report Lowest Profit in Over 14 Years Amid Ongoing Chip Glut

Samsung’s profit for the June quarter is set to hit rock bottom, plummeting by a staggering 96% compared to the previous year. This marks the lowest quarterly profit for the tech giant in over 14 years. Despite cutting back on supply, Samsung’s cash cow business, which includes memory chips, continues to suffer significant losses due to an ongoing chip glut.

According to a Refinitiv SmartEstimate provided by 27 analysts, Samsung’s operating profit is expected to stand at a meager 555 billion won ($427 million) for the April-June period. This is a far cry from the 14.1 trillion won operating profit reported during the same quarter last year. In fact, it’s reminiscent of the dire state Samsung found itself in back in the fourth quarter of 2008, when it endured a consolidated operating loss of approximately 740 billion won.

The primary culprit behind this distressing situation is Samsung’s chip division, historically its most lucrative segment. This division is likely to report losses ranging from 3 trillion to 4 trillion won for the quarter. Falling memory chip prices and devalued inventory are to blame for these substantial losses. The prices of DRAM memory chips, widely utilized in smartphones, PCs, and servers, continued to plummet, experiencing a decline of approximately 13% to 18%, as reported by TrendForce. Chip buyers refrained from acquiring new chips, instead relying on existing stockpiles.

Fortunately, the rate at which chip prices are declining has slowed down compared to previous quarters. Samsung Electronics and other memory chip manufacturers have taken steps to curtail the supply, which is expected to hit its lowest point around the third quarter. However, analysts predict that a significant recovery may not materialize until 2024.

Notwithstanding the prevailing downturn, Samsung is actively striving to capture a larger share of the chip demand arising from the rapidly expanding field of artificial intelligence (AI). They are focusing on areas such as high bandwidth memory (HBM) and chip contract manufacturing. By diversifying their offerings, Samsung aims to position itself favorably in this promising sector.

In terms of Samsung’s mobile business, it is projected to report an operating profit of roughly 3.3 trillion won. Five analysts, on average, anticipate this figure. Despite a slight dip in smartphone shipments compared to the first quarter, Samsung managed to offset this by reducing marketing expenses. It’s worth noting that Samsung plans to unveil its latest foldable smartphones in Seoul earlier than usual this month. This strategic move is seen as an attempt to dominate the premium phone market for an extended period before rival Apple releases its next iPhone.

Keep an eye out for Samsung’s preliminary second-quarter earnings results, set to be announced this Friday. The full earnings report will follow later this month.

(Note: The exchange rate used is $1 = 1,298.7800 won)

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