Samsung Reports Sharp Profit Drop In Q1 Owing To Sliding Memory Chip Prices, Weak Demand

During the pandemic, chip stockpiling by smartphone and PC makers led to excess inventories as consumers cut back on purchases due to rising inflation.

The market is said to have responded positively to Samsung's announcement of a production cut.

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Samsung, the South Korean tech giant, has reported a sharp drop in operating profit in the first quarter of this year due to falling memory chip prices and weak demand. The company's revenue for the first quarter was 63.75 trillion Korean won (roughly $47.6 billion), which is consistent with Samsung's own guidance, but slightly below the 63.9 trillion won expected by analysts.

Operating profit for the first quarter was 640 billion Korean won (roughly $478.55 million), a significant decrease from 14.12 trillion Korean won in the same period last year, making it the company's lowest operating profit since the first quarter of 2009. In response to the downturn, Samsung plans to cut its memory chip production, following the example of smaller rivals like SK Hynix and Micron.

According to SK Kim of Daiwa Securities Capital Markets, the market has responded positively to Samsung's announcement of a production cut. However, data from the International Data Corporation shows that PC shipments have fallen by 29 per cent YoY, leading to a drop in prices of memory chips due to high inventories and lack of demand.

During the pandemic, chip stockpiling by smartphone and PC makers led to excess inventories as consumers cut back on purchases due to rising inflation. Samsung expects demand to recover gradually in the second half of the year, with the launches of new smartphones, PC promotions, and expansion of new CPU adoption boosting memory chip demand.

Daniel Yoo, head of global asset allocation at Yuanta Securities Korea, believes that a recovery is coming, citing strong results from Big Tech companies like Meta and Microsoft.

Meta's shares saw a rise of 12 per cent in after-hours trading on Wednesday, after the company reported a surprise increase in sales for the first quarter and better-than-expected guidance for the current quarter. The company's earnings for the first quarter came in at $2.20 per share, surpassing analysts' expectations of $2.03 per share, as per Refinitiv. Meta's revenue for the quarter stood at $28.65 billion, exceeding the expected $27.65 billion. 

Microsoft's shares rose by 9 per cent after the company issued better-than-expected results for its fiscal third quarter and quarterly guidance. According to Refinitiv, Microsoft's earnings per share (EPS) were $2.45, beating the analysts' expectations of $2.23. Additionally, the company generated revenue of $52.86 billion, compared to analysts' expectations of $51.02 billion.

During a conference call with analysts, Microsoft's finance chief, Amy Hood, forecasted revenue of $54.85 billion to $55.85 billion for the fiscal fourth quarter. The middle of the range, at $55.35 billion, implies 6.7 per cent growth, topping the $54.84 billion consensus among analysts surveyed by Refinitiv. Hood expressed her bullishness regarding artificial intelligence, stating that the company will continue to invest in its cloud infrastructure, especially in AI-related spend, as it scales to meet the growing demand driven by customer transformation.