Samsung has faced pressure from plunging memory prices which has impacted its key profit driving DRAM and NAND business.
Josep Lago | AFP | Getty Images
Samsung’s profit could nosedive when it reports fourth-quarter earnings guidance this week as prices for key memory chips continue to plunge amid weak demand.
Analysts expect Samsung to report 7.18 trillion South Korean won ($5.64 billion) in operating profit in the December quarter, according to Refinitiv consensus estimates. That would be a near 50% fall versus the fourth quarter of 2021.
However, some analysts are more bearish than the consensus.
Analysts at Macquarie Research forecast Samsung to report fourth-quarter operating profit of 5.5 trillion won, which would be the lowest since the third quarter of 2016. Daiwa Capital Markets analysts see operating profit at 4.9 trillion won, a 65% year-on-year plunge and would be the lowest since the fourth quarter of 2015.
The pessimism stems from a rapid fall in memory prices. Samsung is the world’s biggest player in so-called NAND and DRAM chips which are used in devices such as laptops and smartphones, through to data centers.
NAND and DRAM prices fell sharply in the fourth quarter due to a lack of demand for the products they eventually go into, such a PCs. This has led to electronics manufacturers and other companies that use such chips holding onto their inventory, further lowering demand for Samsung’s chips.
Samsung is not exempt from the “memory market carnage,” Macquarie analysts said in a note published Tuesday.
“The magnitude and speed of the memory price decline is parallel to the global financial crisis in 2008,” Macquarie said.
“A toxic combination of an end demand slump and excessive channel inventory led to a high inventory level not seen in a decade,” it added.
The analysts said they expect Samsung’s NAND business to be loss making in the fourth quarter while DRAM is “likely to have a razor thin profit margin” in the first half of 2023.
Samsung’s semiconductor business, which includes NAND and DRAM, accounts for nearly 50% of the company’s operating profit. Therefore, any hit to the memory division will have a big impact on the overall profit the company reports.
Analysts also expect weakness in other parts of Samsung’s business including smartphones, which could weigh on earnings.
Samsung will release fourth-quarter earnings and revenue guidance on Friday before its full financial report, likely later this month.
Recovery ahead?
Analysts at Macquarie and Daiwa think the first half of the year will be tough for Samsung due to continued pressure on memory prices.
But earnings could bottom in the second quarter of 2023, according to Refinitiv consensus estimates.
Daiwa analysts said there will be a rebound in earnings in the second half of 2023 “along with an improving memory cycle and recovery in mobile demand.”
Macquarie analysts said a downturn in memory prices “tends to provide an opportunity for the memory leader came back stronger in a new cycle.”
“History has also shown that investors should not wait until the cyclical turnaround has already begun. For these reasons, we recommend investors hold onto SEC (Samsung Electronics), despite the negative near-term news.”
