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Samsung's Q2 Operating Profit Plunges 96% as Chip Glut Triggers Major Losses
Samsung Electronics faces a significant drop in Q2 operating profit, largely attributed to the chip oversupply, despite implementing supply cuts.
Experts predict a potential recovery in the memory chip business as sales of DRAM chips increase.
Samsung Electronics, the world's leading manufacturer of memory chips and smartphones, expects its operating profit to decline by a staggering 96% in the second quarter. The preliminary earnings statement projects a profit of 600 billion won ($459 million) between April and June, compared to 14.1 trillion won last year, marking the lowest quarterly profit since Q1 2009.
Analysts' estimates of 555 billion won were in line with Samsung's profit announcement, reflecting their consistent accuracy in forecasts. While the wider market experienced a 0.6% drop, Samsung shares fell 1.4% during early morning trading.
Detailed earnings for Q2 will be disclosed on July 27. In the previous quarter, the company reported a significant loss of 4.58 trillion won in its chip business, primarily due to falling memory chip prices and reduced inventory values. However, experts believe that losses in the memory chip business have likely decreased during Q2, driven by increased sales of DRAM chips used in PCs, mobile phones and servers.
Park Kang-ho, an analyst at Daishin Securities, stated, "Although memory prices fell, the drop was not as large as feared." Investors eagerly anticipate the full earnings report, particularly to gauge signals for the third quarter, such as the impact of production cuts, potential demand recovery and the influence of higher-end DRAM and high-bandwidth memory products on Samsung's profit mix.
Analysts suggest that the memory chip downturn, which commenced last year, is expected to reach its lowest point in Q3, with a modest recovery expected thereafter. Greg Roh, head of research at Hyundai Motor Securities, predicts a substantial rebound in DRAM memory prices by the fourth quarter, leading to double-digit quarterly increases in the second half of 2024. Samsung's continued investment in memory chips this year positions them to dominate the market further in 2025.
In the mobile business segment, Samsung is anticipated to unveil its latest foldable smartphones in Seoul this month, aiming to extend its dominance in the premium phone market before Apple releases its next iPhone. However, analysts hold mixed views on Samsung's mobile profits for the third quarter, as the global smartphone market's weak consumer sentiment persists, despite recent economic recovery indicators.
Samsung disclosed that revenue for April to June is likely to decline by 22% compared to the same period last year, amounting to 60 trillion won.
Samsung Electronics reports a 96% plunge in Q2 operating profit, in line with expectations, due to a chip oversupply.
Operating profit estimated at 600 billion won, the lowest since Q1 2009.
Losses in the memory chip business expected to decrease in Q2, driven by increased sales of DRAM chips.
Source: Nikkei Asia