Samsung Electronics’ sales fall most in over one decade as chip slump persists

BLOOMBERG

Samsung Electronics Co reported its worst decline in quarterly revenue since at least 2009, stoking uncertainty over when a year-long electronics and memory chip demand slump will end.
The stock slid 2.4% in Seoul, the most in three months, after Samsung reported a larger-than-anticipated 22% decline in sales to 60 trillion won ($46 billion). Operating profit plunged 96% in the three months ended June, though at 600 billion won that surpassed average estimates.
Samsung has borne the brunt of a slowdown gripping the $160 billion global memory industry, reflecting a wider downturn after a Covid-era boom in online activity waned. Inflation and recession fears last year triggered a rapid pullback on consumer and business spending that’s since hammered sales of electronics worldwide.
Despite the disappointing top line number, investors remain cautiously optimistic that the memory chip glut is finally easing after more than a year of price declines. Samsung rivals Micron Technology Inc and SK Hynix Inc have signalled that electronics firms are working through bloated stores of memory chips after the post-pandemic collapse in demand for smartphones and computers.
The cyclical industry has moved to shore up prices. Samsung said in April it’s cutting production after reporting its slimmest profit in 14 years, a significant step towards ending the supply glut. Micron said
it’s passed the low point of the current downturn, and Hynix executives predicted some relief later this year. AI-related demand is also boosting investor hopes, with Morgan Stanley lifting its price targets for both Samsung and Hynix on the long-term prospects for AI-linked semiconductors.
Last quarter was “the profit bottom for Samsung in the current memory down cycle,” CLSA analyst Sanjeev Rana said. “We expect a sharp profit recovery in the second half as memory price declines are decelerating and demand is expected to recover.”
Samsung has been the biggest contributor to gains on South Korea’s benchmark Kospi index in 2023. The country’s largest corporation will provide a business outlook when it reports full earnings — including net income and details on divisional performance — on July 27.
“We believe the worst quarterly loss from the semiconductor business was in 1Q23,” Giuni Lee, analyst at Goldman Sachs, said in a report before the earnings release. Samsung’s losses are expected to gradually shrink before the company turns a small profit in the fourth quarter, he said.
DRAM price declines are expected to slow in the second half of the year as chipmakers tighten supply. Overall DRAM prices are projected to fall zero to 5% in the three months to September, after declining as much as 18% in the second quarter, according to market research firm TrendForce.
Semiconductor exports are also picking up, with a 28% drop in June compared with a sharper decline of 41% in April.
Samsung unveiled a plan to shore up its foundry business in a bid to narrow the lead held by Taiwan Semiconductor Manufacturing Co and temper its own exposure to the memory chip market. Samsung will introduce 2-nanometer production for mobile phone parts by 2025 and expand applications and will boost output in Pyeongtaek, South Korea, and Taylor, Texas.
While the glut may be easing, inventory levels throughout the industry remain historically high and the economic outlook is uncertain. Still, investors are pinning their hopes on longterm prospects that generative AI will drive new demand for servers requiring next-generation DRAM, or DDR5.
AI-enabling servers need at least four to six times more DRAM capacity compared to standard ones, according to the Goldman Sachs report.
Morgan Stanley analysts including Shawn Kim said Korea’s memory chipmakers were set to benefit from a growth of nearly 10 times in the DRAM market to $19 billion over the next four years.
But for now, Samsung is also grappling with a prolonged slump in the smartphone market. Its mobile shipments are estimated to have fallen a quarterly 9% in April-June, according to eBest Investment. Samsung’s betting on a foldable lineup to shore up its profitability, with plans to unveil the Galaxy Z Fold 5 and Flip 5 in late July.