Samsung hit by historic profit fall, spurring capex cut hope

Bloomberg

Samsung Electronics Co’s profit dropped by the most in over a decade, in a sign that the global economic slowdown may be hurting electronics demand even more than anticipated.
South Korea’s largest company has been grappling with weak demand for memory chips, smartphones and displays as consumers tamp down holiday spending amid soaring interest rates and inflation. Adding to demand woes, Apple, one of Samsung’s biggest customers for displays and memory chips, suffered production delays at its iPhone assembly complex in the Chinese city of Zhengzhou.
Samsung’s operating profit fell by 69% to 4.3 trillion won ($3.4 billion) for the three months ended in December 2022, missing the average estimate of 6.7 trillion won by analysts. Sales fell to 70 trillion won, according to a company statement. Samsung is slated to provide a full financial statement with net income and information on divisional performance on January 31.
The grim preliminary numbers are adding pressure on Samsung, the world’s largest memory chipmaker, to shift gears and lower output and capex, fueling hopes for a turnaround. Samsung shares gained about 1% after swinging between gains and looses at the market open. Rival SK Hynix Inc. also climbed about 1% while Korean chip suppliers jumped.
“Samsung has been adamant that it has no plans to cut capex or supply, but fast deterioration in demand and deteriorating profitability means that management might be forced to consider the unthinkable, that is, memory production cuts,” said CLSA analyst Sanjeev Rana.
While Samsung’s inventory levels suggest a turnaround in the second quarter, a likely cut in memory chip production could mean a turnaround “a bit earlier,” Daniel Yoo, head of global asset allocation at Yuanta Securities Korea, told Bloomberg TV.
After ramping up production to record levels to meet a pandemic-era surge in demand, chipmakers have since had to slash spending on new production and cut costs to cope.
Memory chipmakers including Micron Technology Inc have said they don’t expect a recovery until the second half of this year and have lowered budgets for new equipment and plants and cut costs. Micron further warned it’d be difficult to return to profitability this year, announcing a 10% reduction to its workforce, as well as more cuts in capital expenses. Hynix has said that it’d cut its capex in half for 2023.
Samsung has previously said it has no immediate plans to cut output.