Samsung Electronics said Friday that it expects operating profit to have tumbled almost 70% in the fourth quarter of last year, as high inflation sapped global demand for semiconductors and smartphones, the company’s two key revenue sources, according to Nikkei Asia.
The South Korean tech company said in earnings guidance that it sees operating profit of 4.3 trillion won ($3.4 billion) for the three months through December, which would be a decline of 69% from the same period the year before and the lowest operating profit in eight years since the third quarter of 2014.
Revenue, meanwhile, is forecast at 70 trillion won for the same period, marking a fall of 8.6%. Quarter on quarter, its operating profit would be down 60.4%, with revenue lower by 8.8%.
For the whole year of 2022, Samsung expected operating profit to have fallen 16% to 43.4 trillion won from the previous year, with revenue increasing 7.9% to 301.8 trillion won.
Samsung attributed the poor guidance to weak demand for memory chips and smartphones.
“For the memory business, the decline in the fourth quarter demand was greater than expected as customers adjusted inventories in their effort to further tighten finances, spurred by concerns over deteriorating consumer sentiment,” the company said in a statement. “Profits from the mobile experience business declined as smartphones sales and revenue decreased due to weak demand resulting from prolonged macro issues.”
The company will release full earnings for the fourth quarter, including net profit, later this month and hold a conference call for investors to explain the results.
The guidance fell well short of the market consensus, which forecast Samsung’s operating profit at 6.9 trillion won and revenue at 72.8 trillion won. FnGuide, an analysis specialist, collected forecasts from 24 brokerage houses.
The world’s biggest memory chip and smartphone maker’s poor performance comes as economists predict many countries will either enter recession or near recession this year. International Monetary Fund Managing Director Kristalina Georgieva said on Sunday that she expected that one-third of the world will be in recession, while hundreds of millions of people in countries not technically in recession would nevertheless feel like they were.
Analysts had flagged the issue of falling demand for chips and smartphones ahead of the Samsung guidance.
“The key reason for the poor performance is a drastic reduction in demand,” Roko Kim, an analyst at Hana Securities, said in a report on Tuesday. “Shipments and prices of semiconductors and smartphones dropped further than expected, badly affecting performance.”
Despite the hit to earnings, Samsung shares closed up 1.4% to 59,000 won on expectations that talks for a merger between Japanese chipmaker Kioxia and Western Digital of the U.S. could, if successful, ultimately weaken competition in the NAND chip sector which Samsung leads.
“This is good news as it signals consolidation of the global NAND industry,” KB Securities senior analyst Kim Dong-won said in a note on Friday.
Bloomberg News reported this week that Western and Kioxia have revived discussions for a merger, citing people familiar with the matter.
“Consolidation between players always had a positive impact on the memory chip industry in the past,” Kim said. “NAND players are expected to accelerate consolidation through M&As as they cannot avoid poor performance in the long term due to tough competition.”
To support Samsung, SK Hynix and other South Korean companies in the semiconductor industry, the administration of President Yoon Suk-yeol announced on Tuesday that it would increase tax credits for the companies’ semiconductor investments to 15% from 8% this year. The tax revision is subject to approval by the National Assembly, the country’s legislature.