Samsung Electronics on Tuesday said its fourth-quarter operating profit plunged nearly 70 per cent from a year ago, as the global economic slowdown hurt the sales of electronic devices and semiconductors that power them.
The world’s largest mobile phone and memory chip maker said its October-December operating profit shrank 69 per cent from a year earlier to an eight-year-low of 4.3 trillion won ($3.49 billion).
It is the tech giant’s lowest quarterly operating profit since the third quarter of 2014, and 18.6 per cent lower than the average estimate by Yonhap Infomax, the financial data firm of Yonhap News Agency.
Sales fell 8 per cent to 70.46 trillion won for the three months ended December 31, the company said.
“The business environment deteriorated significantly in the fourth quarter due to weak demand amid a global economic slowdown,” the company said in a statement.
Samsung’s chip business, which took up around 56 per cent of the tech company’s total profit a year ago, was hit hard as semiconductor buyers cut back on spending amid growing inventory and a supply glut drove down chip prices.
The business reported 0.27 trillion won in operating profit, declining a whopping 96.9 per cent from 8.84 trillion won a year ago. Sales fell to 20.07 trillion won from 26.01 trillion won.
“Overall memory demand weakened as customers continued to adjust their inventories amid deepening uncertainties in the external environment,” Samsung said.
Global memory chip revenue declined 10 per cent on-year last year, tech research firm Gartner said, as electronic equipment manufacturers “started to deplete memory inventory they had been holding in anticipation of stronger demand”.
In the second half of last year, consumers also began to “reduce spending, with PC and smartphone demand suffering, and then enterprises started to reduce spending in anticipation of a global recession, all of which impacted overall semiconductor growth,” it said.
Samsung Electronics Vice Chairman Han Jong-hee expected macroeconomic challenges to persist throughout the year.
“Samsung was dealt a heavy blow with deteriorating external factors, like weaker demand and rising costs,” he said at a briefing during CES 2023 in Las Vegas early this month.
“I think this difficult business environment will continue this year as a prolonged economic slowdown and risks in supply chains increase uncertainties.”
Samsung’s foundry, or contract chip manufacturing, business posted record quarterly sales, and profit also increased year-on-year on the back of “advanced node capacity expansion, as well as customer base and application area diversification,” the company said, without providing exact figures.
Samsung’s mobile business reported 26.9 trillion won in sales and 1.7 trillion won in operating profit for the fourth quarter.
“Market demand for smartphones remained weak in the fourth quarter, with the mass market contracting sharply due to continued inflation and geopolitical instability,” Samsung said.
“The impact of the decline in sales of mass-market smartphones was greater than previously expected, while flagship sales held up well relative to market projections.”
It warned that global smartphone market demand will contract in the year largely due to sluggish demand for mass-market models.