As memory chip prices continue to decline due to an oversupply despite production restrictions, Samsung Electronics has estimated that its operating profit for the second quarter will likely fall 96% to the lowest level in 14 years. However, as Samsung joins its rivals in reducing chip supply, the price decrease has stalled.
The earnings largely matched a 555 billion won Refinitiv SmartEstimate, which gives more weight to expert estimates that are more reliable overall. Early morning trading saw a 1.4% decline in Samsung shares, outpacing a 0.6% decline in the broader market.
In a brief preliminary earnings announcement, the largest memory chip and smartphone manufacturer in the world estimated that its operating profit decreased to 600 billion won ($459 million) from April to June from 14.1 trillion won a year earlier. According to company data, it would be Samsung’s lowest profit since a 590 billion won profit in the first quarter of 2009.
Samsung recorded a staggering 4.58 trillion won loss in its chip sector for the January to March quarter as memory chip prices continued to decline and inventory values plummeted. However, losses in Samsung’s memory chip division presumably decreased in the second quarter as a result of higher sales of DRAM chips, which are used in servers, PCs, and mobile devices.
Reacting to the second quarter earnings forecast, SK Kim, executive director of Daiwa Securities Capital Markets, said: “Demand remained weak. But now the key is the supply [of memory chips]. Samsung Electronics announced the meaningful production cut in early April so we anticipate [that] in the third quarter.”
Kim went on to say that Samsung and SK Hynix, the second-largest chipmaker in South Korea, would profit from increased demand brought on by the United States ban on the sale of Micron goods in China. After Samsung and SK Hynix, U.S.-based Micron is the third-largest manufacturer of DRAM chips.
Following the example of these smaller competitors SK Hynix and Micron, Samsung said in April that it will be making a significant reduction in the manufacture of memory chips. Meanwhile, Samsung is due to release detailed earnings on July 27.
