Samsung Electronics Expects 96% Drop in Q2 Operating Profit Due to Chip Glut

Samsung Electronics Co Ltd has projected a significant 96% decline in operating profit for the second quarter, in line with expectations, primarily driven by a chip glut that has led to substantial losses in its key business.

The world's largest memory chip and smartphone manufacturer estimated its operating profit to be around 600 billion won ($459 million) for April to June, compared to 14.1 trillion won in the same period the previous year, according to a preliminary earnings statement.

This anticipated profit would mark Samsung's lowest for any quarter since the first quarter of 2009 when it recorded a profit of 590 billion won. The figure aligns closely with the Refinitiv SmartEstimate of 555 billion won, which weighs forecasts from analysts known for their accuracy.

Following the news, Samsung's shares fell 1.4% in early morning trade, underperforming the broader market's 0.6% drop. Detailed earnings for the quarter are scheduled to be released on July 27.

While Samsung had reported a significant loss of one trillion won in its chip business during the previous quarter, analysts predict that the losses likely decreased in the second quarter due to increased sales of dynamic random-access memory (DRAM) chips used in PCs, mobile phones, and servers. The decline in memory chip prices was not as severe as expected.

Analysts are now focused on Samsung's third-quarter signals, including the impact of production cuts, demand recovery, and improvements in profit mix from higher-end DRAM and high bandwidth memory (HBM) products.

Industry experts anticipate that the memory chip downturn, which began last year, will reach its lowest point in the third quarter, although the initial rebound may be modest. They expect DRAM memory prices to rebound more significantly from the fourth quarter, with double-digit quarterly increases projected from the second half of 2024. Samsung is expected to maintain its dominance in the memory chip market investment through 2025, setting it apart from its competitors.

In the mobile business, Samsung plans to unveil its latest foldable smartphones in Seoul earlier than usual, aiming to secure a more extended period of dominance in the premium phone market before Apple releases its next iPhone. However, analysts' outlooks for Samsung's mobile profits in the third quarter remain mixed, considering the ongoing weakness in consumer sentiment in the global smartphone market, despite some recent economic indicators showing signs of recovery.

Samsung estimates that its revenue for April to June declined by 22% compared to the same period last year, reaching around 60 trillion won, according to the company's statement.