Samsung’s earnings plummet in warning sign for global demand

Samsung Electronics Co has flagged a worse-than-expected 32 percent drop in quarterly operating earnings, as an economic downturn slashed demand for electronic devices and the memory chips that go in them.

Estimated profit fell to 10.8 trillion won ($7.67bn) in July-September – the first year-on-year decline in nearly three years – from 15.8 trillion won a year earlier, the company said in a preliminary earnings release last Friday.

The result was 8.5 percent below an 11.8 trillion won SmartEstimate from Refinitiv.

Samsung’s memory chip shipments likely came in below already downgraded expectations and prices could fall further this quarter, analysts said, as customers react to rising inflation, higher interest rates and the effect of Russia’s invasion of Ukraine.

Samsung, the world’s top maker of memory chips, smartphones and televisions, is a bellwether for global consumer demand and its disappointing preliminary results add to a flurry of earnings downgrades and gloomy forecasts.

Companies and consumers have tightened their belts, with memory chip buyers such as smartphone and PC makers holding off on new purchases and using up existing inventory, driving down shipments and ushering in an industry downcycle.

“Memory chip business is worse than expected, DRAM chip shipments may be down by higher-teens percentage versus second-quarter,” said Park Sung-soon, an analyst at Cape Investment & Securities.

“Price negotiation trend seems to suggest customers’ demand rapidly worsened during the quarter.”

Analysts expect memory chip prices to continue to plunge in the current quarter, causing a further dip in Samsung’s fourth-quarter profits. Demand is not expected to recover until early next year.

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