Samsung profit dives on chip glut, soft economy

Samsung's operating profit plummeted 95% in the second quarter as it weathered the continued chip glut and uncertain macroeconomic conditions. But executives on an earnings call Thursday were cautiously optimistic about a recovery in demand for smartphones and the easing of semiconductor inventories.

They also announced a further cut in memory chip production, which has stifled demand, and said they would focus more on high-end AI chips. The semiconductor unit recorded a 4.36 trillion Korean won (US$3.4 billion) deficit for the quarter, taking first half losses to a hefty KRW8.9 trillion ($6.96 billion).

The electronics giant, a tech industry bellwether because of its broad range of operating segments, posted an operating profit of KRW670 billion ($523 billion), down from KRW14.1 trillion ($11 billion) for the same period last year.

Total sales were KRW60 trillion, 22.3% lower than a year ago, but net earnings of KRW1.72 trillion ($13.4 billion), although down 85%, were ahead of estimates. The higher than expected net and the planned further cut in memory output helped drive a 2.7% rally in the stock in Thursday trading.

The mobile business, which includes smartphones, wearables, tablets and networks, boosted operating profit 16% despite a 13% fall in sales.

Looking to foldables

The company said this was a result of its efforts to improve efficiency across the supply chain, aided by stable prices of raw materials.

It said demand for smartphones had weakened quarter-on-quarter due to macro factors such as interest rate hikes and inflation.

The company is hoping its growing foldable range can spark sales in the second half. It unveiled two new foldables, the Galaxy Z Fold 5 and the Flip 5, in Seoul on Wednesday.

Research firm Counterpoint this week said foldables might be a niche product now, but its latest consumer survey found a willingness among most respondents to buy a foldable. "[T]he hype around foldables is legitimate," it said.

The small mobile networks business declined in key overseas markets of North America and Japan. The company said it hoped to grow revenue from new business while demonstrating its advantages in 5G core chips and vRAN.

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Investor relations EVP Ben Suh told analysts: "We expect the business environment to recover gradually and drive improved results, especially in our component businesses. However, challenges associated with the demand recovery are also likely to persist due to macro risks and other factors."

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— Robert Clark, contributing editor, special to Light Reading