As Memory Chip Market Slumps, Samsung Faces Weakest Quarter

As memory chip prices continue to fall, Samsung could report its worst profit in 14 years this week, due to the fact that demand is still weak, while prices for its biggest business are falling.

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There is a low likelihood that Samsung will report a profit for the first quarter in the range of 600 billion Korean won ($449 million), according to its guidance earlier this month. If Samsung announces this profit, it will be the company's lowest profit since the first quarter of 2009.

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It will report its full first-quarter earnings on Thursday in which Samsung will release its preliminary earnings guidance, but will not provide detailed numbers.

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With more than 80 years of experience, Samsung is one of the largest makers of memory chips, which are used in everything from personal computers to data center servers.

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There was a high demand for consumer electronics during the height of the pandemic, as many people stayed at home and consumed them at that time. The electronics industry piled up chips for these products as a result. In the wake of inflation and macroeconomic concerns, buyers are now reducing their purchases of memory chips, leading to a glut of memory chips.

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As an example, according to the latest data from IDC, PC shipments in the first quarter of last year fell by 29% year-on-year.

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Due to a high level of inventory and a lack of demand, memory chips have seen a drop in prices over the past few months.

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“It is no secret that the memory market is in the middle of one of the worst slumps it has ever seen. Even as EV (electric vehicle) markets grow, consumer electronics and traditional server markets are experiencing some of the most severe slowdowns,” CrispIdea said in a research note published last week.

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4.4 trillion Korean won are expected to be lost by Samsung's chip division in the first quarter, according to analysts at Mirae Asset Securities.

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According to Samsung, the company is reducing the production of its memory chips to a "meaningful level" as a result of worsening macroeconomic conditions and reduced consumer demand in the market. After previously refusing to lower output, Samsung has now followed SK Hynix and Micron in doing so.

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As companies dig into existing inventories, investors are hoping Samsung's production cut will boost prices.

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Samsung earnings should begin to rebound in earnest in the third quarter of this year, according to NH Investment and Securities. Production cuts should also help improve supply-demand dynamics in the memory market, analysts said.

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As a result, Mirae Asset Securities predicts a peak in Samsung's memory chip inventory in the second quarter, followed by a sustained increase in the firm's semiconductor demand.

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In spite of this, analysts warn that Samsung's business may face more challenges in the future.

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As inventories remain at all-time highs, memory chip losses are expected to persist during the next few quarters, which will further pressurize chip prices, CrispIdea analysts said. Inflation and higher interest rates have muted tech demand following the pandemic-era surge.

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