Samsung Electronics Co has reported its most significant quarterly revenue decline since at least 2009, leading to uncertainty regarding the duration of the year-long slump in demand for electronics and memory chips.
Following the announcement, Samsung's stock in Seoul experienced a 2 percent slide, marking the largest intraday decline in over two months. The company revealed a larger-than-expected 22 percent drop in sales, amounting to 60 trillion won ($46 billion). However, its operating profit for the three months ending in June, reaching 600 billion won, surpassed the average estimates despite a 96 percent plunge.
Despite the underwhelming overall revenue figure, investors maintain a cautious sense of optimism that the oversupply of memory chips is starting to alleviate after more than a year of price declines. Competitors of Samsung, such as Micron Technology Inc. and SK Hynix Inc., have indicated that electronics companies are gradually working through excessive inventories of memory chips following the sharp drop in demand for smartphones and computers during the post-pandemic period.
Efforts have been made within the industry to stabilize prices. In April, Samsung announced a reduction in production levels after reporting its lowest profit in 14 years, a significant step toward addressing the supply glut. Micron recently stated that it has surpassed the lowest point of the current downturn, while Hynix executives anticipate some relief later this year, buoyed by a recovery in China and increased demand for artificial intelligence (AI) technologies.
According to CLSA analyst Sanjeev Rana, the previous quarter marked the profit bottom for Samsung in the current downturn cycle for memory chips. Rana further anticipates a substantial profit rebound in the second half of the year, as the decline in memory prices is expected to slow down and demand is projected to recover.
In 2023, Samsung has emerged as the primary driver of gains on South Korea's Kospi index. As the largest corporation in the country, Samsung will provide a comprehensive business outlook, including details on net income and divisional performance, when it announces its full earnings on July 27.
According to a report by Giuni Lee, an analyst at Goldman Sachs, it is believed that the semiconductor business experienced its most challenging quarter in terms of losses in 1Q23. Lee anticipates that Samsung's losses will gradually diminish, leading to a modest profit in the fourth quarter.
In the second half of the year, it is expected that the decline in DRAM prices will slow down as chipmakers implement measures to tighten supply. Market research firm TrendForce predicts that overall DRAM prices will decline by zero to 5% in the three months leading up to September, following a decline of up to 18% in the second quarter.
In June, semiconductor exports showed signs of improvement, with a decline of 28%, which is less severe compared to the steeper drop of 41% experienced in April.
To narrow the lead held by Taiwan Semiconductor Manufacturing Co., Samsung recently announced a strategy to strengthen its foundry business. The company plans to introduce 2-nanometer production for mobile phone components by 2025 and expand its applications. Additionally, Samsung will significantly increase its production output in Pyeongtaek, South Korea, and Taylor, Texas.
Although there are indications that the oversupply situation is improving, inventory levels across the industry remain historically high, and the economic outlook remains uncertain. However, investors are optimistic about the potential for generative artificial intelligence (AI) to drive new demand for servers that require next-generation DRAM, specifically DDR5. According to the report from Goldman Sachs, AI-enabled servers typically require four to six times more DRAM capacity compared to standard servers.
Samsung is also facing the challenges of a prolonged decline in the smartphone market. Estimates from eBest Investment suggest that the company's mobile shipments likely experienced a quarterly decrease of 9% in the period from April to June. In an effort to enhance profitability, Samsung is focusing on its foldable lineup and plans to unveil the Galaxy Z Fold 5 and Flip 5 later in July.
