Samsung Electronics 3Q Shock Due to Semiconductor Slump
Memory Price Drop Clouds 4Q Outlook
"Enduring Recession with Technological Superiority"
[Asia Economy Reporter Kim Pyeonghwa] A major reason behind Samsung Electronics' underwhelming performance in the third quarter is the sluggish semiconductor business, which accounts for more than half of its sales. As the semiconductor market has entered a harsh downturn, it is expected that improving results in the fourth quarter will also be challenging. Samsung Electronics plans to find a breakthrough through steady investment and technological superiority.
Samsung Electronics' third-quarter results announced on the 7th are preliminary figures, so performance by business segment was not disclosed. However, the market estimates that Samsung's semiconductor operating profit in the third quarter will be in the 6 to 7 trillion won range out of the total operating profit of 10.8 trillion won. Typically, semiconductors account for 60-70% of Samsung Electronics' total operating profit. In this case, it is expected to have shrunk by about 30-40% compared to the second quarter operating profit of 9.98 trillion won.
The semiconductor industry and securities firms believe that Samsung Electronics began to be affected from the third quarter as the global semiconductor market entered a down cycle. The chain effects of inflation, demand decline, inventory increase, and price drops have brought a full-fledged winter to the market. Especially, since the memory sector's downturn stands out even within the overall semiconductor market, it is analyzed that Samsung Electronics, whose semiconductor business has a memory share exceeding 70%, inevitably suffered a blow. Earlier in August, the World Semiconductor Trade Statistics (WSTS) lowered its semiconductor market growth forecast for this year, projecting a more pronounced decline in the memory market (10.5 percentage points) compared to the overall market (2.4 percentage points).
U.S. memory semiconductor company Micron also recently failed to avoid a decline in performance. Micron recorded sales of $6.643 billion in the fourth quarter of fiscal year 2022 (June to August), down 23.13% from the same period last year, similar to Samsung's third quarter. This is the first time in six quarters that Micron's quarterly sales have fallen to the $6 billion range.
The problem lies in the continued price decline of DRAM and NAND flash, which directly impact memory companies' earnings. According to market research firm DRAMeXchange, the fixed transaction price of NAND (128Gb 16Gx8 MLC) in September was $4.30, down from $4.81 in the same month last year. The fixed transaction price of DRAM (DDR4 8Gb 1Gx8 2133MHz) showed a more pronounced drop, decreasing from $4.10 to $2.85 based on the same criteria. Market research firm TrendForce expects DRAM and NAND prices in the fourth quarter to fall by 18% and 20%, respectively, compared to the previous quarter.
Securities firms expect that due to these price declines, Samsung Electronics' semiconductor division operating profit may decrease in the fourth quarter as well. Although detailed forecasts vary, many anticipate figures in the 4 trillion won range. Summarizing forecasts from Kiwoom Securities, Shinhan Financial Investment, and Hi Investment & Securities, the expected range is between 4.473 trillion and 4.636 trillion won. This represents about a one-third decrease compared to the third quarter operating profit forecast of 6 to 7 trillion won.
Samsung Electronics plans to endure the semiconductor downturn through long-term investment and technological superiority. Kyung Kye-hyun, President of Samsung Electronics' Device Solutions (DS) division, stated last month, "Rather than relying on market ups and downs, steady investment is the right direction." At a semiconductor event held in the U.S. this week, Samsung announced it will be the world's first to mass-produce 5th generation 10-nanometer class DRAM next year. It also set a goal to introduce 1000-layer V-NAND by 2030 in the NAND market, where competition over 200 layers is underway.
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