Operating Profit of 4.3 Trillion KRW in Q4 Last Year... Lowest in 8 Years and 3 Months
Decline in Memory, Smartphone, and Home Appliance Earnings
Gloomier Outlook This Year... Attention on Whether the "No Production Cut" Policy Will Be Maintained
[Asia Economy Reporters Han Yeju and Kim Pyeonghwa] Samsung Electronics recorded an earnings shock in the fourth quarter of last year. Although it opened the era of annual sales exceeding 300 trillion won for the first time in history, the company broke through the '5 trillion won quarterly operating profit' barrier due to a demand cliff in memory semiconductors caused by the global economic recession, a snowballing inventory volume, and sluggish sales of smartphones and home appliances.
The problem lies in this year. The cold wave in the memory semiconductor market is expected to continue until the first half of the year, raising the possibility of a loss in the semiconductor division (DS) in the first quarter.
◆Downturn in Memory Shock and Smartphone Demand= The fourth quarter is usually considered the peak season for the electronics industry, but Samsung Electronics' performance slump has deepened significantly. The quarterly operating profit fell below 5 trillion won for the first time in about eight years, marking an unprecedented earnings shock. This was due to the global economic recession and inflation last year, which shrank demand, as well as the Russia-Ukraine war and China's zero-COVID policy, which further dampened the business environment.
Above all, the semiconductor cold wave was more severe than expected. Although Samsung Electronics has not yet announced performance by division, the DS division is expected to have an operating profit in the trillion-won range. According to forecasts by KB, Daishin, Kiwoom, and Hana Securities this month, the average operating profit of the DS division for the fourth quarter of last year is 1.3368 trillion won, a sharp 85% drop compared to the same period last year.
Since the third quarter of last year, the DS division's operating profit (5.12 trillion won) has already declined by 49% compared to the same period last year, making the performance downturn visible. In the fourth quarter, intensified inventory adjustments by customers appear to have led to a noticeable deterioration in performance due to price declines. In fact, the fixed transaction price of DRAM announced by market research firm DRAMeXchange was $2.21 in December last year, a 40% plunge compared to the same month the previous year.
Due to the impact of consumer recession, IT device performance also seems to have significantly decreased. Samsung Electronics' Mobile (MX) division posted an operating profit of 3.24 trillion won in the third quarter of last year, but securities firms expect the fourth quarter operating profit to fall to the high 1 trillion won range, nearly halving. The decline in smartphone sales and revenue due to continued macroeconomic issues and weak demand appears to have reduced profits.
The home appliance (CE) division is expected to record an operating profit of about 200 to 300 billion won amid sluggish market demand and ongoing cost burdens. Considering that sales are estimated to be in the high 10 trillion won range, this is barely above the breakeven point.
◆Outlook for This Year is Even More 'Bleak'... Will Samsung Cut Investments?= Samsung Electronics at least saved face by surpassing 300 trillion won in annual sales last year. This is the best performance since the company's founding and the first time for a domestic company.
However, the outlook for this year's performance is bleak. Samsung Electronics' consensus for this year is sales of 301.1248 trillion won and operating profit of 32.1523 trillion won. The operating profit margin is expected by the securities industry to possibly fall to an unprecedented low of 10%.
The MX and CE·TV business divisions are expected to face increased financial burdens due to sluggish sales and growing inventory burdens, and concerns are rising that the DS division, which mainly handles memory business, will see a significant decline in performance. Market research firm Gartner forecasts that the global memory semiconductor market will shrink by 16% compared to last year.
Do Hyunwoo, a researcher at NH Investment & Securities, said, "The downward trend in Samsung Electronics' operating profit will continue until the second quarter of this year," adding, "The semiconductor division is inevitably expected to turn to an operating loss by the second quarter of next year." If this prediction holds, the DS division will record a quarterly loss for the first time since the 2008 financial crisis.
The reason why predictions are emerging that Samsung Electronics, which insisted "there will be no production cuts," might adjust its investment scale is because of this. Kim Dongwon, a researcher at KB Securities, predicted, "Samsung Electronics will reduce its memory facility investment by 15% compared to the original plan this year." Global investment bank Citi Global Markets Securities also expects that investments will hardly increase this year.
However, improvement in the business environment is expected from the second half of the year. Regarding memory inventory, it is expected to peak in the second quarter, with prices turning upward from the second half and improvements anticipated from the third quarter.
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