Samsung faces pressure from plummeting memory prices, impacting key earnings that drive its DRAM and NAND businesses.
Josep Lago | AFP | Getty Images
Samsung’s Earnings could take a nosedive when it reports fourth-quarter earnings guidance this week, as prices of key memory chips continue to plummet amid weak demand.
Analysts expect Samsung to report an operating profit of 7.18 trillion Korean won ($5.64 billion) in the December quarter, according to Refinitiv consensus estimates. This represents a nearly 50% decrease compared to Q4 2021.
However, some analysts are more bearish than the consensus.
Analysts at Macquarie Research expect Samsung to report an operating profit of 5.5 trillion won in the fourth quarter. This is his lowest since the third quarter of 2016. Analysts at Daiwa Capital Markets see operating profit at 4.9 trillion won, up 65% year-on-year. It will plunge to its lowest level since Q4 2015.
The pessimism stems from the plummeting memory prices. Samsung is the world’s largest player in so-called NAND and DRAM chips, which are used from devices such as laptops and smartphones to data centers.
NAND and DRAM prices plummeted in the fourth quarter due to lack of demand for products that will eventually be built into PCs and the like. This has left electronics makers and other companies using such chips in inventory, further reducing demand for Samsung’s chips.
Analysts at Macquarie said in a note issued on Tuesday that Samsung was not exempt from the “memory market carnage.”
“The magnitude and speed of the memory price decline is comparable to the global financial crisis of 2008,” said Macquarie.
“A detrimental combination of weak final demand and excess channel inventories has resulted in the highest inventory levels not seen in a decade,” he added.
Analysts expect Samsung’s NAND business to be loss-making in the fourth quarter, while DRAM is “likely to have very thin margins” in the first half of 2023.
Samsung’s semiconductor business, which includes NAND and DRAM, accounts for nearly 50% of the company’s operating profit. Therefore, any hit to the memory division would have a significant impact on the company’s reported overall earnings.
Analysts also expect weakness in other parts of Samsung’s business, including smartphones, which could weigh on earnings.
Samsung is expected to release its fourth-quarter earnings and earnings guidance on Friday before its full financial report is expected later this month.
Recovery first?
Analysts at Macquarie and Daiwa believe the first half of the year will be tough for Samsung as the pressure on memory prices continues.
However, according to Refinitiv’s consensus forecast, earnings could bottom out in the second quarter of 2023.
Daiwa analysts say earnings will recover in the second half of 2023 “along with memory cycle improvements and a recovery in mobile demand.”
Analysts at Macquarie said the drop in memory prices “tends to offer memory leaders an opportunity to come back stronger in a new cycle.”
“History also shows that investors should not wait until cyclical upturns begin. Electronics) is recommended.”
