Operating Profit Plummets 69% YoY

Samsung Electronics registered an earnings shock in the fourth quarter of 2022, with its operating profit plummeting 69 percent.

Samsung Electronics delivered an earnings shock in the fourth quarter of 2022, with its operating profit plummeting 69 percent. In the aftermath of a global economic slowdown, the company's semiconductor, smartphone, home appliance, and display sales suffered a sharp drop. Experts predict that the Korean tech giant will suffer a bigger drop in business performance in the first half of 2023.

Samsung Electronics announced on Jan. 6 that it posted 4.3 trillion won in operating profit on a consolidated basis in the fourth quarter of 2022, a 69 percent decrease from 13.8 trillion won in the same period of 2021. Its sales came in at 70 trillion won, down 8.5 percent from 76.5 trillion won a year ago.

The company's quarterly operating profit fell below 5 trillion won for the first time in eight years since the third quarter of 2014 when it registered 4.06 trillion won. Since the second half of last year, demand for semiconductors and the consumption of finished products have rapidly shrunken. The company posted the worst business performance in the fourth quarter, a peak season for IT products and home appliances.

Samsung's business performance by business division was not disclosed on the day, but the flagship memory semiconductor division performed more poorly than expected. A gloomy economic forecast significantly weakened customer demand for purchases. Price drops were bigger than originally expected due to increased inventory. Analysts estimate the semiconductor division's operating profits in the fourth quarter of 2022 at below 2 trillion won. This represented a decrease of more than 70 percent from 5.12 trillion won in the third quarter. They believe that Samsung switched to a deficit in the NAND flash memory business in the same period.

The sluggish performance of the smartphone and home appliance businesses are also deepening. Analysts estimate the operating profits of the DX Division at around two trillion won, down 40 percent from 3.5 trillion won in the previous quarter. “Weak demand and cost burdens pulled down sales of smartphones and home appliances and lowered profitability.”

The problem is that the company's business results have not bottomed out yet. Some observers even say that its semiconductor business may swing to deficit in the first half of 2023. “Samsung Electronics will continue to suffer a drop in operating profits until the second quarter of this year and its semiconductor business division is expected to turn to an operating loss in the second quarter of this year,” said Doh Hyun-woo, a researcher at NH Investment & Securities. If Samsung's semiconductor business division makes a quarterly loss, it will be the first time in 14 years since the first quarter of 2009 right after the global financial crisis.

Some analysts predict that the company may cut production and investment to prevent profits from declining. Global memory makers have been cutting production and reducing investment one after another since the second half of 2022, but Samsung has stuck to its strategy of not artificially cutting production.

Meanwhile, Samsung's' annual sales in 2022 totaled 301.7 trillion won, up 7.9 percent from 279.6 trillion won in the previous year. Its total operating profits stood at 43.3 trillion won in 2022, down 16 percent from 51.6 trillion won in 2021.

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