Adjustments Needed
Samsung Electronics announced on April 7 that its first quarter operating profit plunged about 96 percent year over year. It was the first earnings shock in 14 years since 2009. The company changed its stance of making no artificial production cuts as its operating profit in the first quarter (January-March) of this year fell 95.8 percent from the same period of 2022 due to losses in its semiconductor business.
Samsung Electronics announced on April 7 that it posted preliminary results of 63 trillion won (US$48 billion) in sales and 600 billion won (US$454 million) in operating profit on a consolidated basis for the first quarter. This represented a 10.6 percent decrease in sales and an 86.1 percent decrease in operating profit from the previous quarter – the fourth quarter (October-December) of 2022 – and a 19.0 percent decrease in revenue and 95.8 percent decrease in operating profit from the first quarter of 2022. The results are below the operating profit forecast (1 trillion won or US$756 million) recently estimated by the stock market. It is the lowest performance in 14 years since the first quarter of 2009, when operating profit was only 590 billion won (US$446 million).
Samsung did not disclose results by business segment but industry analysts believe the semiconductor (DS) business may have posted a loss of 3 to 4 trillion won. This is because demand for information technology (IT) devices did not recover and memory semiconductor prices continued to fall. Samsung Electronics explained that IT demand is still not growing, and its performance deteriorated mainly in the component segment as semiconductor customers reduced the amount of semiconductor inventory to stabilize their finances. System semiconductor and display earnings also declined quarter over quarter due to a slowdown in the economy and the impacts of an off-season.
Samsung Electronics officially announced a semiconductor production cut on April 7. Following SK Hynix, Micron, and Kioxia, which started cutting production last year, Samsung Electronics, the world’s No. 1 in memory semiconductors, joined the trend of making cuts in chip production. However, “Although we have revised our short-term production plan to make a cut in production, we expect solid demand in the mid- to long-term,” Samsung Electronics said. The chipmaker added that it will continue to invest in infrastructure to secure essential clean rooms and expand the proportion of R&D investment to strengthen its technology leadership.
Meanwhile, as the news of Samsung Electronics’ production cuts broke out, the company’s stock price closed at 65,000 won (US$49.17), up 4.33 percent from the previous day. SK Hynix’s stock price also closed up 6.32 percent to 89,100 won (US$67.41) on expectations that the memory supply-demand situation could improve and prices could stabilize.
Samsung Electronics is expected to announce its final earnings including results by business segments in late April.
Meanwhile, analysts forecast that Taiwan’s TSMC, the world’s No. 1 foundry company, will post an operating profit of US$7.439 billion (9.812 trillion won) in the first quarter of this year, similar to the 9.68 trillion won in the first quarter of 2022.
Meanwhile, on April 9, the Global Times (GT), a Chinese state-run English-language newspaper, printed a story which said, “Samsung’s plummeting operating profit shows damage the U.S. semiconductor war has done to the global semiconductor industry.” The newspaper claimed that Samsung’s operating profit in the first quarter of this year fell by 95.75 percent year on year. It blamed the drop in Samsung’s operating profit in the first quarter of this year on U.S. semiconductor policies.
“It is true that a demand contraction due to global recession fears affected Samsung’s semiconductor business, but the fundamental reason is that the U.S. move to weaponize semiconductor supply chains to keep China in check has created a supply-demand imbalance in the global semiconductor industry,” GT pointed out.
“The global semiconductor industry would not be facing such uncertainties if the United States had not pushed for decoupling from China to curb China’s rise in the semiconductor industry,” GT said, placing the blame for the supply chain disruption on the U.S. GT asserted that the damage to the semiconductor industry caused by the U.S. is a reminder that South Korea and Japan should come together with other countries rather than follow U.S. strategies even if they go against their own economic interests.