Semiconductor Recession
Samsung Electronics’ Device Solutions (DS) Division in charge of the semiconductor business is expected to post an annual loss of more than 10 trillion won this year due to a recession in the semiconductor industry.
According to securities firms on July 16, current estimates of Samsung Electronics’ annual operating losses in the DS Division run from 10.3 trillion won by Kiwoom Securities and KB Securities to 14.7 trillion won by NH Securities.
Samsung Electronics’ annual consolidated operating profit estimate is 8.9026 trillion won (US$7.0362 billion), according to Yonhap Infomax’s aggregation of securities firms’ earnings forecasts (consensus) released within the past month. This is a 79.5 percent plunge from operating profit of 43.3766 trillion won in 2022. This is blamed largely on a large loss in the DS Division due to a downturn in the semiconductor memory industry.
Compared to the DS Division’s operating profit of 23.8 trillion won in 2022, it shows how serious the slump is.
Samsung’s DS Division posted an operating loss of 4.58 trillion won in the first quarter of this year, and its deficit in the second quarter is estimated to be around 4 trillion won. This means that the DS Division is expected to post around 8 trillion won in loss in the first half of this year only.
After Samsung Electronics recently announced a preliminary operating profit (600 billion won) for the second quarter, some analysts said the DS division’s performance may have been weaker than expected.
“Bit growth was higher than expected and a price decline was smaller than expected, but the DS Division’s burden is that demand from downstream industries continues to be revised downward,” said Kim Woon-ho, a researcher at IBK Investment & Securities.
Even though demand remains weak, the consensus is that Samsung’s semiconductor performance bottomed out in the first half of the year. The second half of the year is expected to see the start of a full-scale recovery in Samsung’s semiconductor business thanks to the effects of semiconductor production cuts, declining inventories, and rising demand for AI-related memory among others.
Samsung Electronics began a full-scale memory production cut at the end of the first quarter. It takes about three months from wafer input to memory chip production, so the effects of the cut will begin to show in three to six months.
The DS Division’s losses will continue in the third quarter but stay in the range of 2 to 3 trillion won less than those in the first and second quarters, stock market experts forecast. Some of them even say that the DS Division will reach the break even point with a decrease its operating losses in or even turn a quarterly profit for the first time since the fourth quarter of last year in the fourth quarter of this year.
“Starting from the third quarter, the average selling price of DRAM will turn upward due to increased shipments of high-value products such as HBM3 and DDR5 memory, and the decline in NAND flash prices will slow down,” said Kim Dong-won, a researcher at KB Securities. “In the foundry business, Samsung is expected to improve its business performance due to an increase in foundry orders for high-end products such as high-performance computing (HPC) and AI chips.”