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Samsung expected to report 80% profit plunge as losses mount at chip business

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  • Samsung Electronics earnings are expected to plunge nearly 80% in the third quarter, according to analyst forecasts.
  • Analysts see its semiconductor business — typically Samsung's cash cow — reporting a more than 3 trillion won ($2.2 billion) loss for the third quarter.
  • Memory chip prices have fallen dramatically this year due to a glut caused by oversupply and low demand for end products like smartphones and laptops.

Samsung Electronics earnings are expected to plunge nearly 80% in the third quarter, according to analyst forecasts, as the company's biggest profit-driving segment — semiconductors — continues to come under pressure.

The South Korean technology giant will issue earnings guidance on Wednesday. Analysts polled by LSEG expect operating profit of 2.3 trillion Korean won ($1.7 billion) for the September quarter, a 78.7% year-on-year decline. Revenue is expected to come in at 67.8 trillion won, a fall of 11.6%, according to LSEG consensus forecasts.

Samsung is the world's largest maker of memory chips, used in products ranging from laptops to servers. It is also the world's biggest smartphone player.

Samsung's semiconductor business — typically the company's cash cow — is expected to post a more than 3 trillion won loss for the third quarter, according to analyst forecasts, as it continues to face headwinds.

Memory chip prices have fallen dramatically this year due to a glut caused by oversupply and low demand for end products like smartphones and laptops.

This has hit Samsung's profits hard. In its last earnings reports in July, the company predicted a pick-up in demand for chips in the second half of the year, although this does not appear to be playing out as fast as many had hoped.

The tech giant has cut production in a bid to help shore up prices, though the effect is not likely to be seen in the third-quarter results.

Daiwa Capital Markets said in a note earlier this month that it expects Samsung earnings to miss consensus estimates "due to the higher cost burden from the memory production cut and ongoing soft demand" for its chip manufacturing unit, known as the foundry business.

Daiwa analyst SK Kim sees operating profit for the third quarter at 1.65 trillion won, much lower than the average analyst estimate of 2.3 trillion won.

There could be two potential bright spots for Samsung in the September quarter, however.

Firstly, its display business could see quarter-on-quarter growth due to the release of Apple's iPhone 15 series; Samsung sells displays to Apple for iPhones.

Secondly, Samsung's smartphone unit could see improving margins due to the high-end foldable phones it launched in July.

Recovery ahead?

Investors will be looking for signs that Samsung's core chip division will stabilize in the current quarter.

Looking ahead to the fourth quarter, analysts expect operating profit of 3.8 trillion won, according to consensus estimates. That would represent an 11.5% year-on-year decline, much smaller than the profit drops recorded in the first and second quarters of this year. Revenue is seen flat, arresting the declining sales the company has seen this year so far.

Daiwa's Kim sees the inventory glut easing and memory prices rising in the fourth quarter. Meanwhile, a Citi note in August suggested that Samsung will begin supplying advanced memory chips for U.S. semiconductor giant Nvidia's graphics processing units, which are used for artificial intelligence.

Kim suggests this will also be a boost for Samsung, adding: "We expect growing opportunities related to AI demand in 2024."

Correction: The key points of this article have been updated to reflect that 3 trillion won is equivalent to $2.2 billion.

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