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Samsung Lowers Earnings Forecast as Global Demand for Chips Weakens

  • Samsung forecasts its operating profit to decline 32% YoY in the third quarter of 2022
  • The company expects its revenue to increase 2.7%
  • Advanced Micro Devices Inc. cut its revenue projections for the third quarter of 2022

Samsung's Profit Could Decline 32% Amid Poor Global Demand for Chips

Samsung Electronics Co. is expected to record a decline in profitability in the third quarter of 2022 in its core memory chip and smartphone businesses as a result of reduced spending by consumers on tech products owing to the increasing inflation and other economic woes. According to the company, operational profit for the third quarter of 2022 is expected to stand at KRW10.8 trillion, or around $7.7 billion, down 32% from the KRW15.8 trillion recorded for the previous corresponding period. The company expects revenue for the three months ended September 2022 to increase 2.7% YoY to KRW76 trillion.

Weak Demand for Chips Globally

As inflation is increasing globally, central banks are raising interest rates and concerns over recession are intensifying with uncertainty over the effects of the Russia-Ukraine conflict. As a result, businesses and individuals reduced spending. Memory chip buyers such as manufacturers of smartphones and PCs are delaying new orders and using their existing inventories. This resulted in reduction in shipments and downturn in the industry. As one of the leading producers of memory chips globally, Samsung is sensitive to the economy, with earnings closely tied to demand.

The value of the US dollar increased significantly in comparison to other currencies, especially the South Korean won, which recently touched a 13-year low. Samsung is regarded a leading technological company. It is a significant supplier of components to companies such as Apple Inc. It is also one of the top sellers of smartphones and televisions globally, and a major company in many other consumer electronic markets. A strong US dollar could increase the cost of raw materials and the components required to manufacture electronic goods.

The demand for memory chips increased during the COVID-19 pandemic as the use of internet increased, leading to supply bottlenecks that provided pricing power to chipmakers. The price of memory chips started to fall at the end of 2021 and kept decreasing as demand declined. Other semiconductor companies are also facing tough conditions. Recently, Advanced Micro Devices Inc. cut its projection for the third quarter due to sluggish demand for PCs, indicating that the downturn in the chip market could be greater than anticipated.

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