Samsung estimates profits plunged 96% in the second quarter

Samsung Electronics said it expects a 96% profit plunge in the second quarter of 2023 as weak demand for memory chips persists.

The world’s largest dynamic random-access chip maker estimates operating profit in the quarter from April to June to be 600 billion Korean won ($459 million), down from 14.1 trillion Korean won in the same period last year.

This would be the company’s lowest quarterly profit since the 590 billion won recorded in the first quarter of 2009, according to the company’s past earnings data.

The second-quarter profit forecast is largely in line with analysts’ expectations for 555 billion Korean won, Reuters reported, citing a Refinitiv SmartEstimate.

Samsung also estimated revenue in the second quarter to be 63.75 trillion Korean won, down 17.4% from 77.2 trillion Korean won a year ago.

The company is set to release its full earnings report on July 27.

During the pandemic-led boom, smartphone and PC manufacturers stockpiled memory chips as demand for consumer devices increased. But those companies are now grappling with excess chip inventories as consumers buy fewer electronics due to rising inflation. As a result, prices for memory chips have fallen.

“Demand remained weak. But now the key is the supply [of memory chips]. Samsung Electronics announced the meaningful production cut in early April so we anticipate [that] in third quarter,” SK Kim, executive director of Daiwa Securities Capital Markets, told CNBC’s “Squawk Box Asia” on Friday.

In April, Samsung said it would be making a “meaningful” cut in memory chip production, following the lead of smaller rivals such as SK Hynix and Micron.

“With that, we assume that the prices can rebound the end of this year or early next year,” said Kim.

Kim furthered added that Samsung and SK Hynix, South Korea’s second-largest chipmaker, may benefit from the additional demand resulting from the U.S. barring sales of Micron products in China. U.S.-based Micron is the third-largest DRAM chipmaker after Samsung and SK Hynix.

“But at the same time, there’s also the weak demand from China because of the uncertainty in production,” said Kim.

The U.S. granted Samsung and SK Hynix one-year waivers to continue importing advanced tools for their China plants. Those exemptions were set to expire in October, but the Wall Street Journal reported a U.S. official said they “would be renewed for the foreseeable future.”

In the first quarter, Samsung reported an operating profit of 640 billion Korean won million, down from 14.12 trillion won a year earlier.

Samsung shares fell 2% in Friday morning trade.