Samsung’s profits plunge as memory chip prices slump, demand wanes

Samsung, the global technology giant, is bracing for its worst profit in 14 years as the prices for memory chips, its main business, continue to plummet and demand remains weak. 

Earlier this month, the South Korean company projected an operating profit of 600 billion Korean won ($449 million) for the first quarter (January to March), its lowest since the first quarter of 2009.

According to data from the International Data Corporation (IDC), PC shipments witnessed a steep 29 percent year-on-year decline in the first quarter, reflecting the downturn in the consumer electronics market. This downturn has led to a drop in the prices of memory chips over the past few months, exacerbated by high inventories and lackluster demand.

“The memory market is currently going through one of the worst slumps in decades, with slowdowns in consumer electronics and traditional server markets, despite the growth in the electric vehicle (EV) segment,” noted CrispIdea in a recent research note quoted by CNBC.

As the COVID-19 pandemic peaked, demand for consumer electronics surged as people stayed home and relied on technology for work and entertainment. Electronics companies, including Samsung, stocked up on memory chips to meet the increased demand. 

However, the situation has changed drastically now, as buyers are cutting back on purchases due to inflation and broader macroeconomic concerns, resulting in a glut of memory chips in the market.

Analysts at Mirae Asset Securities estimate that Samsung’s chip division could incur a loss of 4.4 trillion Korean won in the first quarter alone. 

In response to the challenging market conditions, Samsung announced a cut in production of its memory chips to a “meaningful level” this month, reversing its earlier stance of maintaining output levels. This move follows the footsteps of rivals SK Hynix and Micron, who had also reduced production to address the weakening demand.

Samsung, which has been a key player in the global technology industry for years, is facing formidable challenges in the memory chip market due to the rapidly changing economic landscape. The company’s ability to navigate through these difficult times and adapt to the evolving market dynamics will be closely watched by investors and industry experts alike as it seeks to regain its profitability and market share in the highly competitive industry.