Samsung Electronics Co. Ltd. confirmed in an earnings report that its operating profit plummeted by 95%, hitting a 14-year low in the second quarter.

The company, which is the world’s biggest maker of smartphones and dynamic random-access memory chips found in personal computers and other devices, reported revenue of 60.01 trillion won (around $47.21 billion) in the quarter. That’s down 22% from a year earlier and below the 60.8 trillion won analyst forecast.

Meanwhile, its operating profit fell to just 670 billion won, ahead of its own forecast of 600 billion won but down significantly from a year earlier. The company had forecast the drop earlier this month, before confirming its official earnings results today.

Samsung said in its results that its memory chip business was suffering from severe headwinds this year. In the past few quarters, the price of DRAM modules has fallen dramatically, weighing on the company’s profit margins.

Demand is down because smartphone and personal computer makers are struggling to shift excess inventories of memory chips and flash memory that were stockpiled to meet increased demand during the height of the COVID-19 pandemic. The market is also hampered by inflation, leading to consumers spending less on electronic devices.

As a result, Samsung said, the chip business drove revenue of just 14.73 trillion won and operating losses of 4.36 trillion won during the quarter.

Samsung recently said it’s optimistic about “limited demand recovery” in the memory chip market in the second half of 2022. It believes that new smartphone launches and PC promotions may help to improve consumer demand and therefore enable it to shift more memory chips in the coming months.

Despite this, Samsung has been taking steps to protect itself against the economic downturn, announcing plans earlier in the year to reduce production of memory chips “meaningfully.” By doing so, Samsung hopes to drive an increase in chip prices. Its move has been mirrored by other chipmakers, such as SK Hynix Inc. and Micron Technologies Inc., which are its main rivals in the memory chip business.

“It’s tough being in memory these days, because it’s the most volatile part of the chip market,” said Objective Analysis analyst Jim Handy. “Samsung is the biggest memory chip maker, so it has the greatest exposure to a market downturn, and we see that now.”

Samsung is also the world leader in smartphones, but that business has been struggling too. Samsung reported that its Mobile eXperience and Networks business generated 25.55 trillion won in sales, with an operating profit of 3.04 trillion won.

The company explained that overall market demand for smartphones declined compared to the previous quarter due to ongoing macroeconomic concerns. As a result, sales of its new flagship phone the Galaxy S23 faded after a good start in the first quarter, officials said.

Looking forward, Samsung has high hopes of a boost in sales following the launch of its new Galaxy Z Flip 5 and Galaxy Z Fold 5 smartphones (pictured below), which were announced at its Samsung Unpacked event today. There, it also revealed a new Galaxy Tab S9 lineup, and a pair of Galaxy Watch 6 models.

As the names suggest, the Z Flip 5 is a flip-phone-style foldable device, while the Z Fold 5 is a tablet-style foldable. Both designs feature upgrades including a new “Flex Hinge” that allows them to close completely flat like the Google Pixel Fold. They also come with higher storage than previous-generation models.

Samsung said the MX business will focus on these devices, which offer “refined and differentiated experiences” as part of its strategy to turn around the smartphone businesses’ fortunes.

The MX Business will also focus on boosting sales of its tablets and wearables, with a strong focus on its new high-end models, which were announced this week at the Galaxy Unpacked event. It will also heavily promote its new tablets and wearables as it aims to grow the MX businesses’ revenue and achieve double-digit profitability by the end of the year.

Photo: Samsung