UPDATED 23:03 EDT / OCTOBER 10 2023

APPS

Samsung forecasts 78% drop in profit, but its stock rises as investors see signs of recovery

South Korean technology giant Samsung Electronics Co. Ltd. said late today it’s expecting its third-quarter operating profit to fall 78% from the same period last year.

The forecast would mean Samsung misses analysts’ expectations, at a time when its flagship semiconductor business continues to struggle with the chipmaking industry downturn. The company said in its preliminary earnings forecast that it’s expecting an operating profit of 2.4 trillion won ($1.79 billion) in the July-to-September quarter. That compares with a profit of 10.85 trillion won over the same period a year earlier.

The forecast came in below the FactSet market consensus estimate of 2.826 trillion won. However, Reuters reported that Samsung’s forecast did beat the 2.1 trillion won LSG SmartEstimate consensus, which is weighted toward predictions from analysts who have consistently been more accurate. That may have been what prompted Samsung’s stock to rise more than 4% in the early trading session.

Although the profit is down some way from a year earlier, it came in above Samsung’s first- and second-quarter numbers of of 640 billion won and 670 billion won, respectively. Samsung’s forecast also revealed that its revenue is likely to fall 13%, to 67 trillion won, in the third quarter.

Samsung’s profits have been hit by a global economic slowdown that has contributed to lower demand for consumer goods and enterprise information technology hardware. As a result, Samsung and other chipmakers have cut back on chip production to try and combat the falling prices in the industry. Samsung’s chip business, which is by far its biggest unit, reported losses of 4.58 trillion won and 4.36 trillion won in the first two quarters of 2023.

Samsung has responded by cutting back semiconductor output to reduce global inventories and support memory chip prices, while at the same time increasing output of its more advanced computer chips to meet rising demand for artificial intelligence services.

Those efforts are likely to have paid off, at least to an extent. Samsung didn’t offer any insights into the performance of its chip business today, but analysts forecast that its loss will shrink to about 3 trillion won because of a focus on more expensive, higher-end chips for AI. Analysts say production cuts for Samsung’s legacy chips have helped prices to rebound in the last few months.

The sequential profit increase may have resulted partly from a stronger showing in Samsung’s mobile and display businesses, which traditionally perform better in the third quarter. This is the time of year when Samsung launches new flagship smartphones and sees increased demand for display panels.

“The full earnings report will show us the dynamics of these segments, but it’s clear Samsung has made progress in its chip business compared to the previous two quarters,” said Holger Mueller of Constellation Research Inc. “The next quarter will be key to seeing if Samsung is really on the mend.”

Samsung is expected to announce its full quarterly results, including a breakdown of each unit’s performance, by the end of the month.

Photo: Samsung Electronics

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