According to news on October 10, due to the continued oversupply of global chips, Samsung Electronics' "cash cow" business may suffer huge losses in the third quarter, and operating profit is expected to drop 80% from the same period last year. Samsung Electronics, the world's largest maker of memory chips, smartphones and televisions, will report preliminary third-quarter results on Wednesday.
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A survey of 19 analysts by LSEGSmartEstimate showed that in the third quarter, Samsung Electronics' operating profit may fall to 2.1 trillion won (approximately US$1.56 billion). By comparison, operating profit in the fourth quarter of last year was 10.85 trillion won (approximately $8 billion).
Samsung's sharp decline in operating profit comes as Samsung Electronics' chip unit, traditionally the company's largest source of revenue, could suffer a quarterly loss of between 3 trillion and 4 trillion won ($2.2 billion to $3 billion) as memory chip prices fail to recover as quickly as some had expected.
Analysts said Samsung's cuts in chip production also hurt economies of scale and increased chip manufacturing costs.
After first announcing production cuts in April, analysts said Samsung slashed more output in the third quarter to reduce inventory and endure the worst industry downturn in decades caused by a glut of chips.
Samsung rival Micron Technology last month forecast it would also post a third-quarter loss, raising concerns about a weak recovery in end markets such as data centers for the memory chip maker.
Smartphone and PC makers have been reluctant to buy new memory chips for months amid fears of an economic downturn, choosing instead to prioritize using existing inventory. Analysts say inventories at these companies are now low enough that demand is expected to rebound early next year.
KBSecurities said in a report late last month that Samsung recently received its first server memory chip order from a North American data center company in a year, raising hopes that data center customers will also start buying chips again.
While demand for memory chips used in artificial intelligence, such as high-bandwidth memory (HBM), is strong, Samsung Electronics lags behind rival SK Hynix in developing such chips and attracting customers such as Nvidia, the leader in AI chips.
Operating profit at Samsung's mobile business is likely to be around 3 trillion won ($2.2 billion), according to the average forecast of five analysts, as the company launched a high-end foldable smartphone in the quarter, boosting sales amid a sluggish global smartphone market.