Samsung’s fourth-quarter profit fell 69% on stagnant demand, the lowest since 2014

The world’s largest maker of mobile phones and memory chips said its operating profit in the October-December period shrank 69 percent from a year earlier to an eight-year low of 4.3 trillion won ($3.49 billion).

It’s the tech giant’s lowest quarterly operating profit since the third quarter of 2014, and 18.6 percent lower than the median estimate of Yonhapax Infomax, the financial data firm of Yonhap News Agency.

The company said sales fell 8% to 70.46 trillion won for the three months ended Dec. 31.

“The business environment deteriorated significantly in the fourth quarter due to weak demand amid a global economic slowdown,” the company said in a statement.

Samsung’s chip business, which accounted for about 56 percent of the tech company’s total profits a year ago, has been hit hard as semiconductor buyers cut spending amid rising inventories, and a glut of supply sent chip prices down.

The business reported 0.27 trillion won in operating profit, down a whopping 96.9 percent from last year’s 8.84 trillion won. Sales fell to 20.07 trillion won from 26.01 trillion won.

“Overall memory demand weakened as customers continued to adjust their inventories amid increasing uncertainty in the external environment,” Samsung said.

Global memory chip revenue fell 10 percent year-on-year last year, technology research firm Gartner said, as electronic equipment manufacturers “began to deplete memory stocks they had been holding in anticipation of increased demand.”

In the second half of last year, consumers also began “cutting spending, as demand for computers and smartphones suffered, and then companies began cutting spending in anticipation of a global recession, all of which affected semiconductor growth in general.”

Samsung Electronics Vice President Han Jung-Hee predicted continued macroeconomic challenges throughout the year.

He said in a briefing during CES 2023 in Las Vegas earlier this month: “Samsung was hit hard by deteriorating external factors, such as weak demand and rising costs.”

“I believe this challenging business environment will continue this year as a prolonged economic slowdown and risks in supply chains add to the uncertainty.”

Samsung’s foundry business, or contract chip manufacturing, reported record quarterly sales and increased year-over-year profits on the back of “advance expansion in node capacity, as well as diversification of customer base and application areas,” the company said, without providing exact numbers.

Samsung’s mobile business reported sales of 26.9 trillion won and 1.7 trillion won in operating profit for the fourth quarter.

“Market demand for smartphones remained weak in the latest quarter, with the overall market contracting sharply due to persistent inflation and geopolitical instability,” Samsung said.

“The impact of the decline in mass market smartphone sales was greater than previously anticipated, while flagship sales held up well compared to market expectations.”

It warned that global demand for smartphones would contract in 2018 largely due to slowing demand for mass-market models.

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