Samsung Electronics optimistic despite dramatic earnings drop

Samsung Electronics suffered a $3.4-billion operating loss in chips in the first quarter amid weak electronics demand worldwide driven by macroeconomic uncertainties. It is the company's first operating loss in the semiconductor business since 2009.

Samsung Electronics logo shown at the company's office building in Seocho, southern Seoul [NEWS1]

Samsung Electronics suffered a $3.4-billion operating loss in chips in the first quarter amid weak electronics demand worldwide driven by macroeconomic uncertainties.

It is the company's first operating loss in the semiconductor business since 2009.

The world’s largest memory chip supplier expects its inventory levels to shrink starting from the second quarter, following the production cut announced on April 7.

Samsung Electronics on Thursday posted a quarterly net profit of 1.57 trillion won ($1.17 billion) in the January-March period, a whopping 86-percent decline on year.

The operating profit dropped 95 percent in the first quarter to 640 billion won.

The figure exceeded the preliminary 600 billion won published by the company on April 7 and fell far short of the market expectation of 1 trillion won compiled by FnGuide.

Sales in the first quarter came in at 63.75 trillion won, in line with the company's forecast and below analyst expectations of 64.2 trillion won.

The Device Solution division, which deals in the production and sale of semiconductors, swung to red with an operating loss of 4.58 trillion won compared to the quarterly profit of 8.45 trillion won in the same period last year. Sales dropped 49 percent on year to 13.73 trillion won.

The company expects its inventory level to go down starting the April-June period.

“We have already started lowering down our productions,” Kim Jae-june, the company's executive vice president of memory business, said during a conference call Thursday.

“Therefore, our inventory levels are expected to start to decline from the second quarter, and such reduction is expected to expand in the second half.”

The production cut is mostly in “legacy-node products,” according to Kim, as demand for older node products is expected to stay relatively sluggish.

Kim said that Samsung Electronics is expecting chip demand to recover in the latter half of the year.

“The demand is expected to gradually recover in the second half of this year as customer inventory levels will have a decline due to inventory adjustments that have been occurring since last year,” Kim said.

The average selling prices of DRAMs plunged 20 percent in the first quarter and will likely go down by 10 to 15 percent in the second quarter, according to Taiwan's TrendForce.

In the Device eXperience division, which includes the handset and home appliance businesses, operating profit fell 8 percent on-year to 4.21 trillion won. Sales declined 4 percent to 46.22 trillion won.

Its smartphone and network device business grew 18 percent on strong sales of Galaxy S23 smartphones, according to the company.

The company reported 10.7 trillion won in capital expenditure, a record for a first quarter, as well as an all-time record of 6.58 trillion won in research and development.

Samsung Electronics said that it will continue to invest in its memory business on a similar scale compared to the previous year in order to secure long-term competitiveness in the market.

The company is also "studying various possibilities and scenarios" to minimize geopolitical risks in light of the recent U.S. CHIPS and Science Act, according to its executive vice president of relations Ben Suh.

The law requires non-U.S. chipmakers to disclose sensitive business data to receive subsidies.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]