Samsung's quarterly profit dives to 14-year low on chip glut

Samsung Electronics is expected to post its worst quarterly operating profit in 14 years Friday as a chip glut continues amid sluggish demand.

Samsung Electronics' Seocho office [YONHAP]

Samsung Electronics is expected to post its worst quarterly operating profit in 14 years in April-June period as a chip glut continues amid sluggish demand.

Its second-quarter operating profit was estimated at 600 billion won ($458 million), a 95.7 percent drop from the previous year, according to earnings guidance announced Friday.

The figure is the lowest since Samsung Electronics posted an operating profit of 590 billion won in the first quarter of 2009 in the aftermath of financial crisis.

The forecast, however, beat market consensus by a wide margin, which expected the Korean chipmaker's quarterly operating profit to come to 281.8 billion won.

Analysts speculate that better-than-expected profit derived from recovered demand for dynamic random access memory, known as DRAM, with a rise of about 20 percent compared to the previous quarter.

The breakdown of each division wasn’t disclosed Friday, but analysts estimate its DS division which is responsible for chip business to have incurred operating loss between 3 trillion won and 5 trillion won in second quarter.

Its DX division responsible for mobile and other gadgets is expected to have compensated by posting an operating profit of between 2 trillion won to 4 trillion won.

The display division was forecast to have posted operating profit slightly short of 1 trillion won, coming in at between 700 to 800 billion won.

The consumer electronics business was set to have raised operating profit of between 500 billion won to 600 billion won.

Samsung Electronics’ second-quarter sales were projected to come to 60 trillion won, posting a 22.3 percent on-year drop, according to the Friday forecast.

Analysts expected a recovery to ensue from the third quarter.

Samsung Electronics was hit hard in the first quarter by low demand for chips as people purchased fewer gadgets while being pressured by high inventories. Samsung Electronics, consequently, resorted to cutting production of its memory chips to a “meaningful level.”

"The effect of production cut will be observable from the third quarter, and the demand has hit its lowest point," Han Dong-hee, an SK Securities analyst, said.

"It means that chip price will bounce back and inventory valuation loss will downsize, leading to its earnings to recover faster than the industry.”

Price decline of DRAM, used in smartphones, PCs and servers, is also expected to slow down from the second half.

DRAM price is estimated to have fallen by 13 to 18 percent in the second quarter, according to TrendForce projection, but it will slow down to 0 to 5 percent in the third quarter, primarily due to production cutbacks.

Samsung Electronics shares closed at 69,900 won Friday, down 2.37 percent from the previous day.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]