Samsung Electronics sees 95% drop in Q2 profit on weak chip business

[Photo by Kim Ho-young]

Samsung Electronics reported a staggering loss of 4.36 trillion won ($3.43 billion) in its semiconductor sector alone for the second quarter of this year, reflecting the global economic slowdown.

However, the semiconductor business seems to be bottoming out given the increase in DRAM shipments and the narrowing of the price decline, suggesting a possible turnaround in the second half of this year.

The company said in a regulatory filing on Thursday that its operating profit for the April-June quarter was 668.5 billion won, a significant 95.26 percent drop from a year earlier. Year-on-year revenue also saw a decline of 22.28 percent, amounting to 60 trillion won, while net income plummeted by 84.47 percent to 1.72 trillion won. These results are similar to the preliminary figures announced on July 7.

The loss narrowed in the semiconductor business, but the Mobile Experience (MX) division saw its profit decline due to lower benefits from new smartphone launches. However, compared to the first quarter, operating profit slightly increased. For the first quarter of 2023, Samsung Electronics recorded an operating profit of 640.2 billion won, a drastic 95.5 percent decline from a year ago, which marks the lowest first-quarter operating profit since 2009.

By division, the company’s Device Solutions (DS), which handles semiconductors, recorded the significant loss of 4.36 trillion won. It is the first time in 14 years since the global financial crisis that the semiconductor division has sustained losses for two consecutive quarters. The total loss in the semiconductor sector for the first half is estimated to have reached nearly 9 trillion won. DS division revenue stood at 14.73 trillion won, indicating a substantial decrease when compared to last year.

Nevertheless, the loss was mitigated by increased DRAM shipments and other factors, leading to a smaller loss than in the first quarter.

Memory chips, particularly DDR5 and high-bandwidth memory (HBM) catered to the demand for artificial intelligence (AI) applications, experienced a surge in shipments, resulting in an improved performance compared to the previous quarter. The inventory levels were confirmed to peak in May before entering a declining trend.

The System LSI sector faced challenges as the recovery in demand for mobile components was delayed, and performance improvements were hampered by customer inventory adjustments.

The foundry sector’s profits were impacted by a decrease in demand for major applications, such as mobile systems.

The Device Experience (DX) division posted an operating profit of 3.83 trillion won over sales of 40.21 trillion won in the second quarter. The Mobile Experience (MX) division, responsible for smartphones, witnessed a decrease in market responses to its flagship product launches amid the global decline in smartphone sales, leading to reduced revenue compared to the previous quarter.

For the second quarter of this year, Samsung Electronics achieved a record 14.5 trillion won in facility investments, with the semiconductor sector accounting for 13.5 trillion won and the Display (SDC) sector for about 600 billion won.

Research and development expenses came to 7.2 trillion won for the quarter, setting another record high after the first quarter.