Samsung's quarterly profit falls to 8-year low amid diminishing demand
Samsung Electronics has announced its preliminary estimates for the quarter that ended in December, and it is not pretty. The South Korean company's profits plummeted to an eight-year low of $3.4 billion, per estimates. The dismal show by the company is attributed to slowing global demand for memory chips and smartphones due to macroeconomic headwinds.
Why does this story matter?
- In 2022, we saw technology companies posting some astonishingly low quarterly numbers. If its estimates are right, Samsung Electronics will join that list.
- As the macroeconomic pressure continues to increase with no sight of improvement in the near future, we will see more firms joining this list.
- The pertinent question is, how will this affect the company's expenditure toward innovation?
Samsung's revenue likely fell by around 9% year-over-year
Per Samsung's earnings guidance for Q4 of 2022, the company likely saw consolidated sales of 70 trillion Korean won ($55 billion) in the quarter, which is down around 8.6% year-over-year. The estimated operating profit for the quarter is 4.3 trillion Korean won. In the same quarter last year, it was 13.87 trillion Korean won, indicating a 69% year-over-year slump.
The profits are expected to go further down this quarter
Samsung's estimated profit for the last quarter is the company's smallest since the third quarter of 2014. Unsurprisingly, it fell short of analysts' expectations of around 6 trillion Korean won. The company's numbers are projected to shrink even further this quarter. Samsung's quarterly numbers have always been a bellwether for global consumer demand. The current numbers don't fare well for other tech companies.
Decline in demand for memory chips was more than expected
The poor quarterly result of the consumer electronics giant is predominantly tied to the fall in demand for memory chips. "For the memory business, the decline in fourth-quarter demand was greater than expected as customers adjusted inventories in their effort to further tighten finances...," Samsung said in a statement. Manufacturers and vendors are forced to reduce the prices of chips amid falling demand.
Demand for smartphones has fallen
Another major contributing factor to Samsung's poor quarter was the fall in demand for smartphones. Smartphone sales and revenue decreased owing to prolonged macroeconomic issues. Samsung was also hurt by the geopolitical tension between the US and China. Companies that are stuck between both are required to navigate troubled water without hurting their business interests in either.