As earnings plunge, Samsung says chip demand may recover in late 2023


FILE PHOTO: Samsung signage is seen in a store in Manhattan, New York City, U.S., November 22, 2021. REUTERS/Andrew Kelly

SEOUL (Reuters) - Samsung Electronics Co Ltd reported a 31% drop in third-quarter profit on Thursday and said geopolitical uncertainties are likely to dampen demand until early 2023, as the global economic downturn slashed appetite for electronic devices.

The world's top maker of memory chips and smartphones said that despite the headwinds in the global economy, demand for its semiconductors may recover in the second half of next year as new data centres and computers require more memory.

"We are not considering an artificial production cut," said Han Jin-man, executive vice president of memory business at Samsung.

"Market demand has contracted right now, but ... we need to prepare for mid- to long-term demand recovery."

Samsung said it did not expect any change to its 2023 memory chip investment plans, in contrast to smaller rival SK Hynix, which on Wednesday warned of an "unprecedented deterioration" in memory chip demand and slashed 2023 investment by more than 50%.

For NAND flash chips, Samsung forecast the market may not recover in 2023, but said it planned to utilise its "superior" cost structure to "generate demand".

"Samsung seems to be saying it will use this downcycle to push out other NAND flash firms like SK Hynix and Kioxia," said Park Sung-soon, analyst at Cape Investment & Securities.

Shares in Samsung were flat in early afternoon trade, but SK Hynix shares fell 3.6%. The wider market was up 1.3%.

ECONOMIES OF SCALE

Although Samsung's fourth-quarter earnings are expected to dip further as memory chip prices continue to fall, Samsung will be better able to defend profits than peers due to economies of scale, analysts said.

Samsung is expected to keep capital expenditure cuts to a minimum in 2023 versus 2022 - at about 5% for memory chips - to continue its migration into more advanced manufacturing, which will initially curtail supplies of certain chips due to new production process, said Daishin Securities analyst Wi Min-bok.

This differs from rivals SK Hynix or Micron Technology's plan to potentially cut investment by more than 30% next year.

Samsung's operating profit fell to 10.85 trillion won ($7.7 billion) for the July-September quarter, from 15.8 trillion won a year earlier, the first year-on-year decline in nearly three years as its chip business profit fell to 5.12 trillion won from 10.07 trillion won a year earlier.

That was in line with Samsung's own estimate of 10.8 trillion won earlier this month. Revenue rose 4% to 76.8 trillion won.

Samsung said profit in its mobile business fell slightly to 3.24 trillion won from 3.36 trillion won a year earlier, as a market downturn was offset by firmer demand for high-end smartphones and newly launched wearables.

Samsung forecast 2023 mobile demand could recover slightly from 2022, and said it planned to focus on its flagship and foldable smartphones to harness comparatively robust appetite for premium products.

Meanwhile, Samsung's de facto leader Jay Y. Lee was named executive chairman on Thursday, a symbolic move confirming that South Korea's most valuable company will be officially run by the third generation of its founding family.

($1 = 1,416.8000 won)

(Reporting by Joyce Lee and Heekyong Yang; Editing by Stephen Coates)

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