Samsung Prepares for Dismal Profits Ahead of Q4 Earnings Later This Month

This is far below earlier predictions, as the South Korean company feels the impact of a weakening worldwide market for consumer electronics.

According to Samsung, operational profit for the October–December quarter is probably going to be around 2.8 trillion South Korean won ($2.13 billion), which is 35% less than what the company recorded for the same time last year when the result for the period was 4.31 trillion won.

Samsung is the leading global manufacturer of dynamic random-access memory (DRAM) chips, which are used in consumer electronics like smartphones and PCs. The price of memory chips saw a significant decline last year due to an abundance of unsold stock after the Covid pandemic, and a lack of demand as high inflation and interest rates squeeze consumer budgets.

Major Manufacturers Remain Upbeat for 2024

Many chip manufacturers were forced to cut their production back last year as demand for end products waned, but there is still plenty of optimism for the coming years as AI is set to take off even further.

SK Hynix, the second largest DRAM Manufacturer with a market share around 35%, is aiming to double its market value to 200 trillion won ($152 billion) in the next three years. At a press conference in Las Vegas this week, the company suggested it was banking on the increasing demand for memory chips for artificial intelligence to fuel even more sustainable growth.

The chipmaker also made hints that it would start up full production of DRAM in the first quarter at the latest and NAND in the second half of this year, and it also downplayed worries about potential negative effects on its company from the U.S.-China semiconductor battle.

Micron, another major competitor in the same space, suggested recently that it anticipates that the supply of chips for personal computers, mobile devices, and other applications will reach typical levels by the first half of this year. During a conference call, CEO Sanjay Mehrotra said that memory prices, which saw a decline this year, are expected to recover in the next year and continue to increase into 2025.

Taiwan Semiconductor Manufacturing Company, the biggest contract chipmaker globally, also recently forecasted that the chip industry may soon recover from its current downturn. The company that manufactures cutting-edge CPUs for firms such as Apple and Nvidia, suggested that a surge in demand for AI processors has been fueled by the widespread use of big language models like ChatGPT among others.

Is Samsung Set to Rebound After Q4?

Samsung’s profit warning comes a few weeks ahead of its actual earnings report, which is scheduled for the 31st January. Its projected profits fall well short of industry expert forecasts, which had the company posting around 3.7 trillion won for the quarter.

Less than exciting results aren’t new for Samsung lately though, as the company also saw a significant decline in operating profit during the third quarter of last year, with a decrease of almost 77% compared to the same period in the previous year. They also reduced their projected production of memory chips due to a 95% decline in profitability during the previous quarter.

On a positive note, data provider, TrendForce, reports that as manufacturers have been more strictly controlling production and output, mobile DRAM chip costs had an expected increase of 18%-23% in the fourth quarter, while mobile NAND flash chip prices grew by 10%-15%.

Investors will be interested in learning about Samsung’s future investment strategies, namely in the field of AI, since the business has fallen behind its competitors in two of the most significant sectors in the industry: chip contract manufacturing and AI chip-related technologies.

It could be that the recovery for the memory market will take a little longer than expected for Samsung, but with inflation and interest rates still high, a large part of the problem remains.

In the upcoming week, journalists and investors will have the opportunity to get insights into the company’s projects underway at the “Unpacked 2024” event. Of particular interest is the exploration of the company’s generative AI model and the question of its potential integration into all Samsung phones in the future or reserved exclusively for premium models.

After reaching its highest level since December 2021 at 79,800 KRW on January 2, 2023, Samsung’s stock experienced a decline of over 7.70%. This decrease came after a robust annual performance, with Samsung showing an gain of more than 37% in 2023.

The fall followed a period during which the Relative Strength Index (RSI) was trading in overbought conditions. The downward trend intensified in the last two days, aligning with the company’s announcement of an anticipated quarterly profit decrease, primarily attributed to sluggish demand.

The share price is currently trading below both the Tenkan and Kijun lines of the Ichimoku indicator. However, they remain positioned above the cloud, and the Lagging Span continues to stay above both the other lines of the indicator and the current price. Concurrently, the RSI is exhibiting a downward trend, but it is situated just below its neutral level.

Disclaimer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

ActivTrades Corp is authorised and regulated by The Securities Commission of the Bahamas. ActivTrades Corp is an international business company registered in the Commonwealth of the Bahamas, registration number 199667 B.

The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.

Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.