Samsung Elec posts 1st quarterly profit drop in nearly 3 years on falling demand

SEOUL, Oct 7 (Reuters) – Samsung Electronics Co Ltd ( 005930.KS ) posted a worse-than-expected 32 percent drop in quarterly operating profit on Friday as demand for electronic devices and the memory chips that power them shrank due to an economic downturn .

The world’s largest maker of memory chips and smartphones estimated its profit fell to 10.8 trillion won ($7.67 billion) in July-September – the first year-on-year decline in nearly three years – from 15.8 trillion won a year earlier.

Profit was 8.5% below the 11.8 trillion won SmartEstimate from Refinitiv.

Revenue likely rose 3 percent from the same period last year to 76 trillion won, Samsung said in a brief preliminary earnings call.

Samsung is set to announce detailed earnings on October 27.

Samsung’s chip earnings were hurt by falling memory chip prices due to weakening demand for consumer electronics, hit by rising inflation, higher interest rates and the impact of Russia’s invasion of Ukraine, analysts said.

This has led buyers of memory chips, such as smartphone and computer makers, to cut back on purchases and deplete existing inventory, reducing shipments and leading to an industry downturn.

Analysts expect memory chip prices to continue to sink in the current quarter, especially due to falling demand for mobile phones, causing Samsung’s earnings to fall further in the fourth quarter.

Demand for memory chips is not expected to recover until early next year.

Rival Micron Technology ( MU.O ) last week became the first memory chip maker to officially cut investment plans for next year, and bigger rival SK Hynix ( 000660.KS ) hinted at a possible investment cut.

Samsung is not currently discussing a reduction in memory chip production, an executive told reporters in the United States on Wednesday, according to Yonhap news agency.

Analysts said Samsung remains overexposed to demand-driven businesses such as cellphones and displays that are vulnerable to an economic downturn, absent a bigger stake in long-term chipmaking.

“Samsung needs product lines with a high share of long-term deals, exclusive market dominance and a premium brand with high consumer preferences, but it still needs time to get there,” said Greg Roh, head of research at Hyundai Motor Securities.

The foldable screens and advanced foundry processes were “important” in making the company less exposed to the economic downturn, Roh added.

($1 = 1,407.6400 won)

Report by Joyce Lee and Heekyong Yang. Edited by Muralikumar Anantharaman and Richard Pullin

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