Samsung Q3 profit slides 31% as weaker demand hits semiconductor business

The company expects demand to recover 'partially' in 2023, but warns macroeconomic uncertainties will continue

Profit at Samsung's mobile division, which includes its flagship Galaxy smartphones, dropped in the third quarter, but revenue climbed, driven by new device launches. AFP

Samsung Electronics, the world's biggest mobile phone manufacturer, reported a 31 per cent drop in its third-quarter net profit as weak demand in consumer electronics hit its semiconductor business.

Profit in the three-month period to the end of September fell to 10.85 trillion won ($7.7 billion) from a year earlier, the Seoul-based company said on Thursday.

Its semiconductor business, which has been a critical driver of growth, saw profit plunge by nearly half to 5.12tn won from 10.06tn won in the same period of 2021. The company cited weak demand for consumer products and inventories exceeding market expectations as reasons for the slide.

"The company plans to align its supply strategy with the mid-term market outlook, taking into account the limited overall production in the industry," Samsung said.

Demand is expected "to recover partially in 2023 but macroeconomic uncertainties to persist", it said.

Revenue in the third quarter, however, hit a new record, climbing more than 3 per cent to about 77tn won from 74tn won a year earlier, the company said. It expects annual revenue to surpass the record it set in 2021.

Samsung warned of the profit slump on October 7. Its results were largely in line with the warning, though revenue fared slightly better.

The company's shares were little-changed after the release of the results and were up about 0.4 per cent in noon trading in Seoul.

Samsung released its results the same day as it announced that de facto leader Lee Jae-yong would be promoted to chairman after receiving a presidential pardon in August following a conviction for fraud.

"Our survival depends on future technologies. We can turn this crisis into opportunity," Mr Lee said, according to the Yonhap news agency.

Samsung, the manufacturer of the Apple iPhone's rival Galaxy series, is also one of the world's top semiconductor makers and has benefitted from a surge in demand for chips during a shortage in the industry.

Lee Jae-yong, Samsung's new chairman, leaves a Seoul court after his trial related to violations of Capital Market Financial Investment Business Act. AFP

The Covid-19 pandemic caused an unprecedented surge in demand for consumer electronics, catching the industry by surprise and upending supply chains, causing shortages.

The semiconductor industry had a record 2021, with sales rising 26 per cent to $556bn, its highest annual total yet, the Semiconductor Industry Association reported. A record 1.15 trillion semiconductor units were shipped last year, it said.

The market was projected to reap nearly 14 per cent more in revenue this year compared to 2021 and reach $676bn, research firm Gartner said.

But a decline in demand for electronics has the chip industry bracing for a potential repeat of 2020, as consumers feel the pinch of the effects of soaring inflation, higher interest rates and the disruption caused by Russia's military offensive in Ukraine.

Shipments of personal computers dropped 15 per cent year-on-year to 70 million units in the second quarter, the lowest level since a similar disruption occurred in the first quarter of 2020 when the pandemic started to take hold, research firm Canalys said.

Smartphone shipments in the three-month period that ended in June, meanwhile, declined 9 per cent annually, also because of weaker demand, it said.

The company plans to align its supply strategy with the mid-term market outlook, taking into account the limited overall production in the industry

Samsung Electronics

Third-quarter profit at Samsung's mobile division, which includes its flagship Galaxy smartphones, dropped about 3.6 per cent annually to 3.24tn won from 3.36tn won.

Revenue, however, jumped by more than 13 per cent to 32tn won from 28tn won a year ago, driven by the launches of new smartphones and wearable devices. Samsung is expected to unveil the next iteration of its Galaxy S smartphone in the first quarter of 2023.

The company's mobile display unit posted profit of about 1.98tn won in the second quarter, up about a third from a year ago, with revenue improving by 6 per cent.

In its visual display and appliances division, profit dived by two thirds to 250 billion won, but revenue improved by about 4.6 per cent per cent annually to 14.75tn won.