Samsung's profit plunges 95% on slump in chip industry

Revenue for the second quarter declined more than 22% annually

Research and development buildings at the Samsung Digital City in Seoul. The company expects the semiconductor market to stabilise. Alvin R Cabral / The National

Samsung Electronics reported a 95 per cent annual drop in profit in the second quarter, its worst since at least 2009, underpinned by a loss in its key semiconductor division.

Operating profit in the three months ending June fell to 670 billion won ($524.8 million), the world's biggest mobile phone and memory chip manufacturer said on Thursday.

Its result exceeded the 600 billion won profit Samsung had indicated in a guidance statement earlier this month.

Revenue for the quarter declined more than 22 per cent year-on-year to 60 trillion won.

The revenue figure matched Samsung's own guidance but was below the 60.8 trillion won estimates from analysts, according to Refinitiv.

Samsung's semiconductor division swung to a 4.36 trillion won loss in the second quarter, from a profit of 9.98 trillion won a year ago.

“As server customers continued inventory adjustment, overall purchase demand [for memory chips] had not yet recovered,” Samsung said.

The company pointed out, however, that the “strong demand” for generative artificial intelligence led to higher-than-guided dynamic random access memory (Dram) shipments, in anticipation of more widespread use of the emerging technology.

“Due to the strong demand for generative AI … investment from the data centre sector was concentrated on AI servers,” it said.

Shares of Samsung were up 2.15 per cent in midday trading in Seoul on Thursday, and are up nearly 30 per cent year-to-date.

The semiconductor industry had a record 2021, enabling Samsung to post a nearly 130 per cent annual profit growth that year.

The company was hit late last year by weak consumer demand, fuelled by recession and inflation worries, which resulted in excess chip supply that affected prices.

Samsung, its Korean rival SK Hynix and Micron, the top US chipmaker, have all said they will be cutting chip production.

The company, however, expects the semiconductor market to “gradually move towards stability considering increasing production cuts in the industry, while inventory adjustments by customers are likely to wind down”.

At Samsung's mobile unit, which counts its Galaxy line-up of smartphones, operating profit surged more than 16 per cent to 3.04 trillion won in the second quarter on the strength of its Galaxy S23 series, despite a slowdown in the overall smartphone market, the company said.

Revenue at the division dropped nearly 13 per cent to 25.6 trillion won.

The company is seeking to cement its top position in the smartphone market with its new foldable devices, the Galaxy Z Fold5 and Flip5, which were introduced in Seoul on Wednesday.