October 7th news, on Friday local time, South Korea's Samsung Electronics Company announced its preliminary financial report for the third quarter ended September 30, 2022. According to the financial report, Samsung 's revenue in the third quarter was 76 trillion won (about US$53.8 billion), 's year-on-year increase of 2.73%; operating profit was 10.8 trillion won (about US$7.7 billion), a year-on-year decrease of 31.7%.
This is the first time Samsung has reported a quarterly profit decline in since the end of 2019. The main reason is that the memory chip industry is declining sharply. Samsung said in a statement that as of the end of the third quarter, operating profit fell to 10.8 trillion won, far below analysts' previous average estimate of 12.1 trillion won (about 8.6 billion US dollars). Revenue was also lower than expected, with analysts' average estimate of 78.5 trillion won (about $55.6 billion).
In recent weeks, global memory chip manufacturers have warned that orders from data center and consumer technology customers are facing a more severe market situation as inventory increases, following further weakening demand for personal computers and smartphones. Micron and Kioxia are cutting production, trying to regain balanced supply and avoid price plunges. "Samsung's revenue from DRAM and NAND chips may decrease in the third and fourth quarters, after Micron and Kioxia reported weak sales and outlook and reduced factory output. Unless demand for smartphones and PCs recovers, it looks like Samsung may reduce capital expenditures in 2023." Data released by the Korea Statistics Bureau shows that South Korea has two of the world's largest memory chip manufacturers, and chip production fell for the first time in more than four years in August. Hynix (SK Hynix) said on its last earnings call that major adjustments to capital expenditures next year are "inevitably".
Before the sudden collapse of the memory chip market, a series of macroeconomic shocks occurred, including global inflation, soaring natural gas prices, and Fed rate hikes , etc. Consumer confidence deteriorates rapidly, and memory buyers such as PC manufacturers have reduced orders and are using existing stocks.
Although demand for electronic products has dropped sharply this year, Morgan Stanley raised the semiconductor industry rating early this week, which pushed up the stock prices of Samsung and Hynix as markets expected to rebound in the second half of 2023.
Nevertheless, Kyung Kyehyun, head of Samsung's chip business, said the memory chip market is unlikely to find momentum for recovery throughout next year. Compared with April's forecast, Samsung lowered its chip sales forecast for the second half of this year by 32%.
Analysts expect memory chip prices to continue to plummet in the fourth quarter, especially as mobile demand drops further in Samsung's fourth-quarter profits.
HI Investment&Securities analyst Song Myung-sup pointed out that DRAM and NAND chip prices fell 15% in the third quarter. "As a result of extremely low demand, customers began to reduce inventory from the end of the second quarter. In addition to some large tech companies, customers are still cutting chip orders sharply despite the sharp price cuts."
However, Samsung executives said the company has not discussed the issue of memory chip production cuts yet. Analysts have said that Samsung's lack of a larger share of its long-term chip foundry business, its exposure to demand-dependent businesses such as mobile phones and screens remains too large, which are vulnerable to economic downturns. "Samsung needs a high-share long-term agreement, exclusive market dominance and high-end brand product line with high consumer preferences, but it still takes time to achieve these goals," said Greg Roh, head of research at Hyundai Motor Securities. He added that foldable displays and advanced process craftsmanship are “critical” for the company to reduce the impact of the downturn.
Samsung Electronics has always maintained a leading position in the memory chip market since 1993. According to market research agency Omdia, Samsung Electronics' share of DRAM market (based on 2021) is 42.7%, with Hynix (28.6%) and Micron (22.8%) following closely behind.
In the NAND field, Samsung Electronics has a market share of 33.9%, while Kioxia, Japan and Western Digital in the United States have a market share of 18.9% and 13.9% respectively. Hynix and Micron recently launched NAND technology with more than 200 layers, while Samsung's 7th-generation NAND chip has only 176 layers. Samsung said it will start producing around 230 layers of 8th generation chips later this year and plans to mass-produce 1,000 layers of chips starting from 2030.
Source: Lizhi.com
