Samsung Electronics, the global tech giant, is set to announce an 80% drop in its operating profit for the third quarter of this year, down to $1.56 billion. This staggering decline is primarily attributed to the persistent chip glut affecting the company’s core business. Industry analysts had expected a downturn, but the extent of the losses has taken many by surprise.
Samsung is facing a significant setback in its chip division, historically the company’s most lucrative sector. The chip division is anticipated to report losses ranging from 3 trillion to 4 trillion won, primarily due to stagnant memory chip prices that failed to rebound as swiftly as anticipated. This slowdown in demand led to a surplus of chips in customer warehouses, prompting manufacturers to delay new purchases. Consequently, Samsung’s decision to curtail memory production further exacerbated the situation, impacting economies of scale and increasing chip manufacturing costs.
To counter the ongoing chip surplus, Samsung implemented production cuts earlier this year, reducing inventory and navigating through one of the most challenging periods the industry has faced in decades. However, this strategy has not been without consequences. The company’s profits have suffered due to decreased sales and increased production costs.
In the mobile devices segment, Samsung fared relatively better, posting an operating profit of approximately $2.2 billion for the third quarter. The introduction of foldable smartphones in the premium segment provided a silver lining amid the overall gloomy outlook for the smartphone market.
Despite these challenges, there are glimmers of hope on the horizon. Recently, Samsung secured a contract to supply memory chips to a major U.S. company specializing in data centers, hinting at a potential upswing in demand. Moreover, the company has been making progress in the computing accelerators market, utilizing the latest HBM memory technology. This advancement positions Samsung to capitalize on the burgeoning market for artificial intelligence systems, offering a ray of optimism amidst the current challenges.
Samsung Electronics is set to release its preliminary earnings report this week, providing a detailed overview of its performance during this turbulent period. As the industry watches closely, Samsung faces the daunting task of navigating through the chip surplus and adapting to market dynamics to restore its profitability in the coming quarters.
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