Samsung Electronics, the world’s largest producer of memory chips and smartphones, has reported a 96% plunge in operating profit for the second quarter. The ongoing chip surplus continues to inflict significant losses on the tech giant’s core business, despite supply cuts. In a preliminary earnings statement, Samsung estimated its operating profit to have dropped to 600 billion won ($459 million) from 14.1 trillion won compared to the same period last year.

This projected profit marks the lowest for Samsung in any quarter since the first quarter of 2009. While the figure aligns closely with the estimated 555 billion won, which was based on the forecasts of more consistently accurate analysts, it still signifies a severe blow to the company. Consequently, Samsung shares fell 1.4% during early morning trading, underperforming the wider market’s 0.6% drop.

Although the chip business faced substantial losses in the first quarter, analysts anticipate a reduction in losses for the second quarter due to increased sales of DRAM chips used in PCs, mobile phones, and servers. However, the memory chip market downturn, which commenced last year, is predicted to reach its lowest point in the third quarter, with a potentially modest rebound thereafter.

Investors are now closely monitoring Samsung’s upcoming full earnings report, seeking signals for the third quarter, including the impact of production cuts, potential demand recovery, and improvements in profit mix through higher-end DRAM and high-bandwidth memory products. Despite the current challenges, Samsung is expected to maintain its investment in memory chips this year, positioning itself for increased market dominance in 2025.

Samsung Electronics announced in April that it would reduce its production levels following the revelation of its lowest profit in 14 years. This move was aimed at addressing the supply surplus in the market. Similarly, Micron, another major player in the memory chip industry, stated last week that it believes the current downturn has reached its lowest point, while Hynix executives foresee some relief in the near future, driven by a recovery in China and the growing demand for artificial intelligence (AI) technologies.

Although there are indications that the chip oversupply situation is gradually improving, inventory levels across the industry remain historically high, and the economic outlook remains uncertain. However, investors are placing their bets on generative AI to stimulate new demand for servers that require advanced DRAM, specifically DDR5. Servers powered by AI technology typically require four to six times more DRAM capacity compared to standard servers, thus driving the need for next-generation memory solutions.

The expectation of increased demand from AI-driven applications provides a glimmer of hope for the memory chip industry. However, challenges persist as companies grapple with excess inventory and unpredictable market conditions. The sector is closely monitoring the potential recovery, particularly as AI advancements continue to fuel the need for more advanced and high-capacity memory solutions.

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Samsung’s most recent financial results are nothing short of spectacular, with the manufacturer of semiconductors, smartphones, tablets, smartwatches, televisions, and home appliances proudly displaying a new all-time Q2 2022 revenue record to please investors and garner favorable media coverage.

However, even though the company’s operating profit is increasing year over year, from 12.57 trillion Korean won in Q2 2021 to KRW 14.1 trillion (10.8 billion US dollars) between April and June 2022, at least one important division is not doing well from the always important profitability standpoint.

This is the mobile (also known as MX and Networks) business, which managed to generate a more than respectable 29.34 trillion won in combined sales while reporting a very modest gain of about $2 billion during this year’s second calendar quarter.

Operating profit for Samsung’s market-leading smartphones was KRW 2.62 trillion, down from 3.24 and 3.82 trillion won in Q2 2021 and Q1 2022, respectively. Before you even consider it, you should be aware that the South Korean tech giant’s most recent financial report expressly calls out the Galaxy S22 and Galaxy Tab S8 families of ultra-high-end mobile devices as “strong” performers, suggesting that the division’s issues could be elsewhere.

The underwhelming and tardy Galaxy S21 FE and the less-than-value-packed newest members of the mid-range Galaxy A lineup are just a few of the obvious suspects, though Samsung is obviously not naming and shaming any low-performing products, instead blaming “some degree” of the declining profits of its mobile business on “rising costs of components and logistics as well as negative effects of foreign exchange movements.”

While the Galaxy Z Fold 4 and Z Flip 4 are anticipated to generate “solid profitability” in the second half of 2022, “prolonged geopolitical issues and economic uncertainties” could lead revenues to remain “similar year-over-year.” Yesterday, we reported the latest official trailer of the Galaxy Unpacked event was released where the new-gen Galaxy Foldable devices were teased.

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