Samsung said Thursday that it expects a steep decline in its third-quarter operating profit, its first year-over-year decline in nearly three years, amid an economic downturn that's sapped consumer demand for PCs and phones, as well as the chips within.
The Korea-based company on Thursday predicted its operating profit for the three-month period ended Sept. 30 would come in at around 10.8 trillion won ($7.6 billion), a drop of more than 31% compared with the same time period last year. It also said it expects a slight increase in revenue, of 2.7%, to 76 trillion won ($53.9 billion).
Samsung is perhaps best known for its phones and TVs, but the electronics giant also dominates the market for memory chips -- a key cash driver for the company. Samsung's chip business got a boost from data centers that rely on the technology to store everything we're doing online during the pandemic, but consumer spending in the second half of this year has been hurt by the effects of high inflation, rising interest rates and geopolitical tension.
In August, IC Insights reduced its forecast for worldwide integrated circuit market growth for 2022 from 11% to 7% -- a downgrade almost entirely due to the collapse of the memory market in the second half of 2022.
"It was as though someone 'flipped a switch' to the off position for the memory market beginning in June," the company wrote in a report last month.
The forecast marks Samsung's first profit decline year over year since the first quarter of 2020, when the pandemic spurred demand for devices while consumers were forced to stay home. The steep decline in chip demand led Samsung executives to issue a pessimistic outlook for the market for the remainder of this year as well as into 2023.
"The second half of this year looks bad, and as of now, next year doesn't really seem to show a clear momentum for much improvement," Kyung Kye-hyun, who heads Samsung's semiconductors unit and serves as the company's co-CEO, said at a media briefing in September, according to The Wall Street Journal.
Prices for NAND Flash memory, widely used in portable consumer devices like digital cameras, cell phones and USB flash drives, were expected to decline 13% to 18% in the third quarter compared with the previous quarter, according to market researcher TrendForce. Prices for DRAM chips, used in smartphones and PCs, are expected to suffer a similar decline.
Economic uncertainty is also expected to hurt profits in the company's mobile division. The Samsung Galaxy Fold 4 was released during the quarter, but it was available for purchase a little more than a month during the period.
The earnings guidance, released ahead of full earnings later this month, didn't provide specific divisional results.