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(Bloomberg) — Samsung Electronics posted its sixth straight quarter of declining operating profit, reflecting weak consumer demand and uncertainty over the timing of a broader technology recovery.
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South Korea’s largest company reported a 35% drop in operating profit to 2.8 trillion won ($2.1 billion), about 24% less than expected. Sales were lower than expected to 67 trillion won. For the full year of 2023, Samsung reported its lowest operating profit in 15 years.
The results highlight how weak demand for the memory chips that power smartphones and modern electronic devices has been in light of economic uncertainty. It also upends the prospects for a market recovery that many investors had hoped for in 2024. In December, rival Micron Technology reported better-than-expected revenue forecasts and suggested data center construction could help offset weak computing and mobile device markets. .
“This shows that the rebound is slower than we all thought,” said Tom Kang, research director at Counterpoint Technology Market Research. “Prices are not rising as quickly and demand from certain areas is not as strong.”
In October, Samsung predicted that the long-sluggish $160 billion memory market would gradually recover in 2024 due to a boom in AI development. Executives said at the time that prices should start recovering from their lows around the second half of 2023.
The company’s shares fell as much as 0.9% in the Seoul market on Tuesday. Sanjeev Rana, an analyst at CLSA Securities Korea, said the company’s disappointing performance was partly due to low utilization rates in its foundry chip manufacturing business.
He said the consumer electronics sector was also hit by fierce competition and rising marketing costs, while profits from the smartphone business were likely to be at the lower end of analysts’ expectations.
However, there are signs of recovery. In November, the Korean semiconductor industry recorded the largest growth in both production and shipments in recent years. Considering rising memory prices and improving demand, “Samsung’s chip business is likely to return to profitability within the first half of 2024,” Rana added.
Investors will want to hear about Samsung’s long-term investment plans, particularly in the AI space, when the company announces its full financial results on January 31st, which will be presided over by its management team.
The company is now aiming to catch up with rival SK Hynix in the fast-growing field of high-density memory chips, with plans to increase capacity by 2.5 times in 2024. HBM, an advanced chip that processes data faster, works in conjunction with hardware. such as his Nvidia Corp. accelerators that speed up data processing for intensive tasks such as training AI models.
Samsung is also counting on a new lineup of devices and foldable devices to drive growth in 2024. The South Korean company is preparing to unveil its latest device in the United States later this month, but investors are concerned that Apple’s iPhone 15 will work. It stalled just a few months after its release.
–With assistance from Haidi Lun, Annabelle Droulers, Youkyung Lee, and Mayumi Negishi.
(Updates with analyst comment after 5th paragraph)
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