Samsung reports 95% drop in profit, but expects global demand to recover in second half of the year

Samsung Electronics posted a second-quarter revenue drop Thursday as weak demand for reminiscence chips persists.

Here are Samsung’s second-quarter outcomes versus estimates:

• Revenue: 60.01 trillion Korean gained (about $47.21 billion), vs. 60.8 trillion Korean gained anticipated by analysts, in keeping with Refinitiv consensus estimates.
• Operating revenue: 0.67 trillion Korean gained, vs. 0.6 trillion Korean gained anticipated by the corporate.

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Samsung reported gross sales slipped 22% from a 12 months in the past, whereas working revenue plunged 95%. Earlier this month, Samsung estimated second-quarter income to be 60 trillion Korean gained and working revenue to be 600 billion Korean gained.

Samsung is the world’s largest maker of dynamic random-access reminiscence chips, that are present in client units comparable to smartphones and computer systems.

“Global demand is expected to gradually recover in the second half of the year which should lead to an improvement in earnings driven by the component business,” Samsung mentioned in its earnings report.

“However, continued macroeconomic risks could prove to be a challenge in such recovery in demand,” mentioned the South Korean agency.

Samsung shares rose 2.29% Thursday morning.

Samsung mentioned that sturdy synthetic intelligence demand led to extra DRAM shipments than anticipated within the second quarter, in contrast with the primary quarter.

“The memory business saw results improve from the previous quarter as its focus on high bandwidth memory (HBM) and DDR5 products in anticipation of robust demand for AI applications led to higher-than-guided DRAM shipments,” mentioned Samsung.

Both DRAM and NAND flash reminiscence chips additionally noticed “more limited price drops” which improved second-quarter efficiency, in contrast with the primary quarter, Samsung mentioned.

“As server customers continued inventory adjustment, overall purchase demand had not yet recovered. Due to the strong demand for generative AI, however, investment from the data center sector was concentrated on AI servers,” mentioned Samsung.

High-performance reminiscence chips are required to coach generative AI fashions comparable to ChatGPT. Such chips allow generative AI fashions to recollect particulars from previous conversations and consumer preferences so as to generate humanlike responses.

“Looking to the second half of the year, the market is expected to gradually move toward stability considering increasing production cuts in the industry, while inventory adjustments by customers are likely to wind down,” mentioned Samsung.

Samsung mentioned it’ll give attention to high-value-added merchandise comparable to DDR5, LPDDR5x and HBM because it expects a restoration in demand, in addition to improve investments in infrastructure, R&D and packaging know-how.

Samsung mentioned that general cell phone market demand declined from the primary quarter because of continued macroeconomic challenges comparable to inflation.

The hype from the Galaxy S23 collection launch within the first quarter additionally pale, mentioned Samsung. Delayed market restoration additionally posed additional challenges to second-quarter gross sales.

“Nevertheless, the Galaxy S23 series was able to achieve higher results than its predecessor in the first half, in terms of both volume and value,” mentioned Samsung, including that it plans to elevate gross sales of the Galaxy S23 and Galaxy A collection.

Global shipments of smartphones are anticipated to say no 3.2% in 2023 to 1.17 billion items, in keeping with world market intelligence agency International Data Corporation. The agency lowered its forecast from February, pushed by components comparable to “a weaker economic outlook” and “ongoing inflation.”

Smartphone and PC producers are grappling with extra inventories of reminiscence chips after stockpiling to fulfill elevated demand for client units throughout the pandemic. Inflation has led to customers reducing again on purchases of those items, driving down costs for reminiscence chips.

“Our conversations with channels, supply chain partners, and major OEMs all point to recovery being pushed further out and a weaker second half of the year,” mentioned Nabila Popal, IDC’s analysis director.

“Consumer demand is recovering much slower than expected in all regions, including China.”

In its Thursday earnings name, Samsung instructed analysts that it could be making further manufacturing cuts on sure DRAM and NAND merchandise “to further accelerate inventory normalization.”

Samsung, Micron and SK Hynix have introduced capital expenditure cuts to decrease manufacturing previously months.

Samsung mentioned it’ll give attention to the newly launched high-end Galaxy Z Flip 5 and Galaxy Z Fold 5 collection to cement its main place within the world foldable smartphone market.

“Despite how bad the memory business is, the good thing is at least the premium part of the market is helping to drive some of their profits or at least offset some of the damage caused by the the memory side of the business,” mentioned Bryan Ma, vp of units analysis at IDC, on CNBC’s “Squawk Box Asia” on Thursday.

But the Galaxy S23 collection nonetheless drives most of Samsung’s earnings within the premium smartphone area, mentioned Ma.

“We do also have to keep in mind that foldables honestly are not a huge part of it, even if they are the premium part of the market. It’s actually more of the traditional candy bar Galaxy S23 that really drives a lot of their profits at least in the premium part,” mentioned Ma.

Still, it offers Samsung an edge over its rival Apple. “It’s garnering mindshare. Things like a foldable phone that Apple doesn’t have yet,” mentioned Ma.