Samsung Electronics’ operating profit plummeted 69% to $3.4 billion in the quarter that ended in December to an eight-year low, according to its preliminary estimates, as the global demand for memory chips and smartphones wanes due to high inflation and slowing economy.
“Amid continued external uncertainties, including a potential global economic downturn, overall earnings decreased sharply quarter on quarter as we saw a significant drop in the memory business results due to lackluster demand and weaker sales of smartphones,” the company said in a statement.
The memory chipmaker and smartphone producer saw sales of 70 trillion won ($55 billion) in the quarter, down roughly 8.6% over the same period a year ago.
The sharp drop in demand for memory chips, including DRAM and NAND, which are used in gadgets and data centers, has also pushed manufacturers and vendors to lower their price, according to TrendForce.
“For the memory business, the decline in the fourth quarter demand was greater than expected as customers adjusted inventories in their effort to further tighten finances by concerns over deteriorating consumer sentiment,” the market researcher said. “Profits from the mobile experience business declined as smartphones sales and revenue decreased due to weak demand resulting from prolonged macro issues.”
Many chip firms, including Micron and SK Hynix, plan to slash their capital expenditure and reduce inventories this year. Samsung has previously said it doesn’t plan to reduce its capex.
Geopolitical risk is another concern for semiconductor companies tangled in the tech war between the U.S. and China. Last October, the U.S. rolled out new export controls requiring companies to obtain licenses to sell semiconductor chips for supercomputers and artificial intelligence to Chinese firms.
Samsung reportedly has received a one-year waiver from the US government to continue ordering U.S. chip manufacturing equipment to its fabs in China, such as the NAND flash memory chip plant in Xi’an and a chip-packaging facility in Suzhou. Despite the exemption to maintain the facilities in China, there is always a risk that the U.S. restriction could broadly hit chip firms with customers in China.
South Korea said earlier this week that it plans to increase tax breaks for semiconductor companies in a bid to support Korean chip companies and beef up the country’s critical industry. The move comes after Samsung and SK Hynix paid the highest corporate taxes in 2021 among other top 100 global chip makers, including TSMC, Intel and SMIC.
The large chip conglomerates in South Korea will benefit from a tax credit of 15%, up from the planned 8%, on investment in manufacturing facilities; small and mid-sized semiconductor companies will get a tax break of as much as 25%, up from 16%, according to South Korean finance ministry.
The tech giant will announce a full earnings statement, including net profit, for the fourth quarter and provide more details on at the end of this month.
