Samsung’s profit drop in third quarter from weakening demand for memory chips

Demand for memory chips dropped significantly during the third quarter, denting Samsung’s profit. Image: Samsung

Samsung saw its operating profit for the third quarter drop significantly from a year ago from the rapid decline in demand for memory chips.

The South Korean tech giant said on Thursday that it was recorded 76.78 trillion won in revenue and 10.85 trillion won in revenue. While revenue increased by 3.9% compared to a year ago operating profit dropped by 31.4%.

Samsung said inventory adjustments of its memory chip customers exceeded market expectations and demand for consumer products remained weak.

However, the company noted that it is expected to record its highest annual revenue to date this year __ beat its previous high in 2021 __ thanks to expanded sales across most of its business units. Samsung said also its component sales continued to benefit from a favorable exchange rate for the Korean won against the US dollar.

The company’s Device Solutions division, its semiconductor division, recorded 5.12 trillion won in operating profit __ down by almost half from its operating profit in the prior quarter.

Samsung said demand for memory and logic chips was weak all around. However, its contract chip production unit recorded its highest revenue to date thanks to the yield of its advanced nodes stabilizing, the company said.

Meanwhile, Samsung’s Device Experience division, its division that sells mobile phones and consumer products, contributed 3.53 trillion won in operating profit, with 3.24 trillion won of that coming from the company’s mobile business.

Samsung’s mobile business saw solid sales of its flagship phones such as its latest foldable phones that launched in August as well as wearables, the tech giant said. But the division also saw low profits from TV and home appliance sales due to weak consumer demand, Samsung noted.

However, Samsung Display, Samsung’s display panel-making subsidiary, contributed 1.98 trillion won to operating profit a jump from last year as well as the previous quarter.

Samsung said Samsung Display saw its share of supply increase significantly within the supply chain of the new products of its “major customer” __ a reference to Apple which buys OLED panels from Samsung Display.

People familiar with the matter told ZDNet that rival LG Display, which also supplies OLED panels to Cupertino, faced trouble improving its yield rate for the panels aimed at iPhone 14 in time, allowing Samsung Display to take more orders for the initial batches.

Looking ahead, the South Korean tech giant warmed that macroeconomic uncertainties are expected to persist through the fourth quarter and 2023.

To meet this challenge, Samsung said it will prioritize sales of high-end DRAMs in the server sector, where demand is expected to be strong in the long run as data centers resume their spending on expansions.

Sales of the Galaxy Z Fold 4 and Z Flip 4 foldable phones showed strong growth compared with the previous models, despite a challenging market environment, Samsung noted, and it will continue expanding the brand along its other flagship Galaxy S series as well as wearables.

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