Samsung Electronics’ semiconductor business reports record annual loss

Samsung Electronics on Wednesday posted a 34.57% drop in operating profit in the fourth quarter from a year ago, in line with its guidance issued earlier this month.

Here are Samsung’s fourth-quarter results versus estimates:

• Revenue: 67.78 trillion Korean won (about $51 billion), vs. 69.27 trillion Korean won expected by LSEG analysts
• Operating profit: 2.82 trillion Korean won, vs. 3.43 trillion Korean won expected by LSEG analysts

Samsung’s revenue for the quarter ending December fell 3.8% from a year ago, while operating profit dropped 34.57% in the same period.

For the full year of 2023, its semiconductor business fell into a record loss of 14.88 trillion Korean won, from a 23.82 trillion Korean won profit a year earlier on the back of weak global demand, according to LSEG data.

Samsung is the world’s largest maker for dynamic random-access memory chips which are found in consumer devices such as smartphones and computers.

In its earnings guidance earlier this month, Samsung said it expected operating profit for the October-December quarter to be 2.8 trillion South Korean won ($2.13 billion), down 35% from the same period a year ago when the firm reported an operating profit of 4.31 trillion won.

Samsung said its fourth-quarter revenue and operating profit improved from the third quarter due to a recovery in memory chip prices and “continued strength” in sales of premium display products.

“We will focus on increasing sales of high value-added products to improve profitability,” said Samsung in its earnings call on Wednesday. It said it would capture the rising demand for advanced products and those aimed at generative AI, as well as strengthening AI functionalities in smartphones and other products.

Daiwa Capital Markets in a Jan. 9 report said Samsung’s revenue and operating profit estimates were “lower than our market estimates.”

“We assume that memory business earnings improved sharply on increased memory shipment and prices,” said SK Kim of Daiwa Capital Markets after Samsung’s preliminary earnings.

As global macroeconomic headwinds persist, Samsung expects its earnings in the first six months of 2024 to show a “moderate improvement” followed by “a more significant improvement” in the second half of the year.

Samsung said fourth-quarter smartphone sales and profit declined from a quarter ago, in part from “fading effects” of new models launched in the third quarter.

In 2023, Apple overtook Samsung as the world’s No. 1 in terms of smartphone shipments, commanding a market share of 20%, according to data from global market research firm International Data Corporation.

“Part of that was, frankly, because of a function of how the smartphone market was shifting toward the premium. That’s why Apple was doing well because they’re more concentrated on the premium, whereas Samsung has a broader breadth,” said Bryan Ma, vice president of devices research at IDC, on CNBC’s “Squawk Box Asia” on Wednesday.

Ma said that while Samsung slipped to world’s No. 2, the average selling price of its smartphones increased by about $100 from 2020 to 2023.

“So it’s very representative of how the market has shifted towards premium. I think, as we go forward, that’s going to continue to be one of the things that drive higher margins,” said Ma.

In the first quarter, Samsung expects smartphone demand to drop due to seasonality but said the premium segment is likely to grow compared to the same period last year.

Samsung said it will “leverage” its new, AI-enabled Galaxy S24 smartphones, which are set to launch Wednesday, to boost sales.

“We aim to establish Samsung as the leading brand in the AI smartphone market,” said Samsung.

Memory chip prices plummeted drastically last year due to inflationary pressures that have caused consumers to cut back on smartphone and PC purchases, as well as excess inventories of chips that companies stockpiled during the pandemic.

This has hit Samsung’s earnings hard, with its operating profit plunging 77.6% in the third quarter from a year ago. Other chipmakers such as Taiwan’s TSMC and SK Hynix have also reported declines in quarterly profits.

But the global PC market returned to growth in the fourth quarter, posting a modest year-on-year growth of 3%, according to global technology market analyst firm Canalys.

Analysts told CNBC in October that weak demand in the memory industry has bottomed out, as chipmakers have been running down excess inventories through production cuts.

“The memory market and demand for IT are expected to continue recovering in 2024, though macroeconomic uncertainties remain to be seen,” said Samsung in a statement on Wednesday.

The firm added that they will meet demand for chips in AI applications, expand into AI-enabled consumer product markets as well as “strengthen its leadership in premium products and competitiveness in advanced-node semiconductors.”

Samsung is currently manufacturing 3-nanometer chips but has a roadmap to mass produce 2-nanometer chips in 2025. Typically, a reduction in nanometer size can yield more powerful and efficient chips.

“We expect further price hikes in 1H24 and a marked rebound in earnings for memory makers in 2H24 and 2025,” said Kim of Daiwa Capital Markets on Jan. 4.