Samsung's latest report doesn't bode well for the immediate success of the Galaxy S23 line
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Just days away from introducing its new 2023 flagship line, Samsung reported a sharp drop in profits for the fourth quarter of 2022. The South Korean-based company said, "The business environment deteriorated significantly in the fourth quarter due to weak demand amid a global economic slowdown." The current quarter is also not looking too good for the company as it expects factory utilization rates in the semiconductor business to decline leading to another drop in profits for Q1 of 2023.
Revenue and profits at the company's Mobile eXperience (MX) unit declined in the mid to low-end segments. But the company says it sees a "possible recovery on mobile demand in the second half" as consumers look to purchase phones offering more storage. Still, Sammy expects smartphone demand to shrink for all of 2023 thanks to weak demand for mass-market handsets. Samsung is the leading manufacturer in the niche foldable phone category thanks to the Galaxy Z Fold 4 and Galaxy Z Flip 4. The next-gen models will be out later this year.
Samsung's chip segment reported a 97% drop in Q4 profits year-over-year
Besides weak demand in the smartphone category, Samsung's chip business had a rough final three months of the year. The segment's Q4 profit dropped by a whopping 97% year-over-year to 270 billion Korean won (equivalent to $220 million) as Samsung's customers preferred to draw down their inventories instead of purchasing new chips. What's hurting the semiconductor industry is the war in Ukraine, U.S. restrictions on shipping chips to China, and inflation.
Samsung is just days away from unveiling its flagship Galaxy S23 line
Pricing of memory chips will continue to decline during the first half of this year according to Goldman Sachs analyst Giuni Lee who told clients in a note before the earnings release that "We expect the company to be in [the] red for both DRAM and NAND starting in the first quarter of 2023." Samsung spent 20.2 trillion won in capital expenditures during the fourth quarter and is looking to reduce spending and chip production.
The entire memory chip sector is reeling as U.S. memory chipmaker Micron Technologies is cutting back on chip production as well as reducing purchases of new plants and equipment. SK Hynix, a South Korean producer of DRAM and NAND chips is also cutting back on production, and NAND manufacturer Kioxia Holdings, based in Japan, is cutting production by 30%. It also is rumored to be in merger talks with its U.S. partner Western Digital.
The malaise is affecting all tech companies. Intel says that it expects to experience one of the worst quarters in company history. Microsoft recently laid off 10,000 employees while Google did the same to 12,000 workers. Still, Samsung Foundry posted a new record for quarterly revenue during Q4 while profit rose year-over-year thanks to the unit's increase in advanced-node capacity. It is mass-producing chips using its 3nm process node and achieving a steady yield.
Samsung's mobile display business reported lower earnings thanks to the aforementioned decline in smartphone shipments. The Networks business saw higher revenue as domestic demand for 5G gear was seen along with overseas expansion of 5G installations.
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For the current quarter, Samsung says that it will concentrate on meeting the demand for specialized components including DDR5, LPDDR5x memory chips and 200 megapixel (MP) image sensors. Samsung currently offers three of these including the ISOCELL HP1, HP2, and HP3. During the first quarter, Samsung Foundry will remain ahead of the competition with its 3nm process node using the Gate-All-Around (GAA) transistors that cover all four sides of the channel to reduce leaks and offer greater control over current flow.
Samsung expects tough going in its smartphone segment for the beginning of 2023. The company said, "In the first quarter, a sequential decrease in market demand is expected across all smartphone segments, amid continuous macroeconomic uncertainties. The Company plans to expand flagship product sales with the successful launch of its new Galaxy S23 series, equipped with an enhanced camera and gaming functionalities, among others."
The statement added, "Samsung will also continue to enhance its Galaxy ecosystem products, consisting of PCs, tablets and wearables, while maintaining its focus on effective resource management for solid profitability."
Samsung's Q4 revenue came in at 70.46 trillion won ($57.3 billion at current forex rates) while operating profit fell 69% to 4.3 trillion won (equivalent to $3.5 billion). Thanks to a one time change in tax law, net income doubled to 23.5 trillion won ($19.1 billion). For the full year revenue was a record 302.23 trillion won ($245.8 billion) and operating profit for 2022 was reported as 43.38 trillion ($35.3 billion).
Samsung's shares responded to the report by falling 1,800 Korean won ($1.46) or 2.84% to 61,500 won ($50.01). The 52-week high is 75,800 won while the 52-week low is 51,800 won.
On February 1st, Samsung will introduce the 2023 Galaxy S23 flagship series starting at 1 pm EST. Pre-orders will kickoff the same day and time, and the phones will be released on February 17th,
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