Samsung’s profit slide slows in sign of chip market bottom

SINGAPORE – Samsung Electronics reported a more modest slide in quarterly profit after staunching losses at its chip division, suggesting the global semiconductor market may have rounded a corner.

Samsung’s shares rose as much as 4.4 per cent on Wednesday, their most in more than a month, with some investors saying a 78 per cent decline in operating income was better than they had feared.

South Korea’s largest company has been struggling with an industry downturn alongside smaller rivals SK Hynix and Micron Technology. Mainstay customers, including makers of personal computers and smartphones, have been cutting orders to deal with weak demand for gadgets and excess inventory of chips.

Samsung’s operating income fell to about 2.4 trillion won (S$2.44 billion) on a 13 per cent drop in sales in the three months to September, according to Samsung’s preliminary results.

The numbers, in line with analyst estimates, reflect an improvement from the record 95 per cent year-on-year plunge in the previous quarter.

Expectations are rising that Samsung’s semiconductor business “has pretty much passed the bottom”, said head of Korea Research at CLSA Sanjeev Rana. “And the recovery is under way in the fourth quarter.”

The news comes days after the United States granted the company and Hynix an exemption to acquire the equipment they need to sustain and

expand their chipmaking operations in China

.

That has lifted some uncertainty hanging over the two memory leaders, allowing them to operate in the world’s biggest chip arena over the longer term.

“This eliminates any doubt regarding the operations and production of South Korean memory suppliers in China,” Mr Rana said prior to the announcement.

“With an indefinite waiver in place, Samsung and SK Hynix should be able to boost the competitiveness of their Chinese fabrications and make long-term investment plans.”

Samsung now seeks to position itself to benefit from a long-anticipated artificial intelligence-related boom in tech spending, fuelled by investor and consumer excitement over OpenAI’s ChatGPT debut last autumn.

But in the development of tools needed to train AI, Samsung is playing catch-up to smaller Hynix, the main supplier of next-generation Dram to AI chipmaker Nvidia.

Samsung has said it plans to double its capacity to make high-bandwidth memory, which has the capacity needed to speed up AI training, by 2024.

Hynix’s shares have gained almost 60 per cent this calendar year before Wednesday’s trading, compared with Samsung’s 20 per cent rise.

Until AI-related demand translates into sales, however, Samsung and Hynix have said they will weather economic uncertainty by cutting output of Nand chips used in personal computers and phones.

That has helped support prices of both Dram and Nand, in a sign that the market may at long last be bottoming out.

Samsung, a bellwether for the tech industry because of its leading position in chips, electronics and smartphones, has also benefited from robust sales of its foldable phones.

The world’s largest smartphone maker introduced the fifth generation of its foldable phones, pressing into a territory as yet untapped by rival products from Apple.

Its display sales are expected to have got a boost from smartphone users’ preference for bigger screens, such as those used in new iPhones by Apple, which is a customer as well as a competitor.

Samsung will give a more comprehensive snapshot of its earnings later in October.

The company previously said that it expected a recovery in sales in the second half of 2023.
BLOOMBERG