Samsung Q2 sales, profit slide as chip drought continues

Investing.com– South Korea’s Samsung Electronics (KS:) flagged a sharp decline in its second-quarter earnings on Friday, hit chiefly by weakening demand in its key memory chips market despite recent production cuts.

The firm’s operating profit likely slid to about 600 billion won ($1=1,308.39 won) in the June quarter, from 14.1 trillion won for the same period a year ago, Samsung said in a statement. 

Still, the operating profit figure was slightly above Reuters estimates for a reading of 555 billion won. 

Sales likely fell to about 60 trillion won from 77.2 trillion won, the world’s largest maker of memory chips and smartphones said. The figures were disclosed as Samsung’s preliminary second-quarter earnings, with the company set to report its full earnings for the quarter on July 27.

Second quarter profits were largely flat from the 640 billion logged in the first quarter of 2023, and reflect continued headwinds for the company’s key memory chips unit as it grapples with substantially weaker demand. The unit is expected to have reported quarterly losses of between 3 trillion and 4 trillion won for the quarter, according to Reuters estimates.

DRAM memory chips- which are used in smartphones and computers, saw their prices tumble over the past year as chip buyers dipped into their existing inventories to avoid buying new chips amid weakening demand for electronics. Memory chips are among Samsung’s biggest revenue generators.

While this trend is expected to reverse in the coming months, especially as chip inventories run dry and as Samsung and its peers cut production, a substantial recovery in demand appears unlikely amid worsening global economic conditions.

But Samsung is also working on riding an artificial intelligence-led boom in chip demand, particularly by producing the high bandwidth memory chips used in running AI models.

The company’s smartphone business is expected to have logged a profit during the quarter, remaining among the few bright spots for the company. Samsung is also set to unveil its latest range of foldable phones later in July, well before offerings from rival Apple Inc (NASDAQ:). 

Samsung’s shares fell over 1% in early trade on Friday.