A perfect storm hits Samsung

Fiscal year 2023 can be classified as

an annus horribilis

for Samsung Electronics.

After losing 2.3% of the smartphone market share, the Korean giant ceded to Apple the crown that it had held hegemonically for 12 years.

As if this were not enough, Intel relegated it to second position as the main supplier of semiconductors on a global scale and, for the first time in three decades, suffered year-on-year operating losses.

Despite the blows that the company has taken on various fronts, analysts prefer not to fall into catastrophism, as they believe that the blow is temporary and is due above all to the slowdown that affects the semiconductor memory sector, a industry valued at 150 billion euros that registered “one of the worst declines in history” in the last 12 months, according to the American consulting firm Gartner.

Samsung, which will present its results on January 31, has anticipated that 2023 operating profit will probably plummet by 84.5% year-on-year, from 43.38 trillion won (about 30.5 billion euros) to 6.5 trillion won (around 4.5 billion euros).

If confirmed, it would be the first time since 2008 that the operating profits of South Korea's largest conglomerate did not exceed 10 trillion won.

Samsung plays a crucial role in the South Korean economy.

The company, founded in 1938 by Lee Byung-chul, has represented a significant percentage of the Asian country's GDP since the 1980s.

That proportion, which has been increasing as Samsung consolidated its leading business position globally, reached 18.3% in 2021, according to figures from the central bank and the antitrust agency.

In addition to operating losses, the semiconductor and consumer electronics manufacturer also anticipates a 14.6% decline in its annual turnover: in 2022 it registered a historical record of 302.23 trillion won (more than 213 billion euros) in revenue , which will likely decline to 258.2 trillion won in 2023.

“The global macroeconomic slowdown and inflationary pressures have increased consumer caution, which has affected sales of Samsung products and items from other manufacturers that use its components,” summarizes Ben Wood, chief analyst at CCS. Insight, British technology market research company.

In the midst of this situation, the global smartphone market experienced a 3.2% decline in sales in 2023, the year with the lowest annual volume in a decade, according to preliminary statistics from the International Data Corporation (IDC). ), based in the United States.

The main surprise came from Apple, which with 20% of the market share managed to snatch from Samsung the throne it had occupied since 2010.

Chip problems

This paradigm shift is not only a result of iPhones putting greater pressure on Samsung's high-end models;

It is also a direct consequence of the problems in the semiconductor industry.

Manufacturers, who increased chip production to ensure supply during the pandemic, have found themselves with excess inventory after the rise of teleworking.

This situation, added to the weak demand for electronic devices, has caused the prices of integrated circuits to plummet.

According to Gartner data, in 2023, semiconductor sector revenue contracted 11.1% year-on-year, dragged down by the poor performance of the memory market.

Samsung, which had led the ranking of chip suppliers for two years, gave up its position to Intel after its profits in this division contracted 37.5% year-on-year.

The global collapse in sales in 2022 and early 2023 had a devastating effect on Samsung's Device Solutions division, the main business branch of the South Korean conglomerate, responsible for manufacturing semiconductors and also supplying other brands.

Samsung is the world's largest manufacturer of memory chips used in electronic devices to store temporary data and allow quick access to information by the processor.

The Solutions unit, from which the group's largest source of income comes, suffered an operating loss of 12.7 trillion won (more than 8.9 billion euros) in the accumulated of the first three quarters of 2023. In the period October-December losses could be 1.2 trillion won, the company points out.

Given the excess stock, Samsung began to reduce the production of memory chips last April, which has allowed at least the DRAM (dynamic memory) business to become profitable again (it has a market share of around 40%), although NAND Flash memory operations continue in the red (its share is 34%).

Cuts by Samsung and other suppliers have already had positive effects on the market: DRAM chip prices rose between 18% and 23% in the fourth quarter globally, while NAND Flash prices rose between 10% and 15%, according to TrendForce.

Experts say Samsung's results will improve this year, thanks to the recovery in chip prices and the boom in demand for high-bandwidth memory semiconductors - key to the operation of large generative artificial intelligence models, like ChatGPT—.

The Japanese financial services firm Daiwa Capital Markets expects there to be “a notable rebound in the profits of memory manufacturers in the second half of 2024 and the first half of 2025,” while the Japanese investment bank Nomura indicates that “ Exports of South Korean memory chip companies will exceed 100% year-on-year in the first half of 2024.

The Hong Kong bank HSBC, for its part, predicts a “huge recovery in Samsung's profits” throughout 2024.

Wood, of CCS Insight, highlights that, despite the downturn, “Samsung remains in an enviable position as one of the largest consumer electronics companies on the planet.”

For 2024, this expert highlights the great commitment that the firm is making to artificial intelligence, which, in his opinion, “will help it differentiate itself from the competition.”

Samsung recently introduced the new high-end Galaxy S24 series, in which it has comprehensively introduced generative artificial intelligence.

“This development will revive consumer interest in its products,” says Wood, who adds that “the rise of folding phones [a category in which Samsung is a notable leader] will also give it a boost.”

Follow all the information on

Economy

and

Business

on

Facebook

and

X

, or in our

weekly newsletter