South Korean tech company may suffer poor earnings in coming quarters

Nikkei Asia - Samsung Electronics said Friday that its operating profit likely fell more than 30% in the third quarter, as unusually high inflation squeezed global demand for semiconductors, smartphones and home appliances.

In issuing earnings guidance, the South Korean company forecast that its operating profit declined 31.7% to 10.8 trillion won ($7.7 billion) for the three months through September from the same period last year. It estimates that its revenue, meanwhile, rose 2.7% to 76 trillion won during the same period.

Based on the guidance, quarter-on-quarter the tech giant's operating profit plunged 23.4%, while revenue dropped 1.6%.

The company did not elaborate but will release its full earnings data, including its net profit, later this month and hold a conference call to discuss the numbers in detail.

The guidance came in lower than analysts expected. A consensus forecast of 21 brokerage houses compiled by FnGuide put Samsung Electronics' operating profit and revenue for the third quarter at 11.9 trillion won and 78.4 trillion won, respectively.

Samsung released guidance ahead of the start of stock trading on Friday morning. Investors sent its shares as much as 1.95% lower after the market opened. But, the stock price recovered most of its losses after about 30 minutes, trading down 0.18% at 56,200 won.

The estimates from Samsung come as consumers and companies hit by rising prices around the world tighten their purse strings. U.S. consumer inflation reached 8.3% on the year in August, while the U.K.'s consumer price index rose 9.9% in the 12 months to August. South Korea's CPI, meanwhile, climbed 5.6% in September, year on year.

High inflation drove central banks from the U.S. and India to South Korea to raise interest rates sharply, delivering a blow to consumers who borrowed money to pay for homes and cars.

"Demand for smartphones, PCs and TVs is dropping so fast," Choi Do-yeon, an analyst at Shinhan Securities, said in a report on Tuesday. "Poor macroeconomic data are [also] a burden. What is worse is that orders for semiconductors are falling even faster."

Analysts say Samsung will suffer from poor earnings for at least a couple more quarters, as memory chip prices are expected to continue to fall due to sluggish demand.

"Operating profit in the DRAM and NAND memory industry will decline sharply in the second half of 2022 and remain under pressure through the first half of 2023," Moody's Investors Service said in a report on Wednesday. "This reflects declining sales of personal computers and smartphones, which both saw robust demand during the COVID-19 pandemic. Pressure will also arise from excess inventory at both the memory producers and their largest customers."