Samsung has a record low operating profit due to the decline in semiconductor prices, how do analysts see the future semiconductor market?

On April 7, 2023, Samsung Electronics, a South Korean manufacturer of electrical components and products, announced its earnings forecast for the first quarter (January to March) of 2023, with operating income expected to be approximately It reported that it will remain at 600 billion won (about 60 billion yen), a decrease of 96%. Analysts point out that this announcement is affected by the global oversupply of semiconductors.

Samsung Q1 2023 earnings preview: Memory chip price slump hits giant
https://www.cnbc.com/2023/04/24/samsung-q1-2023-earnings-preview-memory-chip-price-slump-hits-giant.html

Samsung, which has established itself as one of the world's leading semiconductor and smartphone manufacturers, has announced that its earnings in the first quarter of 2023 will be quite weak. Sales in the first quarter of 2023 were 63 trillion won (approximately 6.3 trillion yen), a decrease of more than 1 trillion yen from 77.78 trillion won (approximately 7.8 trillion yen) in the same period of the previous year. It has dropped significantly from 14.12 trillion won (about 1.42 trillion yen) to 600 billion won. If that figure is also reported in the company's accurate first-quarter earnings report scheduled for April 27, it will be the lowest profit since the first quarter of 2009.

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The reason why Samsung's earnings outlook was sluggish is the decline in the price of semiconductors, its main product. The 2020 novel coronavirus disease (COVID-19) pandemic has significantly increased the amount of time people spend at home, facilitating the trend of remote work and remote education globally. As a result, the demand for semiconductors used in PCs, smartphones, and other electronic products increased sharply, and at one point the global shortage of semiconductors became a serious problem.

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At that time, chip makers, including Samsung, reported significant revenue increases, with an overwhelming supply shortage for global semiconductor demand. It is unclear how long the semiconductor shortage will continue, and in April 2022, Intel CEO Pat Gelsinger predicted that the semiconductor shortage would continue until 2024.

As a result, rising interest rates, a falling stock market, and concerns about an economic recession have led to a decline in consumer spending, and semiconductor shortages have begun to disappear in the second half of 2022. As a result, the inventories of semiconductor manufacturers, which had begun to increase production, swelled, causing an overwhelming oversupply of semiconductors.

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News media CNBC said, ``Demand for home appliances was high because people were stuck at home during the pandemic. 'Macroeconomic concerns have led to restrained purchases, and a glut of memory chips continues.'

According to market research firm IDC, PC shipments in the first quarter of 2023 fell 29% year-on-year to 56.9 million units . Analysts at South Korean investment bank Mirae Asset Securities estimate that Samsung's chip division will post a loss of 4.4 trillion won (about 440 billion yen) in the first quarter of 2023.

Memory makers such as Micron Technology, SK Hynix, and Kioxia have announced cutbacks in personnel and capital investment in response to the global memory chip oversupply. However, unlike its competitors, Samsung announced that it will maintain capital investment at the same level as the previous year in 2023, and showed a stance of continuing to invest in memory chips.

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However, with the announcement of the first quarter earnings forecast in April 2023, Samsung finally revealed that it will reduce memory chip production to a 'meaningful level.'

Samsung, the world's top semiconductor maker, is expected to finally reduce production, which will eliminate inventories held by manufacturers and lead to price increases. Analysts at South Korean brokerage NH Investment & Securities see the cut in semiconductor production having a positive impact on supply and demand, estimating that Samsung's performance will begin to recover in the third quarter of 2023.

Meanwhile, analysts at CrispIdea said, 'With memory chip inventories at all-time highs, losses will continue for the next few quarters, adding to downward pressure on prices.' It remains weak in the face of inflation and rising interest rates,' he said, pointing out that the difficult situation for Samsung may continue.