The slump in the PC and smartphone market drags Samsung to its lowest quarterly profit in 8 years

• Samsung said the business environment deteriorated significantly in the fourth quarter due to weak demand within the PC and smartphone market.
• It was the company’s weakest quarterly profit since the third quarter of 2014, when its smartphone business lost severe ground to competitors.
• The South Korean chipmaker is not the only impacted; even AMD, Intel, and SK Hynix have deteriorated due to the slump in PC and smartphone demand.
• Most chipmakers reckon recovery to begin only in the second half of this year, if not later.

By now, we know what a horrendous 2022 was for the global PC and smartphone market;  both saw their worst quarterly decline in the year’s final three months. Demand was grim for most of last year, and experts don’t see them recovering till later this year. That would, however, also mean that chipmakers for PCs and smartphones would bare the brunt for more quarters than anticipated.

Since its reporting season in terms of 2022 financial performances, most companies, especially chipmakers, have come forward to justify their poor results, especially for the final quarter of last year. Like most of its peers, Samsung Electronics attributed it to “weak demand.” For context, the South Korean conglomerate’s quarterly profits for the final three months of 2022 plunged to their lowest level in eight years as customers bought fewer cell phones and laptops.

“The business environment deteriorated significantly in the fourth quarter due to weak demand amid a global economic slowdown,” the company said in a statement. The tech giant also noted that earnings in its Memory Business decreased sharply as prices fell and customers continued to adjust inventory. “The System LSI Business also saw a decline in earnings as sales of key products were weighed down by inventory adjustments in the industry,” it added.

To put things into perspective, Samsung reported an operating profit of 4.3 trillion Korean won (US$3.5 billion) on Tuesday for the three months ended December, down 69% from a year ago. Revenue fell 8% to just under 70.5 trillion won (US$57.3 billion), it said the statement. Ironically, it was the company’s weakest quarterly profit since the third quarter of 2014, when its smartphone business also lost severe ground to competitors.

Frankly, the dreary results were anticipated because Samsung had flagged the lackluster performance in a pre-earnings forecast earlier this month, with analysts citing falling memory chip prices and fewer orders of consumer devices. To recall, Tech Wire Asia reported recently that the PC market had collapsed during the fourth quarter of 2022, recording an unprecedented drop in sales due to inflation and other factors.

IDC reported that PC unit sales fell by 28.1% to 67.2 million units, while Gartner said sales fell by 28.5% to 65.3 million. According to Gartner, the drop is the largest since the firm began its PC coverage in the mid-1990s. Unfortunately, PC makers weren’t the only ones who dealt with a grim 2022. Even smartphone shipments tanked to their worst annual performance in a decade. 

Samsung sees a slow recovery in the PC and smartphone market

In a presentation to investors, the electronics maker admitted that “mobile and PC demand was weak,” and its memory chip business had also suffered “as customers continued to adjust their inventories amid deepening uncertainties.” Samsung expects some of those problems to continue in the coming months due to global economic uncertainty. 

However, it is also fair to note that the South Korean giant anticipates overall demand in both the PC and smartphone market to start recovering in the second half of the year. Meantime, smartphone demand will likely slide again this quarter compared to the same period a year ago “due to the economic slowdown in major regions,” it said.

Interestingly, the Visual Display Business posted higher revenue and operating profit as sales of premium products, including Neo QLED and Super Big TVs, increased. At the same time, the Digital Appliances Business saw a profit decline because of cost increases due to deteriorated market conditions and as competition intensified.

The faith of other chipmakers

Samsung is not alone; the global technology industry has been battling a sharp and sudden downturn in demand since late last year, as companies cut spending on tech products and services while consumers spend less on discretionary goods in the face of surging inflation. Take the example of Samsung’s local rival and the world’s second-largest memory chipmaker, SK Hynix.

SK Hynix also just posted a record quarterly operating loss this week. For the quarter that ended December, SK Hynix swung to a 1.7 trillion won (US$1.38 billion) operating loss from a 4.2 trillion won profit a year earlier. The quarterly loss is the biggest since SK Group acquired Hynix in 2012.

In the fourth quarter, other chipmakers like AMD saw their PC chip group revenue decline 51% on a year-on-year basis. Intel declined by 36% but from a more extensive base. Both companies have also been facing a slump in the PC market after two years of elevated sales during the Covid pandemic.

What’s 2023 looking like for the smartphone and PC market?

Most chipmakers believe the recovery will not occur until the second half of this year. Samsung stated that “while the macroeconomic uncertainties are expected to persist, the company anticipates demand to begin recovering in the second half. “The semiconductor business will continue reinforcing market and technology leadership and expanding the proportion of advanced nodes and products, such as DDR5, LPDDR5x, and Gate-All-Around (GAA) processes,” Samsung noted in its statement. 

For the smartphone market, the South Korean giant expects the impacts of the economic downturn to continue for the time being. However, analysis of smartphone purchase patterns suggests that demand will continue to polarize between premium and low-priced phones. Even SK Hynix expects market conditions to improve gradually later in the year as chipmakers reduce supply and clients once again buy chips at low prices.

“Industry experts do not expect an increase in the supply of memory chips as market players are planning to reduce investments and production, which will lead inventories to peak within the first half,” SK Hynix said in a statement. To recall, SK Hynix said in October it plans to reduce its 2023 investment by more than 50% versus 2022 after warning of an “unprecedented deterioration” in memory chip demand.

AMD CEO Lisa Su, on the other hand, said that it expects the total PC market to be down 10% in 2023. Intel, like AMD, declined to provide a full-year forecast because of “the uncertainty in the current environment,” CEO Pat Gelsinger said on a conference call with analysts. For at least the first half of the year, Intel said it would deal with “persistent economic headwinds,” the company said in a presentation on its results.

 

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