How Samsung’s Declining Profit Is Affecting The Big Tech Giant in 2022

How Samsung’s Declining Profit Is Affecting The Big Tech Giant in 2022

After cooling consumer electronics demand damaged its semiconductor division, Samsung Electronics Co.’s quarterly profit fell short of projections, raising questions about the future of Big Tech in 2022.

The largest manufacturer of smartphones and screens in the world announced a lower-than-anticipated 16 percent increase in net income, illustrating how it is still coping with growing uncertainties about a potential global recession.

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The company’s semiconductor division’s revenue fell short by around 22% of analysts’ expectations despite being the top memory maker in the world.

Major chip purchasers Apple Inc., Amazon Inc., and Microsoft Corp. are cutting their spending for the upcoming year, which will hinder chipmakers’ ambitions to increase their production capacity.

Samsung joined a growing list of IT titans in issuing a warning about the deteriorating demand for PCs and mobile phones in the second half of the year due to the unpredictability of the global economy.

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Consumer spending is slowing down, according to Qualcomm Inc., the company that makes smartphone processors, and SK Hynix Inc., a competitor in the memory market, forecasted slowing growth and rising inventories in the next quarters.

How Samsung’s Declining Profit Is Affecting The Big Tech Giant in 2022

Samsung’s shares stood largely unchanged in Seoul.

The largest corporation in Korea said on Thursday that its net income increased to 10.95 trillion won ($8.3 billion) for the three months that ended in June, falling short of expectations for 11.2 trillion won.

The semiconductor division’s sales increased by a less-than-expected 24 per cent to 28.5 trillion won, falling short of expectations of roughly 36.7 trillion won.

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However, the smartphone and networking segment outperformed predictions, growing by 29% to 29.3 trillion won.

Samsung faces a challenging balancing act as the business, its manufacturing clients, and its suppliers all attempt to predict the degree of future consumer demand weakness in the face of component shortages and rising material costs.

“With the huge amounts of uncertainty in the market, driven by a wide variety of macro issues, we will flexibly supply memory chips by using inventory,” said Han Jinman, executive vice president at Samsung’s semiconductor business at a post-earnings conference call.

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Lead times remain long for tools to make semiconductors, due to chronic issues with parts supplies.

In the long run, this could mean delays in adopting new lines that process more powerful chips faster, Han said.

“There are structural constraints in production. We expect market bit growth of DRAM will be significantly lower next year.”

How Samsung’s Declining Profit Is Affecting The Big Tech Giant in 2022

Regarding short-term investments in equipment, Han reiterated the company’s stance to flexibly respond by regularly reviewing changing market conditions.

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In the longer run, chip sales are growing much more slowly than expected and will begin to decline in 2023, Gartner said in a report, marking an end to one of the sector’s biggest boom cycles.

Hynix said Wednesday it revised down its chip shipment growth for the current quarter and added it’d significantly adjust its capex for next year due to a high level of inventories throughout the market.

In contrast, Texas Instruments Inc., which has a wider range of chip products, gave a bullish outlook for the current quarter as it sees demand recovery after lockdowns in China hit sales.

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“The global semiconductor market is entering a period of weakness, which will persist through 2023 when semiconductor revenue is projected to decline 2.5%,” Richard Gordon, a Gartner analyst, said in the report.

PC shipments will contract 13% in 2022 after two years of growth, Gartner predicts, while smartphone sales will rise just 3.1% this year after surging almost 25% in 2021.

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