November 27, 2024

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A passerby stands in front of the Samsung Electronics store at its headquarters in Seocho-gu, Seoul. (Yonhap)

Samsung Electronics, which was predicted to post its worst quarterly earnings in 14 years in the second quarter, will likely hasten its earnings recovery from the third quarter, led by chip production cuts and the early launch of its new foldable smartphone series, analysts said.

On Friday’s earnings guidance for the April-June period released by Samsung, it said its operating profit in the period is expected to be 600 billion won ($462 million), down 95.7 percent from a year earlier. As for its earnings, the estimate is the worst since that of the first quarter of 2009 at 590 billion won.

Experts said Samsung had struggled as inventories of DRAM and NAND flash memory chips bulged significantly amid weak demand from key customers in the period. However, they said the company showed signs of being on the path to recovery, reducing its deficit in the memory chip business by cutting chip production and focusing more on high-priced products.

They further forecast that the tech giant will see a gradual chip inventory decrease in the coming months, as industrywide production cuts and a growing demand for inventory accumulation centered around high-performance PCs and Chinese smartphones.

“Memory chip industry conditions will likely move into high gear from the third quarter. The average selling prices of DRAM and NAND flash memory chips will also increase by 7 percent and 5 percent, respectively, in eight quarters,” said Doh Hyun-woo, an analyst at NH Investment & Securities.

According to market tracker FnGuide's earnings consensus, Samsung's operating profit in the July-September period is forecast to be at 3.7 trillion won, marking a nearly sixfold rise from the previous quarter. In April, the world's largest memory chip and smartphone maker announced it would cut production to a "meaningful level" to adjust the overflow.

“The chip production cuts will be reflected from August since the production lead time usually takes about four months. … It means that Samsung will likely see a narrowing chip deficit starting from the third quarter,” said Hyundai Motor Securities' research head Noh Geun-chang.

There are also observations that Samsung's Device Solution division, in charge of the tech giant's semiconductor business, will be back in the black in the fourth quarter. KB Securities predicted that the operating profit of the DS division would record 700 billion won, successfully breaking out of the red after a year.

Some market watchers assumed that the tech giant’s Device eXperience division, which oversees its smartphone and home appliance businesses, will likely narrow its deficit to some 2.3 trillion won in the third quarter from the second quarter’s estimated range of 3 to 4 trillion won.

While Samsung’s latest foldable smartphones -- the Galaxy Z Flip 5 and Galaxy Z Fold 5 -- are likely to be released in major countries around the globe next month, the latest smartphone devices are also expected to contribute largely to the company’s performance in the second half of this year.

Noh of Hyundai Motor Securities predicted the tech giant’s third-quarter earnings to reach above mid-3 trillion won mark, thanks to the massive global popularity of the Galaxy smartphones.

Previously, Samsung was able to prevent the company’s overall deficit in the first and second quarters with the latest flagship Galaxy S23 series’ strong global sales.

Samsung will kick off the summer edition of its unveiling event for its new foldable smartphone series for the first time in Seoul on July 26. It has moved the launch schedule forward from the usual August to July, a move which will likely positively affect the company’s third-quarter earnings.

By Jie Ye-eun (yeeun@heraldcorp.com)