Samsung Electronics flags sharp Q4 profit drop on falling demand

Samsung Electronics on Friday said that it expected the fourth-quarter operating profits to plunge 69 percent, as the global downturn causes a sharp decline in demand for memory chips and smartphones.

The South Korean tech giant said operating profits for the October-December period likely slumped to 4.3 trillion won ($3.4 billion), a stinging year-on-year drop from 13.87 trillion won, BSS reports quoting AFP.

In a statement, Samsung said the fourth-quarter profits were "well below current market expectations", blaming the performance on macroeconomic issues, spurred by central banks around the world raising interest rates.

Weak demand for memory chips was "greater than expected as customers adjusted inventories... to further tighten finances spurred by concerns over deteriorating consumer sentiment caused by continued high global interest rates and weak economic outlooks".

Against that backdrop, the Galaxy smartphone maker "saw a significant drop in the memory business results due to lackluster demand and also weaker sales of smartphones," it added.

It was the first time in four years that Samsung issued an explanatory statement alongside their earnings predictions.

The firm is the flagship subsidiary of the giant Samsung Group, by far the biggest of the family-controlled conglomerates that dominate business in Asia's fourth-largest economy and one that is crucial to South Korea's economy.

The widely expected fourth-quarter drop is the second consecutive margin squeeze for Samsung, which saw a 31.39 percent fall in operating profits in the third quarter year-on-year.

Until the second quarter of last year, Samsung, along with other tech companies, had benefited significantly from strong demand for electronic devices -- as well as the chips that power them -- during the pandemic.

But the global economy is now facing multiple challenges, including soaring inflation, rising interest rates and a growing threat of a broad debt crisis.

The company is expected to release its final earnings report at the end of this month.