Samsung Quarterly Profits Down 95 Percent: Company Blames Reduced Consumer Spending And Chip Oversupply?

Samsung posted an abysmal quarterly profit report. The Samsung Electronics division's operating profits fell 95 percent compared to the same quarter of last year.

Samsung appears to be reeling under the combined impact of the receding pandemic, recession, and significantly reduced consumer spending. The South Korean tech giant's quarterly profits for the electronics division have fallen sharply, revealed its latest quarterly P&L statement.

Regressive Consumer Spending And Oversupply Reason Behind Samsung's Poor Profits?

Samsung Electronics has revealed that its operating profit fell to KRW 640 billion (approx. ₹3,900 Crores). Compared to the same quarter last year, this figure has shrunk by a whopping 95 percent.

The South Korean company's first-quarter net income dropped 86.1 percent to KRW 1.57 trillion (approx. ₹ 9,575 Crores). The total sales have dropped 18 percent to KRW 63.75 trillion (approx. ₹3,89,000 Crores).

Samsung has indicated the considerable reduction is primarily due to changing consumer habits, and more specifically, reduced spending. The company noted, "Overall consumer spending slowed amid the uncertain global macroeconomic environment".

Simply put, Samsung has blamed the drastically changing global economy holding consumers back from spending on goods and products. The company indicated it is taking necessary remedial action.

Samsung To Scale Back Production And Try To Match Consumer Spending Trends

One of the major products of Samsung Electronics is the memory chips. This one category alone, usually generates about half of the company's profits. The excessive oversupply of memory chips in anticipation of renewed growth and consumer spending may have had a negative impact on the company.

Samsung Electronics is the flagship subsidiary of the giant Samsung Group. Hence, any impact on the profits or revenue of this group has a noticeable effect on the whole group.

This is the third consecutive and equally significant drop in quarterly operating profits for Samsung Electronics. The division's operating profits fell by 70 percent in the fourth quarter of 2022 on a quarter-on-quarter basis.

Samsung has indicated that it will scale back memory chip production to a "meaningful" level. The company is essentially trying to correct oversupply.

Incidentally, South Korean chip maker SK Hynix and Micron Technology of the United States have reduced production. Cumulatively, this trio controls the manufacture and supply of the majority of the memory chips used in nearly every electronic device.