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Samsung Electronics said on Friday it expects its fourth-quarter operating profit to fall 69% to an eight-year low as a global economic downturn hits demand for memory chips and smartphones.
The South Korean tech giant said operating profit for the October-December period may have slipped to 4.3 trillion won ($3.4 billion) from 13.87 trillion won, a sharp drop from a year earlier.
It would be the company’s worst quarterly profit drop since the third quarter of 2014.
Samsung said in a statement that fourth-quarter profit was “well below current market expectations,” blaming the performance on macroeconomic issues spurred by interest rate hikes by central banks around the world.
It said weaker demand for memory chips was “bigger than expected” as customers adjusted inventories … to further tighten finances.
It added that this was “followed by concerns about deteriorating consumer confidence.” [by] Persistently high global interest rates and a weaker economic outlook”.
Against this backdrop, the Galaxy smartphone maker also “saw a significant decline in memory business performance due to sluggish demand and weak smartphone sales,” it added.
It was the first time in four years that Samsung issued an explanatory statement alongside its earnings forecast.
The company is the flagship subsidiary of giant Samsung Group, by far the largest family-owned conglomerate that dominates Asia’s fourth-largest economy and is crucial to South Korea’s economy.
“Samsung Electronics is extremely important to the Korean economy,” Kim Dae-jung, a business professor at Sejong University in Seoul, told AFP.
“Judging by today’s announcement, this year is going to be a very tough one. Not only Samsung, but the entire Korean economy seems to have to come up with a good survival strategy for the coming year.”
The widely-anticipated fourth-quarter decline was Samsung’s second consecutive profit margin decline, with Samsung’s third-quarter operating profit down 31.39% year-over-year.
Until the second quarter of last year, Samsung and other tech companies benefited from strong demand for electronic devices and the chips that power them during the pandemic.
But the global economy now faces multiple challenges, including soaring inflation, rising interest rates and the growing threat of a widespread debt crisis.
The company is expected to release its final earnings report by the end of the month.
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