Samsung’s Q2 Profit Drop Owing to the Chip Glut Effect

South Korean trailblazer Samsung’s Q2 earnings have taken a brusque plunge of 96 percent to $459 million. The forecast of Samsung’s Q2 profit drop will be recorded as the electronics pioneer’s lowest margin since 2009’s Q1. After previously recognizing its Q1 revenue decline due to the waning demand for memory chips between January – March, the chip glut effect on Samsung’s Q2 profit has continued. 

The Chip Glut Effect On Samsung’s Q2 Profit Drop 

In line with the forecasts, Samsung’s Q2 earnings fall has unfurled the company’s tendency to witness a profit drop at a 14-year low. The chip glut effect on Samsung’s Q2 profit has driven a huge downbeat outlook despite the company cutting back on memory chip production due to a global slowdown in demand in the inflation era. 

As one of the world’s largest memory chip and smartphone makers, Samsung’s Q2 profit drop from last year to this year is from 14.1 trillion won to 600 billion won ($459 million).

The impact of the chip glut on Samsung’s Q2 profits persists, but losses are expected to reduce due to a rise in sales of DRAM chips. In the January-March Q1, the chip business suffered from a loss of 4.58 trillion won as inventory values were slashed. But Samsung’s Q2 profit drop has likely followed the one-up of sales of DRAM chips which are a component of PCs, mobile phones, and servers. 

The estimated profit was in congruence with 555 billion won. But Samsung’s Q2 earnings decrease is attributable to nearly 22 percent. In the early morning trade, Samsung’s shares underperformed a 0.6 percent drop after falling 1.4 percent. 

“Although memory chip prices fell, the drop was not as huge as feared. When full earnings will be announced, investors will be seeking third-quarter signals – how much effect will the production cut have, any demand recovery, and whether the higher-end DRAM and high bandwidth memory (HBH) products show any chances of improving the company’s profit mix.”

The electronics giant is scheduled to release a detailed earnings report on July 27.

Samsung’s DRAM chips. (Image Courtesy – Samsung)

When Will Samsung’s Chip Glut Impact Dip Out?

Analysts have speculated that Samsung’s chip glut impact will dip by Q3. Albeit, the rebound will only start small. Samsung will have to show clear grit and resilience in such daunting times to maintain its vigor and strong history. 

“DRAM memory prices are expected to rebound in earnest from Q4 and double-digit quarterly increases can be anticipated from the latter half of 2024.”

If it were any of Samsung’s contemporaries, it may have pulled out of the investment with the chip glut effect. But Samsung is expected to maintain its rendition in 2023 which is likely to be paid off with an increased market dominance in 2025. 

Samsung hopes to get back its verve after unveiling foldable smartphones later this month in Seoul, weeks earlier than the conventional releases. Industry experts have dubbed this move as Samsung’s attempt at dominating the premium market longer than its competitor Apple’s new iPhone launch in September. 

It is also notable to deduce that Samsung’s smartphone profits in the third quarter appeared to be mixed because, despite the recent recovery in economic conditions, the consumer sentiment in the global smartphone market remained frail.