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Samsung suffers falling profit but believes chip demand could pick up by the end of 2023

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Samsung Electronics Co Ltd reported a 31% drop in third-quarter profit on Thursday and said geopolitical uncertainties were likely to curb demand until early 2023 as the global economic downturn dampened appetite for electronic devices.

The world’s leading maker of memory chips and smartphones said despite global economic headwinds, demand for its semiconductors could pick up in the second half of next year as new data centers and computers require more memory.

“We are not considering an artificial production cut,” said Han Jin-man, executive vice president of Samsung’s memory business.

“Market demand has contracted right now, but… we have to prepare for a recovery in demand in the medium and long term.”

Samsung said it did not expect any changes to its memory chip investment plans for 2023, in contrast to smaller rival SK Hynix, which on Wednesday warned of an “unprecedented deterioration” in demand for memory chips and cut supply. investment by 2023 by more than 50%.

Samsung shares were flat in early afternoon trading, but SK Hynix fell 3.6%. The broader market was up 1.3%.

SCALE ECONOMICS

Although Samsung’s fourth-quarter profit is expected to decline further as memory chip prices continue to fall, Samsung will be better able to defend profits than its competitors due to economies of scale, according to analysts.

Samsung is expected to keep capex cuts to a minimum in 2023 versus 2022 – around 5% for memory chips – to continue its migration to more advanced manufacturing, which will initially reduce supply of certain chips due to to the new production process, said Wi Min-bok, an analyst at Daishin Securities.

Samsung’s operating profit fell to 10.85 trillion won ($7.7 billion) in the July-September quarter from 15.8 trillion won a year earlier, marking the first year-on-year decline in nearly three years, as profit from its chip business fell to 5.12 trillion won, down from 10.07 trillion won a year earlier

This figure matches Samsung’s estimate of 10.8 trillion won earlier this month. Revenue increased 4% to 76.8 trillion won.

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