Samsung Electronics is set to announce its preliminary results for the fourth quarter of last year on the 8th, while domestic securities firms are adjusting their operating profit forecasts downward. Following the third quarter of last year, the sluggish performance in the general-purpose DRAM, NAND flash, and foundry businesses continued, leading to decreased profit expectations due to a decline in smartphone shipments and a sharp drop in display operating profits.
According to a comprehensive estimate by the securities industry on the 7th, Samsung Electronics is expected to report fourth-quarter sales of around 76 trillion won and operating profits in the 7 trillion won range. The operating profit forecast for the fourth quarter, which was expected to reach 15 trillion won as of last August, has been lowered successively to 12 trillion won, 10 trillion won, and finally to 7 trillion won in recent consensus. This figure represents a decrease of more than 23% compared to the previous quarter (9.18 trillion won).
◇ Struggling with intensified competition in DRAM and NAND... Foundry continues to report losses
Mirae Asset Securities recently adjusted its fourth-quarter sales forecast for Samsung Electronics from the previous 74.4 trillion won to 73.6 trillion won, and its operating profit forecast from 8.9 trillion won to 7.7 trillion won. Samsung Securities raised Samsung Electronics' fourth-quarter sales forecast to 79.625 trillion won but lowered the operating profit forecast to 7.26 trillion won, a decrease of 28% from the original estimate. Korea Investment & Securities also projected that Samsung Electronics would achieve sales of 74 trillion won and operating profits of 7.3 trillion won in the fourth quarter.
The main reason for Samsung Electronics' poor performance is that the key DS (semiconductor) institutional sector has yet to find a breakthrough. It is estimated that both memory and non-memory segments reported disappointing results in the fourth quarter. In the memory sector, the aggressive pricing strategy has led to a decline in profitability, and expansion in the high-end market has stagnated. The display sector is also experiencing reduced profitability due to intensified competition, and this adverse impact is expected to continue into the first half of this year.
In particular, the decline in prices for DRAM, NAND flash, and enterprise solid-state drives (SSDs) in the fourth quarter of last year significantly impacted Samsung Electronics. By the end of December, the price of general-purpose NAND flash products (128Gb 16Gx8 MLC) for memory cards and USBs was $2.08, a 3.48% decrease from the previous month ($2.16). As a result, NAND flash prices dropped drastically from $4.72 in January last year to about half by December last year. Although the decline in DRAM prices has stopped, they remain stagnant. DRAM prices fell by 2.38% and 17.07% in August and September last year, respectively, before plummeting by 20.59% in November. The price of DRAM, which was $1.80 in January last year, fell by 25% as of December last year.
Lee Jong-wook, a researcher at Samsung Securities, noted, "Samsung Electronics' fourth-quarter performance will generally be affected by weak demand," adding that "due to inventory adjustments in smartphones and PCs, the fourth-quarter DRAM bit growth estimate was revised down from -5% to -12%." Kim Young-geon, a researcher at Mirae Asset Securities, stated, "For the DS institutional sector, we focused on adjusting the DRAM segment downward," explaining that "the decline in fourth-quarter DRAM contract prices resulted in a 3.3 percentage point decrease in DRAM's average selling price (ASP) and reflected the possibility of setting provisions for inventory evaluations."
While competitors like SK Hynix are offsetting their underperformance in the general memory market by leveraging high-bandwidth memory (HBM), Samsung Electronics continues to face challenges in its HBM business. Cha Min-sook, a researcher at Korea Investment & Securities, explained, "Being left out of the upswing centered around artificial intelligence (AI) and HBM is a major reason for the decline in Samsung Electronics' stock price," adding, "However, as the entry point for Nvidia's supply chain approaches, these discount factors will likely be resolved."
◇ Smartphone shipments also saw a steep decline… Display operating profit halved
The MX division's profitability continues to face challenges. During the seasonal off-peak, it is losing market share to Apple in one of its largest markets, North America, while in emerging markets like India, sales are declining due to competition from Chinese smartphone companies. Although the global smartphone market grew by 6.2% last year compared to the previous year, it is understood that this growth was mainly driven by low-cost models in emerging countries and China, benefiting Chinese corporations.
As a result, domestic securities firms are projecting Samsung Electronics' MX division operating profit for the fourth quarter last year to be around 2.4 trillion won. The profit from smartphone sales is estimated to be in the low 2 trillion won range. There is a prevailing outlook that operating profit will decrease by about 400 billion won compared to the same period last year due to intensified competition and increased marketing expenses.
Additionally, it is analyzed that profitability in the TV and home appliance sectors has declined due to intensified competition and increased marketing expenses from Chinese corporations. The display business is also expected to see operating profit decrease from 2 trillion won in the fourth quarter of 2023 to around 900 billion won in the fourth quarter of last year, due to inventory adjustments by major clients and weak demand. Shin Seok-han of Daishin Securities stated, "The recovery of Samsung Electronics' performance is expected to be delayed until the second quarter of this year," adding that "improvements in performance should be anticipated in the second quarter with the recovery of the semiconductor market and expanded HBM supply."