January 6, 2023: Samsung’s profit could nosedive when it reports fourth-quarter earnings guidance this week as prices for crucial memory chips continue to tumble between weak demand.

Analysts anticipate Samsung to report 7.18 trillion South Korean won operating profit in the December quarter, according to Refinitiv consensus estimates. That would be closer to a 50% decline versus the fourth quarter of 2021.

People at Macquarie Research forecast Samsung to report a fourth-quarter operating profit of 5.5 trillion won, which would be the lesser since the third quarter of 2016. Daiwa Capital Markets analysts see an operating gain of 4.9 trillion won, a 65% year-on-year tumble that would be the weakest since the fourth quarter of 2015.

The pessimism stems from a sudden decrease in memory prices. Samsung is the world’s most significant player in so-called NAND and DRAM chips used in devices such as laptops and smartphones through data centres.

NAND and DRAM costs decrease sharply in the fourth quarter because of a lack of demand for the products they eventually go into, like PCs. This has led electronics manufacturers and firms that use such chips to hold onto their inventory, much-lowering demand for Samsung’s chips.

In a note published on Tuesday, Samsung is not exempt from the “memory firm carnage,” Macquarie analysts stated.

“The magnitude and pace of the memory price decline are parallel to the global financial crisis in 2008,” Macquarie said.

“A toxic combination of an end demand recession and excessive channel inventory which leads to high inventory level not experienced in a decade,” it added.

The analysts stated that they anticipate Samsung’s NAND firms to be loss-making in the fourth quarter, while DRAM is “likely to have a razor-thin profit margin” in the initial half of 2023.

Samsung’s semiconductor firm, including NAND and DRAM, accounts for almost 50% of the company’s operating gain. Therefore, any reach to the memory division will significantly impact the company’s overall profit.