Samsung Electronics' semiconductor business posted an operating loss of 4.58 trillion won ($3.4 billion) in the first quarter due to the prolonged downturn of the global chip industry, the chip giant said, Thursday. Despite suffering slumping demand and price declines, the company expects its business will rebound in the second half of the year as it has reduced output and customers' chip inventories will be normalized around that time.

Samsung also stressed that even though it is down now, it is preparing for the future, investing a record 6.58 trillion won in research and development and 10.7 trillion won in facilities, the largest first-quarter injection in its history.

In its first-quarter earnings announcement, Samsung said its sales came to 63.74 trillion won, down 18.1 percent from the same period in 2022, and its operating profit was at 640.2 billion won, down 95.5 percent year-on-year.

This is the first time that Samsung's quarterly operating profit has dipped below 1 trillion won since the first quarter of 2009, when it hit 590 billion won.

By segment, a whopping 4.58 trillion won operating loss in the Device Solutions (DS) division, which supervises the semiconductor business, was the main reason for the performance deterioration.

The Device eXperience (DX) division, which deals with smartphones and home appliances, offset the semiconductor losses, generating an operating profit of 4.21 trillion won in the first quarter. Among that, 3.94 trillion won was generated from the MX business under the DX division that covers smartphones.

Samsung attributed the boost in the MX business to the Galaxy S23 smartphone series, which was launched in February. The company sold over 1 million Galaxy S23 smartphones in Korea and 11 million globally. The smartphones continue to outperform the previous models in the global market.

But for Samsung, the earnings of which are heavily dependent on semiconductor sales, the company has to hope for a resurgence in demand.

Kim Jae-june, executive vice president of Samsung's DS division, said the company expects semiconductor demand to pick up in the second half of the year.

"We are revising memory chip production downward," Kim told investors during a conference call. "We expect the size of the production cut to be much more meaningful, inventory levels to decline starting in the second quarter and demand to pick up gradually in the second half of the year as customers adjust their inventories."

However, experts said it remains to be seen if Samsung will be able to deliver an improved performance in the following quarter.

"The expected reopening effect in China is still limited to service sectors such as restaurants and travel, and everyone is bracing for a possible recession even if customers' inventories have been depleted to a certain extent," said Hwang Min-seong, an analyst at Samsung Securities.

By: DocMemory
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