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Samsung Experiences Over 95% Decline in Q2 Profits Due to Faltering Chip Demand

Samsung Electronics, one of the world's leading tech companies, sees a drastic fall in Q2 profits, mainly due to a decrease in memory chip demand

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Samsung Electronics, South Korea’s flagship company and one of the world’s largest producers of memory chips and smartphones, revealed on Thursday a significant decline of over 95 percent in operating profits for the second quarter. This decline is attributed to weak demand for memory chips in the global market.

In figures, the operating profit between April and June stood at KRW 668.5 billion, a sharp fall from KRW 14.1 trillion during the same period last year. Furthermore, Samsung’s net profit dropped 84.5 percent to KRW 1.72 trillion, with sales also witnessing a decline of 22.3 percent to KRW 60 trillion.

Despite the challenging Q2 results, the company remains hopeful for the rest of the year. The firm anticipates a gradual recovery in global demand in the latter half of the year, which should drive an improvement in earnings. However, it acknowledged that persisting macroeconomic risks could prove to be an obstacle.

South Korean chipmakers, spearheaded by Samsung, have relished record profits in recent years due to soaring product prices. However, the global economic slowdown has adversely impacted memory chip sales.

During the pandemic, demand surged as consumers turned to computers and smartphones while under lockdown, prompting chipmakers to increase production. However, as lockdown restrictions eased, and with escalating inflation and interest rates, demand dwindled.

Joanne Chiao, a TrendForce market analyst, predicts a further decrease in output of 9.3 percent this year, citing the overall weak economy. “Consumer demand has weakened, leading to budget cuts by companies and ongoing order cancellations,” added Chiao.

Nonetheless, the second half of the year could see a slowdown in the price decline of DRAM chips, often used in PCs and smartphones, as chipmakers restrict supply following a steep 18 percent plunge in prices during Q2.

Despite the hit to profits, Samsung continues to forge ahead with significant investments. The company has plans to pour $227 billion into building the world’s largest chip center in Yongin, south of Seoul, over the next two decades. Despite the present gloomy outlook, the company remains resolute, embodying the spirit of forward-thinking and resilience.

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