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Samsung Sees Smaller Smartphone Market In 2023; Won't Cut Chip Spending Despite Demand Slump

TheStreet logo TheStreet 1/31/2023 Martin Baccardax
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“Amid prolonging geopolitical issues, continued inflation, and the continued economic slowdown, we expect the smartphone market to contract in 2023," said Samsung vice president Daniel Araujo.

Samsung Electronics shares finished sharply lower in South Korean trading Tuesday after the world's biggest chipmaker confirmed its weakest quarterly profit in eight years and said it would maintain capital investment levels despite a slump in global demand.

Samsung, which published profit estimates for the December quarter earlier this month, said operating earnings came in at 4.3 trillion won ($3.5 billion), down 69% from last year and paced by 1.82 trillion won from its display business and 1.7 trillion from its mobile operations. Its chip division, however, saw profits slump to just 270 billion won - a 97% plunge from last year and the lowest in more than a decade.

Looking into the first half of the financial year, Samsung said it would maintain 2023 capex at 2022 levels of around $39 billion, but noted it could limit some production rates in order to better match muted customer demand and grow market share.

"A slowdown in demand for smartphones and personal computers are threatening the outlook for memory chips and other components," said Crispidea Research analyst Subhendu Behera. "Despite the fact that NAND has price elasticity, the situation is deteriorating. The market situation is even worse than in the past, and competition is intensifying. In the coming years, it will be critical for Samsung to deal with such adverse conditions while also maintaining its market share."

Samsung shares closed 3.63% lower at 61,000 won each in Seoul, trimming the stock's year-to-date gain to around 10.3%.

Competition in the global smartphone market, Samsung said, is expected to intensify amid what it described as "high demand uncertainty due to inflation and tight monetary policies" from central banks around the world. 

That said, the group sees the global market contracting this year, with lower-end phones impacted the most.

Samsung said it aims to "maintain leadership in the relatively solid high-end smartphone market by capitalizing on the technological performance gap and our cost competitiveness; and actively utilizing market changes that are accelerating the transition from LCD to OLED."

Apple  (AAPL) - Get Free Report, Samsung's key rival for high-end smartphones, will publish its December quarter earnings on Thursday, after the close of trading.

Supply chain disruptions, as well as upheaval at a key assembly facility in China, kept some of its high-end iPhone 14 Pro models off the shelves this holiday season, potentially trimming December quarter revenues. 

Apple is expected to see its bottom line fall 7.6% to $1.94 per share, with revenues in the region of $121.1 billion.

"Apple's (earnings update) will give a glimpse into the overall demand story for consumers globally while giving a snapshot of the China supply chain issues starting to slowly abates," said Wedbush analyst Dan Ives. 

"In our opinion Cupertino will likely be more prudent around its guidance for the March quarter which is the smart move with the Street already dialing down growth expectations and much bad news baked into the stock," he added.


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