Samsung Electronics' Q4 operating profit set to plunge nearly 70%

Samsung Electronics predicted Friday that its 2022 fourth-quarter operating profit would plummet 69 percent from a year earlier, as its main semiconductors business faced major headwinds from weakening demand for chips and home appliances amid recession woes.

In its earnings guidance, the South Korean tech giant estimated its October-December operating profit to be 4.3 trillion won ($3.4 billion), down from 13.87 trillion won a year prior.

The figure was lower than the consensus 6.93 trillion won of local analysts provided by market intelligence FnGuide.

It was the first time in eight years that Samsung reported a quarterly operating income of less than 5 trillion won, dating to when the company logged 4.06 trillion won in profit for the third quarter of 2014.

"Amid persistent uncertainties over macroeconomics, chip sales plunged due to lower demand from memory chip and smartphone businesses," Samsung officials said.

"(Chip) prices continued to decline by a wider margin than expected following global suppliers' readjustments in inventories. Smartphone and home appliance sales also declined due to decreased consumer spending."

Sales for the October-December period are expected to fall 8.6 percent on-year to 70 trillion won from 76.57 trillion won a year earlier, the company said in a regulatory filing.

Last year's total operating profit likely dropped 16 percent to 43.37 trillion won from the previous year's 51.63 trillion won, but sales likely rose 7.9 percent to 301.77 trillion won from 279.6 trillion won over the cited period.

Samsung estimated its annual sales from last year to exceed the 300 trillion-won mark for the first time. Data for net profit was not available.

The world's largest memory chip and smartphone maker forecast its full-year sales to mark 301.6 trillion won in 2022, up 7.93 percent from 280 trillion won marked a year before. It is, however, lower than the market consensus of 304.8 trillion won.

The breakdown of financial results is set to be released on Jan. 31.

Despite the gloomy guidance, Samsung shares added 1.37 percent from the previous session's close to end trading at 59,000 won on Friday. Investors snapped up the tech shares hoping for a recovery later this year.

Market watchers forecast that an earnings improvement for Samsung will likely begin from the second half of this year. The tech giant is expected to cut its planned memory-related capital expenditures this year due to bigger-than-expected chip price declines, they said.

"The chip industry in general is reducing investment in memory output. Although Samsung has relatively better investment conditions than other firms, it is likely to scale back its investment, while its main chip business is estimated to log a deficit," said Doh Hyun-woo, an analyst at NH Investment.

"The effect of supply reduction following the investment reduction is expected to be concentrated in the second half when (chip) inventories will start to decline," the analyst added.

Yet Samsung said it had no immediate plans to cut memory chip production in October.

Lee Min-hee, an analyst at BNK Securities, saw the chip industry will continue to slump throughout the first quarter, but it is expected to recover from the second quarter once China's economy reopens more.

"A full-fledged recovery will be seen throughout the latter half this year," she said.