Samsung's profits plunged in 2022 due to weak chip and smartphone demand

Samsung has revealed a sharp decline in profit for 2022, mainly due to the weak demand for its chips and smartphones, which are the company's main moneymakers. The Korean tech giant has posted KRW 302.23 trillion (US$245.4 billion) in annual revenue, which is a new record high for the company, in its latest earnings report. But it has also reported an operating profit of KRW 43.38 trillion (US$35 billion) for all of 2022, down KRW 8.5 trillion (US$6.9 billion) from the year before. 

"The business environment deteriorated significantly in the fourth quarter due to weak demand amid a global economic slowdown," the company explained. While the tech giant's Foundry business posted an increase in profit due to customer and application diversification, its semiconductor business performed poorly as a whole. There was weak demand for its chips overall, as customers adjust and reduce their inventory in the face of economic uncertainties. Its chips' prices also dropped, mostly likely due to a surplus in unsold inventory, contributing to the business' decline in earnings for the year. 

In the fourth quarter of 2022, Samsung's semiconductor business earned KRW 20.07 trillion (US$16.3 billion) in consolidated revenue but only KRW 0.27 trillion (US$219 million) in operating profit. For comparison, it posted a consolidated revenue of KRW 26.01 trillion (US$21.6 billion in early 2022's conversion rates) and an operating profit of KRW 8.84 trillion (US$7.35 billion) for Q4 2021. Samsung is bracing for this downward trend to persist throughout the next few months, though it expects demand for its semiconductors to pick up in the second half of the year. 

Similarly, the demand for smartphones remained weak in the fourth quarter of 2022. Sales for Samsung's more affordable phones went down, and while flagship sales held up to market expectations, they're still lower than previous quarters'. The company expects demand for mass market smartphones to weaken even further in 2023 "due to persistent macroeconomic conditions." But since it also expects demand for premium devices to stay solid, it vows to strengthen "the competitiveness of its premium flagship products." To note, Samsung will hold its first Unpacked event of 2023 on February 1st where it will most likely unveil its next flagship phone, the Galaxy S23. 

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