## The Memory Market Crash
Samsung Electronics Co Ltd, the world's largest maker of memory chips and smartphones, reported a 95% drop in its first-quarter operating profit on April 27, 2023. The company earned only 640 billion won ($478.55 million) in the January-March period, compared to 14.12 trillion won ($10.7 billion) a year earlier. This is the lowest profit level for Samsung since 2009, when the global financial crisis hit the electronics industry hard.
The main reason for the sharp decline was the slump in the memory chip market, which accounts for more than half of Samsung's profits. Samsung had been enjoying a boom in memory demand and prices since 2019, driven by the growth of cloud computing, artificial intelligence, and 5G networks. However, the market turned sour in late 2022, as supply outstripped demand and prices plummeted.
Samsung had anticipated a slowdown in memory demand and had stockpiled chips to avoid a possible shortage. However, this strategy backfired as the oversupply situation worsened and competitors cut production to adjust to the market conditions. Samsung was left with a huge inventory of unsold chips and had to slash prices to clear them. As a result, Samsung's semiconductor business posted a record operating loss of 4.58 trillion won ($3.4 billion) in Q1 2023, compared to an operating profit of 8.45 trillion won ($6.3 billion) in Q1 2022.
## The Smartphone Struggle
Samsung's smartphone business also suffered a setback in Q1 2023, as it faced stiff competition from Chinese rivals such as Huawei, Xiaomi, and Oppo. Samsung's mobile division reported an operating profit of 1.51 trillion won ($1.13 billion) in Q1 2023, down 42% from 2.62 trillion won ($1.97 billion) in Q1 2022.
Samsung's flagship Galaxy S23 series, launched in February 2023, failed to boost sales significantly, as consumers were not impressed by the incremental upgrades and high prices. Samsung also lost market share in the mid-range and low-end segments, where Chinese brands offered more affordable and innovative products.
Samsung's smartphone shipments declined by 8% year-on-year to 71 million units in Q1 2023, according to research firm Strategy Analytics. Samsung's global smartphone market share dropped to 21%, while Huawei increased its share to 18%, followed by Apple with 15%, Xiaomi with 12%, and Oppo with 9%.
## The Outlook for Recovery
Despite the dismal performance in Q1 2023, Samsung expressed optimism that its earnings would improve in the second half of the year, as the memory chip market stabilizes and its smartphone sales rebound.
Samsung said it expects memory demand to recover gradually from Q2 2023, as data center customers resume their purchases and new smartphone models adopt higher memory capacities. Samsung also said it would adjust its production and inventory levels to match the market conditions and enhance its cost competitiveness.
Samsung also said it would launch new smartphone models in Q2 2023, including the Galaxy Note23 series and the Galaxy Fold3, which are expected to feature foldable displays and stylus pens. Samsung hopes that these devices will attract premium customers and differentiate itself from Chinese rivals.
Samsung also said it would expand its presence in other businesses such as displays, logic chips, consumer electronics, and biopharmaceuticals, which showed positive results in Q1 2023 despite the overall downturn.
## Sources
- Samsung makes its stunning 95 percent profit drop official for Q1 2023 (April 26, 2023) https://arstechnica.com/gadgets/2023/04/samsung-makes-its-stunning-95-percent-profit-drop-official-for-q1-2023/
- Samsung flags H2 recovery after $3.4 billion chip loss in Q1 (April 27, 2023) https://www.reuters.com/technology/samsung-electronics-reports-95-plunge-first-quarter-profit-2023-04-26/
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