Samsung Electronics Co. Ltd. estimates that its operating profit plummeted 96% to a 14-year low in the second quarter.

The company shared the estimate as part of its preliminary quarterly earnings report, which was released early today. Samsung believes its consolidated operating profit amounted to 600 billion won, or $459 million, in the three months ended June 30. That’s down from 14.1 trillion won or about $10.8 billion a year earlier.

Samsung’s sales declined as well during the quarter. The company estimates it generated revenue of 60 trillion won, or $46 billion, which represents a 17.4% year-over-year decline.

Samsung’s preliminary earnings reports don’t break out revenue and profit numbers for individual business units. However, it’s believed the headwinds affecting Samsung’s chip business were a major contributor to its weak second-quarter performance. Samsung is the world’s largest maker of dynamic random-access memory and flash memory chips.

Over the past few quarters, the price of DRAM modules has decreased significantly, which is weighing on semiconductor makers’ margins. Demand is down as well due partly to a slowdown in personal computer and handset sales.

Samsung’s 96% profit decline came despite the fact it had projected a “limited demand recovery” in the memory chip market during the second quarter. When it published the projection in late April, the company said the recovery would be driven partly by increased demand from consumers. Samsung predicted that new smartphone launches and PC promotions would spur increased chip orders.

The company is not relying on consumer demand alone to restore its chip business’ profit margins. Earlier this year, the company announced plans to “meaningfully” reduce memory production, a move that could increase prices in the long term. SK Hynix Inc. and Micron Technologies Inc., Samsung’s top competitors in the memory chip market, earlier made similar moves.

Despite the industry headwinds, Samsung in April stated it would press ahead with a set of initiatives to upgrade its semiconductor production lines.

The effort’s first priority is to increase the amount of V7 and V8 flash chips the company can make. V7 and V8 are Samsung’s latest-generation flash memory architectures. The latter architecture, the more advanced of the two, provides 20% higher speeds and uses 14% less power than the former. 

In April, Samsung was also planning to speed up an initiative focused on repurposing its DRAM production lines to make DDR5 chips. DDR5 is the latest version of the DRAM memory technology. It offers significant performance improvements over previous-generation hardware, as well as power-efficiency gains. 

Samsung will use some of the repurposed production lines to make chips based on LPDDR5x. That’s a more power-efficient version of DDR5 optimized for smartphones. The technology is also used in certain other devices including compact laptops. 

Samsung and its rivals have all stated they expect memory chip sales to start rebounding in the second half 2023. According to the electronics giant, the demand uptick is set to be driven by high-performance computing customers such as supercomputer operators and the auto sector. 

Samsung is set to release its full second-quarter earnings report on July 27. 

Photo: Samsung