Samsung is the world’s biggest maker of memory chips. A lack of demand and a chip glut has put pressure on memory prices which could hammer Samsung’s profit.

Jakub Porzycki | Nurphoto | Getty Images

Samsung could report its worst profit in 14 years this week, as prices for memory chips, its biggest business, continue to fall, while demand stays weak.

The South Korean technology giant guided earlier this month that it would post operating profit of 600 billion Korean won ($449 million) for the first quarter. If Samsung reports this number, it would be the company’s lowest profit since the first quarter of 2009.

Samsung releases preliminary earnings guidance, but does not give detailed figures. It reports its full first quarter earnings on Thursday.

Samsung is the world’s largest maker of memory chips, which go into everything from PCs to servers in data centers.

During the height of the pandemic, demand for consumer electronics was high, as people stayed home. Electronics companies piled up chips to go into these products. But buyers are now cutting back on purchases of these goods due to inflation and macroeconomic concerns, leading to somewhat of a memory chip glut.

For example, PC shipments fell 29% year-on-year in the first quarter, according to IDC data.

Prices of memory chips have dropped over the past few months due to high inventories and lack of demand.

“The memory market is in the midst of its worst slump in decades. Even as EV (electric vehicle) markets grow, consumer electronics and traditional server markets are experiencing some of the most severe slowdowns,” CrispIdea said in a research note published last week.

Analysts at Mirae Asset Securities estimate that Samsung’s chip division will post a 4.4 trillion Korean won loss in the first quarter.

This month, Samsung said it was cutting production of its memory chips to a “meaningful level,” citing a worsening macroeconomic situation and falling consumer demand. Samsung had previously said it would not lower output, but has now followed rivals SK Hynix and Micron in doing so.

Investors hope that a production cut from Samsung, the world’s biggest memory chipmaker, will help boost prices, as companies dig into existing inventories.

Analysts at NH Investment and Securities said that Samsung earnings should “begin to rebound in earnest” in the third quarter of this year, adding that production cuts “will positively impact memory supply-demand dynamics.”

Mirae Asset Securities meanwhile said that it expects memory chip inventory levels at Samsung to peak in the second quarter, then go down demand for the company’s semiconductors picks up.

Still, analysts cautioned that there may be more pressure facing Samsung’s business ahead.

“Memory chip losses are expected to persist in the coming quarters as inventories remain at all-time highs, putting further downward pressure on chip prices,” CrispIdea analysts said. “Following the pandemic-era surge, tech demand has remained muted in the face of inflation and higher interest rates.”