Samsung Electronics announced a staggering 96% plunge in first-quarter operating profit on Friday, significantly worse than analysts had forecast. The company's operating profit fell to 600 billion won ($455.50 million) for January-March, down from the previous year's impressive figure of 14.12 trillion won.
The South Korean tech giant attributed this massive decline to a worsening chip glut and buyers slowing purchases amid global economic slowdowns. Revenue likely fell by around 19%, amounting to approximately 63 trillion won when compared with the same period last year.
"The current market conditions are challenging due to various factors such as declining memory chip sales worldwide," said Hwang Min-seong, Senior Analyst at Samsung Securities Co., Ltd., "Our primary focus is on sustaining our competitiveness by addressing these challenges head-on."
As part of their strategy moving forward, Samsung Electronics has announced plans to cut chip production due primarily to unfavorable global economic conditions.
"Reducing demand for memory chips will be one of our key initiatives during this difficult time," commented Lee Jae-yong, Vice Chairman of Samsung Group, "We must also explore new ways that we can improve efficiency and minimize costs throughout all aspects of our business operations."
A drop in profits like this could greatly impact South Korea’s economy since major family-run conglomerates like the prestigious Samsung Group hold significant sway over it.
Despite facing challenges within its semiconductor division which accounts for two-thirds its total earnings; experts believe that strong smartphone sales might help alleviate some pressure off the organization moving forward into Q2.
"We remain cautiously optimistic about an improvement in Q2 performance with potential growth drivers including increased consumer spending spurred by government stimulus packages and easing trade tensions between U.S.A & China," stated Park Sung-soon analyst at Cape Investment & Securities Co., Ltd.
Samsung shareholders and investors eagerly await detailed earnings reports set for release later this month. This will shed more light on the company's current financial state and provide a clearer picture of Samsung's new strategies for overcoming these challenges in their semiconductor business.