By Joyce Lee
SEOUL (Reuters) - Samsung Electronics (KS:005930)' third-quarter profit is expected to drop 80% from a year earlier as the effects of an ongoing global chip glut drive losses in what is normally the South Korean tech giant's cash cow business.
The world's biggest maker of memory chips, smartphones and televisions will announce its third-quarter preliminary earnings results on Wednesday.
Operating profit likely fell to 2.1 trillion won ($1.56 billion) in the July-September quarter, according to a LSEG SmartEstimate from 19 analysts, weighted toward those who are more consistently accurate.
It compares with an operating profit of 10.85 trillion won in the September quarter last year.
The reversal is because its chip division, traditionally its biggest earner, likely reported quarterly losses of between 3 trillion and 4 trillion won after rock-bottom memory chip prices did not recover as fast as some had predicted.
Analysts said Samsung's cuts to chip production also hurt economies of scale, lifting the costs of making chips.
After first announcing an output cut in April, analysts said Samsung slashed more production in the third quarter to reduce inventory and weather a chip glut driving the worst industry downturn in decades.
Rival Micron Technology (NASDAQ:MU) forecast a quarterly loss last month, triggering concerns of a sluggish recovery in the memory chip maker's end markets such as data centres.
Smartphone and personal computer makers have been refraining from buying new memory chips, opting to use up their existing inventory for months on concerns of an economic downturn.
Their inventories are now low enough that demand is expected to rebound by early next year, analysts said.
Samsung received its first order in a year for server memory chips from a North American data centre firm recently, KB Securities said in a note late last month, raising hopes that data centre clients will also start buying chips again.
Strong demand for memory chips used in artificial intelligence such as high bandwidth memory (HBM) remains a bright spot, but Samsung is behind rival SK Hynix in developing such chips and securing clients like AI-chip leader Nvidia (NASDAQ:NVDA).
Samsung's mobile business likely reported an operating profit of around 3 trillion won, according to an average of forecasts from five analysts, as the company launched its premium foldable smartphones during the quarter, drumming up sales despite the sluggish global smartphone market.
($1 = 1,347.1300 won)