Samsung's falling profits ring alarm bells on Korean economy
Frustrated by a drastic drop in profits, Samsung Electronics' co-CEO has said the company will continue to brace for daunting challenges throughout this year. "Worsening external factors such as sluggish demand paired with rising costs have dealt a severe blow to Samsung," Samsung's vice chair and co-CEO Han Jong-hee said in a press briefing Friday during the Consumer Electronics Show (CES) 2023 in Las Vegas. He said such unfavorable factors will continue to haunt the firm this year.
Han's remarks came after Samsung released a disappointing earnings guidance showing its operating profit in the fourth quarter of 2022 plummeted 69 percent from a year earlier to just 4.3 trillion won ($3.4 billion). Samsung was also estimated to have registered 301.7 trillion won in annual sales, up 7.9 percent from 2021, exceeding the 300 trillion won range in yearly sales for the first time since it was founded.
Yet such record performance was largely overshadowed by the drastic decline in operating profit. The sharp drop is expected to further dampen the national economy which relies heavily on exports for sustainability. The global economy has been struggling with a persistent economic recession, battered by surging commodity prices and high interest rates, resulting in sluggish demand for end-user products and semiconductors.
Some experts forecast Samsung and other chipmakers to be able to make a rebound once they endure the harsh business circumstances in the first half of this year. But such an optimistic perspective appears too rosy given diverse factors. For starters, chip prices will likely decline for a while. TrendForce, a leading market intelligence provider, forecast DRAM and NAND flash memory chip prices to decline by 10 percent to 15 percent in the first quarter of this year compared to the same period of 2022.
World Semiconductor Trade Statistics (WSTS) forecast the global semiconductor industry will dwindle 3 percent to 4 percent this year while market researcher Omdia said the prices of DRAM and NAND will likely drop 35 percent and 11 percent, respectively.
Despite such dire circumstances facing the domestic chip industry, it is deplorable for the government and the National Assembly to have failed to provide full-fledged support for the relevant companies. The Assembly, in particular, has taken flak for raising the tax breaks for chip producers by a mere 2 percent to 8 percent last month.
It is fortunate, albeit belatedly, for the Yoon administration to decide to increase the tax break to a maximum 25 percent. What matters is whether the opposition Democratic Party of Korea (DPK) will cooperate for the legislation, as it is the majority party holding 169 of the 299-seat Assembly. The government is poised to pass the bill during an upcoming February extra parliamentary session. The DPK should offer full-fledged support to help revitalize the sagging semiconductor industry.
Governments around the world are leaving no stone unturned to boost the chip industry as a key strategic sector. For instance, Taiwan, Korea's archrival, is seeking to expand the tax benefit to 25 percent from the existing 15 percent for its chipmakers. China is moving to cut the corporate tax by 50 percent to 100 percent.
Semiconductors are Korea's most significant industry, accounting for 20 percent of the country's total exports. It is noteworthy that the national economy faces a grave crisis whenever the chip industry suffers a setback. There cannot be partisan differences for the sake of national interests.
Most importantly, enterprises should double down on beefing up their global competitiveness. In this vein, major Korean chipmakers, such as Samsung Electronics and SK Hynix, deserve acclaim for having displayed products equipped with state-of-the-art technologies during the CES 2023. The time is now for businesses, the government and political parties to extract wisdom to find a breakthrough to revive the chipmakers.
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