Samsung Expects Sluggish Demand to Drag On as Profit Slides

The South Korean tech giant reported a 69% drop in operating profit in the fourth quarter compared with a year earlier.

Demand for smartphones across all price ranges is expected to decrease on a quarterly basis in the first three months of this year due to the continuing economic slowdown and other factors contributing to macroeconomic instability, said Daniel Araujo, vice president at Samsung’s mobile business division. 

Conditions may improve in the second half of this year depending on macroeconomic shifts that could revive global chip demand. Memory orders could pick up as corporate and consumer spending bounces back based on changes in interest rate policies, China’s reopening and the potential for governments to unleash economic stimulus packages, Mr. Kim said.

Next-generation smartphones, servers and PCs that have been recently launched require more advanced memory in larger volumes that can also positively affect demand, he said. 

The outlook comes after Samsung reported its fourth-quarter operating profits slumped as the firm’s mainstay memory-chip and smartphone businesses grappled with a sharp drop-off in demand and high inventories. Samsung’s struggles are in line with the broader tech industry and follow disappointing earnings from peers such as

Intel Corp.

, which reported a net loss for the October-December quarter last week.

Samsung’s operating profit for the fourth quarter came to 4.31 trillion won, equivalent to $3.5 billion. Revenue for the three-month period fell by roughly 8% from a year ago to 70.5 trillion won.

The company’s net profit for the last three months of 2022 more than doubled to 23.84 trillion won, reflecting a one-time tax reduction based on new accounting procedures under a recent change in South Korean tax laws regarding dividends from subsidiaries, Samsung said. 

Samsung’s full-year net profit for 2022 totaled 55.6 trillion won, a 39.5% rise from a year earlier. Revenue for the full year came to 302.2 trillion won, up 8% from the prior year.

Samsung shares fell roughly 3.6% on Tuesday.

Global demand for tech products by consumers and companies dropped steeply in the second half of 2022, prompting big profit falls at semiconductor firms that had enjoyed a boom at the outset of the pandemic. Memory chips have seen prices fall significantly as supply has exceeded demand by a large margin, hurting profits for players including Samsung.

Samsung is the world’s largest producer of two major types of memory chips called DRAM, which enables devices to multitask, and NAND flash that provides storage on devices.

Industry analysts expect average contract prices of both types of memory to keep falling through the first half of the year, as demand remains sluggish and inventory levels high amid continued macroeconomic challenges and widening recessionary fears.

Samsung’s semiconductor business led by memory-chip sales saw operating profit for the October-December quarter drop by 96.9% from the prior year to 270 billion won, the company said. Semiconductor revenue for the three-month period declined 23.6% from last year to 20.07 trillion won.

Despite the current downturn, Samsung said it would keep its capital expenditure plans for 2023 similar to last year’s as it looks to prepare for mid- to long-term demand. The move contrasts with that of rivals that have already pulled back their capacity expansion plans or lowered output for this year to ease the supply glut. 

Samsung, however, signaled a near-term reduction in production through line maintenance and other adjustments. The firm also plans to increase the research and development portion of its capital expenditure compared with prior years.

The global smartphone industry too is in a slump, prompting profits to sink at Samsung, the world’s largest smartphone maker by shipments. The company’s mobile-and-networks division logged fourth-quarter operating profit of 1.7 trillion won, a 36.1% decline from a year earlier. 

Samsung’s smartphone business was hit by greater-than-expected declines in sales of mass-market devices, but sales of its pricier flagship models held up relative to the macroeconomic environment, said Mr. Araujo of Samsung’s mobile business division. 

Worldwide smartphone shipments during the fourth quarter—typically a strong quarter aligned with the holiday season—declined 18.3% from the prior year to 300.3 million units in the largest-ever decline in a single quarter, according to International Data Corp., a tech-market researcher.

With the global economic slowdown, and inflation and geopolitical tensions continuing, the smartphone market is expected to contract in 2023, with mass-market devices affected the most, Mr. Araujo said. 

While tough market conditions continue, Samsung is scheduled to launch its new Galaxy S23 smartphone series this week in the industry’s first major launch of this year. 

Write to Jiyoung Sohn at jiyoung.sohn@wsj.com