Earnings shock recorded by Samsung and LG Electronics

Samsung Electronics and LG Electronics' operating profits plunged in the fourth quarter of last year. Samsung Electronics’ operating profit fell 69% year-on-year to 4.3 trillion won. It is the first time in eight years that its operating profit fell below 5 trillion won in the last quarter of the year, which is considered a peak season for the electronics industry, and the figures are far below market expectations. LG Electronics saw its operating profit drop by 91%, plummeting to 1/10 of the previous year. Major conglomerates leading the IT industry posted “earnings shocks” one after another.

It is true that corporate earnings deterioration was predicted to some extent due to an increasingly grim outlook of economic recession amid high-interest rates and high inflation seen the world over. Demand for home appliances, including TVs and smartphones, has decreased significantly due to slumped consumer sentiment, which has dealt a huge blow to the semiconductor market. In particular, the impact on memory chips, which account for 70% of Samsung Electronics' semiconductor division, was more serious than expected. Still, the extent and speed of earnings declines at Samsung and LGE are shocking.

Export prospects are also bleak due to China's economic slowdown. Considering the global economic uncertainty and sluggish business conditions, experts predict that major companies' earnings will rebound only in the second half of next year. Gartner, a market research firm, predicts that global DRAM and NAND flash sales in the memory semiconductor market will decrease by 18% and 14%, respectively, compared to last year. This means that declining sales, increasing inventory, and rising cost burden will not be easily resolved until the end of this year.

Even in this harsh economic environment, competition for technology and investment in key areas intensifies. Major foreign companies, such as Taiwan's TSMC, are making aggressive investments and racing to build new production plants. The US, Japan, and major European Union (EU) countries have started investing in and supporting semiconductor makers by joining forces in the public and private sectors. Attempts at a confederate approach, such as establishing a united semiconductor front, are also underway. Other fields, including mobile and home appliances, are no exception. As illustrated by "CES 2023," a global IT and home appliance expo in which more than 4,000 companies have participated, a competition for cutting-edge technologies and products is in full swing.

When nearly all companies tighten their belts, it is easy to contract investments. However, any company can immediately fall behind others in the high-tech IT field if the investment is neglected due to a recession. Therefore, it is necessary to build technological capabilities through strategic investments to compete when the economy rebounds after bottoming out. This is why the R&D activities of companies in their effort to secure super-gap technology are more urgently needed during challenging times.