Samsung’s operating profit margin may fall to single digits in 2023

Samsung disclosed its first quarter financial statement for the year 2023 in April, manifesting a revenue of 63.75 trillion Korean Won, which reflects an 18% year-over-year downturn and a 10% slump compared to the previous quarter. Additionally, the operating profit stood at 640.2 billion Korean Won, marking a striking 95% plunge year-over-year, shattering the 1 trillion Korean Won mark for the first time in 14 years. Consequently, Samsung has modified its longstanding stance on maintaining production levels, intimating adjustments in the output of storage chips.

As per the DigiTimes report, professional analytical bodies have signaled a red alert on Samsung’s performance in 2023, with an average anticipated operating profit margin of a mere 3.6% as projected by various analysts. It’s noteworthy that Samsung last experienced a single-digit operating profit margin back in 2011, being 9.8%, and a decline below 5% traces back to the earlier days of 2008.

The average figure of 3.6% indicates that Samsung’s operating profit margin is subpar compared to the manufacturing industry’s average, with statistical data demonstrating that the average operating profit margin for the manufacturing sector ranged between 4% and 8% from 2018 through 2022. To put it bluntly, Samsung’s operating profit margin is even surpassed by the food industry. Although several factors have contributed to the decline of Samsung’s operating profit margin, the general consensus suggests that Samsung’s paramount challenge is the precipitous drop in earnings.

By reversing Samsung’s expected operating profit margin, it can be inferred that the company’s revenue in 2023 is predicted to shrink by approximately 11.9%, and the annual operating profit might drop by roughly 78.1%. Analysts are anticipating a total annual revenue of about 266.15 trillion Korean Won in 2023 for Samsung, with a yearly operating profit of approximately around 9.49 trillion Korean Won, marking the first drop below the 10 trillion Korean Won mark since 2008.

Recent actions taken by Samsung appear to reveal signs of operational turmoil, such as the abrupt replacement of numerous executives in charge of wafer foundry and memory technology development. Historically, Samsung would usually conduct personnel changes at year-end. However, Samsung has now replaced senior management staff for two consecutive years, suggesting a fairly severe situation the company currently confronts.