[2023, year of the crisis] Demand at half mast for consumer electronics due to inflation, difficulty in the semiconductor market… Samsung finds itself stuck by the economic downturn in its two flagship activities. The South Korean giant is recording a serious drop in profits, just when it wants to invest to make its model more resilient.

The storm is brewing again for major electronics sellers. Not yet quite out of the supply problems caused by the pandemic, they are already affected by the slowdown in the global economy. Against a backdrop of inflation, the sudden slowdown in demand hits Samsung in two ways, as an equipment manufacturer and component supplier. The Korean company nevertheless wants to take advantage of the situation to regain the market share nibbled away by its rivals. A risky but important bet, in a sector of new technologies where there is no shortage of fallen glories.

A brand well known to the general public, Samsung has seen its activity as a smartphone manufacturer lose ground since the days when the company was, with Apple, at the forefront of innovation. Technical problems with the Fold and S22 models have tarnished its reputation in a hyper-competitive market, so much so that the group now generates the bulk of its profits as a supplier of electronic chips.

Regaining Ground by Selling at a Loss

The position of the South Korean group on the semiconductor market is also threatened. After production delays Samsung has seen, according to the Financial Times, major customers leave for its Taiwanese rival TSMC in the summer of 2022. At the same time, American and South Korean competitors are eating away at its dominant position in segments specific, such as memory chips.

Weakened in its preferred segments, the company responded by mobilizing major resources. A $150 billion investment plan has been committed in 2021 to overtake TSMC in the nanochip market by 2030. And Samsung has refused to cut capital expenditure unlike most of its competitors.

The impact of this strategy on results is beginning to be felt, with rising chip stocks driving prices down. Samsung presented forecast results for the fourth quarter of 2022 in early January at the lowest level since the 2008 crisis. This is the third period in a row of slowdown, marked by production problems in China at… Apple, a of its main customers.

A Relatively Resilient But Not Very Durable Model

Despite the joint decline in chip revenue and consumer product sales, Samsung is not yet posting a net loss. They could arrive in 2023 if the company does not reduce its sails, while waiting for a market rebound in 2024, according to the predictions of the American investment bank JP Morgan, quoted by the Financial Times.

In addition to its financial strength, Samsung is well positioned in the context of the “semiconductor war” in the making between Beijing and Washington. The company moved its chip production out of China in 2019 to diversify into four other Southeast Asian countries.

The recession therefore complicates Samsung’s recovery efforts, but presents it with a costly opportunity to jostle its competitors. The group would be well advised to also work on reviewing its climate strategy. It was at the bottom of the table in the latest ranking by the NGOs Greenpeace East Asia and Stand.earth on the sustainability of new technology companies. In question, a low share of renewable energies in its energy consumption, as well as vague ambitions on the decarbonization of its value chain. Its commitment to carbon neutrality by 2050 still does not cover scope 3, i.e. the emissions generated by the use of its products.

This article is originally published on novethic.fr