As the global chip hegemon, Samsung has "once again" encountered a significant setback.
Samsung Electronics' preliminary data for the second quarter of this year shows that the sales during this period reached 60 trillion won, approximately 332.8 billion yuan, a year-on-year decrease of 22.3%, and the operating profit was 60 billion won, approximately 3.3 billion yuan, a year-on-year decrease of 95.7%.
Following the first quarter of 2009, Samsung has set a new low for single-quarter profits in 14 years.
However, it is not too surprising that Samsung has presented this report card, as this is already the "third consecutive decline."
In the fourth quarter of last year, Samsung Electronics' operating profit plummeted by 69% year-on-year, and by the first quarter of this year, Samsung Electronics' operating profit once again plummeted by 95%, which can be described as quite severe.
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In response, even the South Korean media, which had previously taken pride in Samsung, was greatly disappointed, directly turning their criticism towards Samsung:
"Samsung has brought great shame to South Korea."
But how could such a chip giant, which has dominated the global market for many years, collapse so suddenly?
"When the city gate catches fire, the fish in the moat suffer."
As is well known, in order to curb the development of China's semiconductor industry, the United States, in addition to taking direct action itself, also does not forget to bring along a few "loyal allies," employing every possible means.For instance, Japan has officially announced the implementation of export control measures for semiconductor manufacturing equipment. Previously, media reports revealed that the United States, Japan, and the Netherlands signed a trilateral agreement to impose stricter control measures on semiconductor exports to China.
As a loyal "pioneer" for the United States, South Korea naturally has to align with the stance and assist the U.S. in limiting chip exports to China.
However, the issue lies in the fact that China is the world's largest semiconductor market and also the largest client for South Korean chip giants like Samsung.
In 2021, the value of chips imported from South Korea to China reached a staggering $162.9 billion, accounting for 39.7% of South Korea's chip export volume.
Consequently, following the U.S. in restricting chip exports to China, Samsung is now facing a situation where it has the technology and chips but no place to sell them.
The technology war between China and the U.S. is intensifying, but it's the South Korean chip giants that are struggling to hold on first. This is a classic case of "when the city gate catches fire, the fish in the moat suffer."
Samsung used to rely on the Chinese market for sustenance, but now, even its "rice bowl" has been kicked over, and its performance naturally plummets directly.
Forced to concede benefits to the U.S.
Upon reviewing Samsung's second-quarter earnings forecast, one peculiar aspect is that although both sales and profits are declining, the extent and proportion of their decline are vastly different. Sales have dropped by 22.3%, while operating profit has plummeted by nearly 96%.Logically speaking, Samsung has lost a significant portion of the Chinese market, so it's reasonable to expect a decline in sales. However, the profit margin should align with the growth rate of sales. Despite selling a considerable amount of goods, why hasn't Samsung made much money?
In reality, this is still a result of America's actions. South Korea, following the United States' restrictions on China's semiconductor industry development, has seen Samsung invest $17 billion in building factories in the U.S. to secure American semiconductor subsidies. Additionally, Samsung has been selling semiconductors to the U.S. at lower prices. This means that the chip share that was originally meant for China has been sold to the U.S. at a much lower price, essentially "breaking even and giving concessions."
Looking at Samsung's profit decline rate and sales drop data, it is conservatively estimated that they are offering a 50% discount to the U.S., making very little profit.
Moreover, it's worth mentioning that recently Micron was banned from selling in China, which could have been an opportunity for Samsung to capture some market share and catch a breath. However, the U.S. intervened again, not only demanding that Samsung not fill the market share reduced by Micron but also requiring Samsung not to expand its production capacity in China by more than 5%.
When domestic manufacturers like Yangtze Memory heard the news, they couldn't help but want to send a barrage of rockets to the U.S., exclaiming "666" (a Chinese internet slang for "amazing").
What is this? This is the true spirit of internationalism, handing over market share and profits for free.
But seeing the cake right in front of them and not being able to eat it, Samsung must be bleeding internally, having been played too harshly by the U.S.The Rise of Chinese Chip Companies
Of course, although there are many external factors that have led to a sharp decline in Samsung's profits, the most critical reason is the rise of our Chinese chip companies.
For example, in the past, chip giants like Samsung and Micron monopolized the Chinese market, and they could raise prices with just an excuse, often citing factory fires or power outages.
However, once Chinese memory chip companies rose to prominence and domestically produced high-quality yet affordable memory modules hit the market, such news suddenly disappeared. Chinese manufacturers have unexpectedly become their best "firefighters."
Take, for instance, the two most critical sub-tracks in the storage chip industry: Non-Volatile Memory (NAND) and Dynamic Random Access Memory (DRAM). Previously, Samsung was the undisputed industry leader.
But chip manufacturers, including ChangXin Memory, Yangtze Memory, and GigaDevice, have made significant progress, pulling Samsung off its throne.
The NAND market, which was monopolized by Samsung and five other manufacturers, has been caught up with by Yangtze Memory in just a few years. The technology and production capacity of Chinese storage chip companies have improved.
Most importantly, the rise of Chinese companies has directly driven down the prices of storage chips, forcing chip giants like Samsung to follow suit.
According to a report by the analysis agency Trendforce, the current chip prices are only 1/4 of what they were three years ago, having dropped significantly.
Faced with this situation, Samsung is under tremendous pressure and is finding it increasingly difficult to cope, truly feeling "overwhelmed." Moreover, the days ahead will become increasingly challenging.