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Samsung’s holiday profits were severely hit by inflation’s bite on consumers

With many companies reporting lower holiday revenue in 2022 compared to 2021, this earnings season is shaping up to be a doozy. Even though Samsung Electronics, the largest Android device manufacturer in the world and the maker of some of the best phones, has announced disappointing financial results, the company still ends the year with a big brag and big shareholder returns.

Revenue dropped by 8% to KRW 70.46 trillion ($57 billion) in the company’s fourth quarter compared to the same period in 2020, while expenses were relatively stable year over year but increased as a percentage of sales. In consequence, operating turnover dropped by 69% to KRW 4.3 trillion ($3.5 bn). All of these numbers are down significantly from Q3.

However, this is excellent news for stockholders. This unusually high earnings of KRW 3.46 per share results from a one-time tax adjustment made by the company in response to a change in Korean law. This change, however, does not account for a tax refund or its actual tax payments, so perhaps we shouldn’t put too much stock in it.

Sales of components like mobile device displays, memory, and other semiconductors have slowed, the company reported. If you’ve been reading analyst notes, you know that revenue from consumer appliances and smartphones has also dropped. However, Samsung’s chip manufacturing business expanded to new heights, the company’s cellular networking equipment bucked industry trends, and Samsung’s large-panel TVs continued to sell well.

The company’s annual results were as follows: revenue increased by 8% to a record KRW 302 trillion, but operating profits decreased by 16% to KRW 43.38 trillion.

We heard a hint of this drive from a Samsung executive last month, who said the company plans to push its mobile division hard this year, with the goal of achieving “strong sales and solid profitability” with increasingly competitive releases in 2023. Its foundries are currently pumping out first-generation 3nm chips with good yields, and the company is shifting its focus to developing its second-generation process and enticing customers to place orders in the middle to long term.

The company, however, expects sluggish demand to persist at least through the summer. This forecast is highly dependent on the actions taken by central banks to adjust interest rates in response to the behaviour of prices.