In a rare sharp slide, Samsung Electronics' profit fell sharply in the fourth quarter of last year.

Samsung on Friday reported operating profit of around 4.3 trillion won ($3.7 billion) in a preliminary estimate.

That is 69 percent less than a year ago.

The result was far worse than analysts had expected, signaling that the global downturn could hit the electronics industry harder than previously thought.

The prospects are gloomy.

Some electronics companies do not expect a recovery until the second half of the year.

Patrick Welter

Correspondent for business and politics in Japan based in Tokyo.

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The largest company in South Korea has a special role as an industry indicator because Samsung Electronics holds a leading position in the consumer market for smartphones and televisions as well as in the business with memory chips.

For the past year, the electronics industry has been experiencing a hangover after the extraordinary surge in demand in the first few years of the pandemic, which, with the global surge in inflation and rising interest rates, is now giving way to concerns about a global recession.

Unusual for Samsung

With the second quarter of consecutively falling operating profit, Samsung Electronics has finally put a streak of record profits behind it.

In the period from July to September, operating profit fell by 32 percent.

Now it is minus 69 percent.

According to preliminary data, sales fell by 8.6 percent to around 70 trillion won (52 billion euros) in the period from October to December.

At the end of January, Samsung will report on the details of the quarterly business and the annual result.

Despite the poor results, Samsung Electronics shares gained 1 percent on Friday at the Seoul Stock Exchange amid wide swings.

The usually taciturn company assessed the drop in profits as so unusual that it attached an explanation to the sober numbers.

Samsung points to lackluster demand for memory chips and weaker smartphone sales.

The decline in the business with memory chips was greater than expected, they say.

Under the impression of the overall economic uncertainties, Samsung customers reduced their stocks of memory chips.

Increased inventories at suppliers would have increased the pressure to correct.

As a result, memory chip prices fell throughout the quarter and the average selling price fell more than expected, Samsung writes.

Demand for electronic memory components has recently collapsed.

In November, semiconductor production in South Korea, which is home to two of the largest producers with Samsung and SK Hynix, was 15 percent lower than a year ago.

This was reported last month by the South Korean statistical office.

It was the sharpest decline since the 2009 global economic crisis and the fourth straight decline.

Inventory levels were 20 percent higher than a year ago.

Samsung justifies the falling sales of smartphones and the declining sales in the division with ongoing macroeconomic problems.

The unsatisfactory development of the smartphone market, which was exacerbated in the final quarter by Covid-related production difficulties in China, hit Samsung twice.

The company not only sells fewer of its own smartphones, but can also deliver fewer memory modules and screens to customers like Apple.