Samsung’s Q3 profit is expected to drop 80 per cent from a year earlier as the effects of an ongoing global Chip glut drive losses in what is normally the South Korean tech giant’s most profitable business. The world’s biggest maker of memory chips, smartphones and televisions Samsung Q3 preliminary earnings results will be announced on Wednesday.

Samsung Q3 profit drops

Samsung’s Q3 operating profit likely fell to 2.1 Trillion Won ($1.56 billion), according to an LSEG SmartEstimate. It compares with an Samsung’s operating profit of 10.85 trillion won in the September quarter last year.

amsung’s profit drop is because its chip division, traditionally its biggest earner, likely reported quarterly losses of between 3 trillion and 4 trillion won after rock-bottom memory chip prices did not recover as fast as some had predicted.

Cut in Samsung’s chip production

Analysts said Samsung’s cuts to chip production also hurt economies of scale, lifting the costs of making chips.

After first announcing an output cut in April, analysts said Samsung slashed more production in the Q3 to reduce inventory and weather a chip glut driving the worst industry downturn in decades.

Losses by other companies

Rival Micron Technology (MU.O) forecasted a quarterly loss last month, triggering concerns of a sluggish recovery in the memory chip maker’s end markets such as data centers.

Smartphone and personal computer makers have been refraining from buying new memory chips, opting to use up their existing inventory for months on concerns of an economic downturn.

Their inventories are now low enough that demand is expected to rebound by early next year, analysts said.

Future of Samsung chip production

Samsung received its first order in a year for server memory chips from a North American data center firm recently, KB Securities said in a note late last month, raising hopes that data center clients will also start buying chips again.

Strong demand for memory chips used in artificial intelligence such as high bandwidth memory (HBM) remains a bright spot, but Samsung is behind rival SK Hynix (000660.KS) in developing such chips and securing clients like AI-chip leader Nvidia.

Is there a recovery ahead for Samsung

Investors will be looking for signs that Samsung’s core chip division will stabilize in the current quarter.

Looking ahead to the fourth quarter, analysts expect Samsung’s operating profit of 3.8 trillion won, according to consensus estimates. That would represent an 11.5% year-on-year decline. This would be much smaller than Samsung’s profit drops recorded in the Q1 and Q2 of this year. Revenue is seen flat, arresting the declining sales the company has seen this year so far.

 Citi note in August suggested that Samsung will begin supplying advanced memory chips for U.S. semiconductor giant Nvidia’s graphics processing units, which are used for AI.

Samsung mobile

Samsung’s mobile business likely reported an operating profit of around 3 trillion won, according to an average of forecasts from five analysts, as the company launched its premium foldable smartphones during the quarter, drumming up sales despite the sluggish global smartphone market.

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