As an economic downturn saps demand for electronic devices and the chips that power them, Samsung Electronics Co Ltd’s third-quarter profit could fall by 25%, the first year-on-year drop in nearly three years.

Globally, inflation is rising, central banks are aggressively raising interest rates, recession fears are growing, and the fallout from Russia’s invasion of Ukraine is looming. As a result, both businesses and consumers have reduced their spending.

According to a Refinitiv SmartEstimate from 22 analysts, operating profit for Samsung, the world’s largest memory chip and smartphone maker, fell to 11.8 trillion won ($8.3 billion) in the July-September quarter.

“Being the world’s top memory chip maker, top in TV and mobile OLED displays, and top in smartphone shipments, Samsung is highly sensitive to the economy, with profits easily linked to demand,” said Greg Roh, head of research at Hyundai Motor Securities.

This would be the first profit drop since the first quarter of 2020, at the start of the pandemic, and the lowest quarterly profit level since the first quarter of 2021. Until this quarter, strong demand for devices as people were forced to stay at home drove large profit gains for the South Korean tech behemoth.

An average of seven estimates showed that operating profit for Samsung’s chip business fell by nearly a third to 6.8 trillion won.

According to TrendForce data, prices for some DRAM memory chips, which are widely used in smartphones and PCs, fell 14 per cent in the third quarter, while prices for NAND flash chips, which are used in data storage, fell 8 per cent.

Samsung shares have fallen about 30 per cent this year, and the company will release preliminary results at around 8.40 a.m. local time on Friday. In comparison, the Philadelphia Semiconductor index fell 37 per cent.

Samsung’s mobile business is also expected to suffer a 17 per cent drop in profits to 2.8 trillion won, despite the launch of the company’s expensive new foldable phones during the quarter, which raised the average selling price.

According to Kim Yang-jae, an analyst at Daol Investment & Securities, Samsung’s smartphone shipments fell 11 per cent in the quarter compared to the same period last year, to approximately 62.6 million smartphones, as distribution channels cut orders.

Micron Technology, a competitor in memory chips, cut its investments significantly for the coming year and warned of tougher times ahead.

(Adapted from USNews.com)