Samsung Electronics is anticipated to report a staggering 80% decline in earnings for the third quarter, as per analysts’ predictions. This drop is primarily attributed to the company’s semiconductor division, its most lucrative segment, facing significant challenges.

Experts surveyed by LSEG project an operating profit of 2.3 trillion Korean won ($1.7 billion) for the September quarter, indicating a substantial 78.7% year-on-year decrease. Additionally, revenue is expected to plummet to 67.8 trillion won, reflecting an 11.6% fall, according to LSEG consensus forecasts.

As the world’s leading memory chip manufacturer, Samsung supplies chips for a wide array of devices, from laptops to servers, and is a dominant force in the smartphone market. However, its semiconductor business, traditionally a cash cow, is anticipated to incur losses exceeding 3 trillion won in the third quarter. The drastic decline in memory chip prices this year, caused by oversupply and weak demand for end products such as smartphones and laptops, has severely impacted Samsung’s profitability.

Despite Samsung’s efforts to counter this downturn, including production cuts to stabilize prices, the expected improvements are not likely to reflect in the third-quarter results. Daiwa Capital Markets, in its analysis, cited the burden of high production costs and persistent low demand for chips, indicating that Samsung’s earnings might fall below consensus estimates.

Nevertheless, there are potential silver linings for Samsung in the third quarter. Its display business could experience growth due to the release of Apple’s iPhone 15 series, as Samsung supplies displays for iPhones. Additionally, the company’s smartphone unit might witness improved margins owing to the launch of high-end foldable phones in July.

Looking ahead to the fourth quarter, analysts foresee a more modest decline in operating profit at 3.8 trillion won, reflecting an 11.5% year-on-year drop. This decline is considerably smaller than the profit dips observed in the previous two quarters of the year. Analyst SK Kim from Daiwa anticipates a relief in the inventory glut and a rise in memory prices during the fourth quarter. Moreover, a Citi note from August suggested that Samsung is set to supply advanced memory chips for Nvidia’s graphics processing units, used in artificial intelligence applications. Kim believes that this development will open new avenues for Samsung, particularly in meeting the growing demand for AI-related technologies expected in 2024. Investors are closely observing these indicators to assess the stabilization of Samsung’s core chip division in the coming quarters.