The slowdown in consumer electronics purchases and a global microprocessor oversupply, which hurt Samsung Electronics' main memory business, resulted in the company's lowest quarterly profits in 14 years on Thursday.

Samsung, one of the world's largest makers of memory chips and smartphones, said operational profit decreased by 95% from the prior year to 640 billion won ($478.6 million). 

The company's sales decreased 18% to 63.75 trillion won ($47.5 billion) in the first quarter, while its net income declined 86.1% to 1.57 trillion won ($1.17 billion).

"Overall consumer spending slowed amid the uncertain global macroeconomic environment," the company underlined.

According to Samsung, another contributor to its faltering quarter was weakening demand for memory chips, which usually generate nearly 50% of its profits, as well as the decrease in chip prices.

The company's semiconductor segment posted losses of 4.58 trillion won, its first operational deficit since 2009 when the global financial crisis of 2008 was only beginning to fade. 

"Continued price declines and an increased valuation loss... amid weakening sentiment and continued impacts of inventory adjustments by customers caused by prolonged external uncertainties," the firm said was the reason for the faltering profits.

Demand for memory was reportedly "expected to gradually recover" in the third quarter of 2023 "amid projections that customer inventory levels will have declined."

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Loss after loss

Samsung's operational earnings fell by 70% year over year in the fourth quarter, and the first-quarter decline is the company's third straight quarter of margin pressure. 

The company's shares were down 0.3% Thursday morning.

Samsung, as well as its fellow chipmakers in South Korea, have reigned supreme in terms of profits for years as prices for their products soared due to high demand, though the global economic slowdown highly damaged memory sales.

Consumer demand reached record highs throughout the pandemic as they purchased new cellphones and PCs during lockdowns, forcing chip manufacturers to increase output. However, this all came crashing down as lockdowns were lifted and inflation and interest rates went uphill.

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In a rare step for the company, Samsung said earlier in April that it was reducing memory chip output to a "meaningful" level to address the excess. Previously, the company had claimed it would only make minor modifications. 

After forecasting a 96% decline in quarterly operating profit, Samsung Electronics will reduce memory chip output.

Another reduction is expected in the fourth quarter. Operating profit is expected to be 0.6 trillion Korean won in the first quarter, which is 28.2 times lower than the 14.12 trillion Korean won in the first quarter of 2022 and 7.2 times lower than the 4.31 trillion Korean won in the previous quarter.

In the first quarter, Samsung's new flagship Galaxy 23 smartphones helped offset losses in the semiconductor business, but experts anticipate circumstances to deteriorate and potentially result in Samsung's first profit loss since 2008.