Samsung forecasts huge profit drop on slower smartphone and chip sales

Andrew Cummings
January 9, 2019

Samsung expects its quarterly operating profit to fall 29 per cent compared with previous year, potentially unsettling a tech sector already skittish about slowing global economic growth.

Samsung, in a regulatory filing, estimated profit at 10.8 trillion won (S$13.1 billion) for October-December last year, down 29 per cent from the same period a year earlier.

The 29 percent drop in profit has been mostly attributed to a lower demand for their chipsets by Samsung in an unusual earnings statement aimed to "ease confusion" for investors.

And the company expects the profits to remain subdued in the first quarter of 2019 as well, owing to weak seasonality in the memory market.

"Memory earnings fell significantly. due to weaker-than-expected demand amid inventory adjustments at data-center customers", it said.

"If Apple's not selling, then is it Samsung that's selling well?"

Samsung's news comes just a week after a similar grim forecast from Apple, which lowered its sales estimates for the first time in 15 years due to slowing iPhone sales in China, according to chief executive Tim Cook.

Shares in Samsung Electronics, the flagship subsidiary of the Samsung Group that dominates South Korea's economy, were down 0.4 percent in mid-morning trading.

Samsung's memory and processor chips, which account for over three-quarters of its earnings and about 38 percent of sales, power smartphones including those from China's biggest handset maker Huawei Technologies Co.

"The most important thing from here is for the pace of decline in chip prices to slow, which I expect will happen in the second quarter". Samsung didn't provide net income, which it will do later this month when it releases final results.

But it faces mounting competition from Chinese rivals such as Huawei producing quality devices at lower prices. The world's largest smartphone maker by shipment has been increasingly dependent on chips for profit growth, riding on a spike in global data traffic while yielding to stiffer competition for phones.

The tech giant's reputation suffered a major blow after a damaging worldwide recall of its Galaxy Note 7 devices over exploding batteries in 2016, which cost the firm billions of dollars and shattered its global brand image.

The 50-year-old scion was a key figure in the scandal that ousted former South Korean leader Park Geun-hye following massive nationwide protests, and was sentenced to five years in jail last year.

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