Samsung warns of profit drop as chip demand slows

11 January, 2019, 08:12 | Author: Eric Barnett
  • Samsung expects sharp drop in fourth-quarter profit

Samsung Electronics on Tuesday said it expects its quarterly operating profit to fall almost 29 percent lower than the year-ago period, just one week after Apple rocked markets with its lower-than-expected revenue for the critical holiday sales period.

For October-December, Samsung estimated operating profit of 10.8 trillion won ($9.67 billion), missing the 13.2 trillion won average of 26 analyst estimates in an I/B/E/S Refinitiv poll.

These announcements come after Apple CEO Tim Cook sent a letter to investors last week cautioning them not to expect strong first quarter earnings since the company had sold fewer iPhone upgrades than expected, citing its Chinese market in particular, as well as "some developed markets".

"We expect earnings to remain subdued in the first quarter of 2019 due to hard conditions for the memory business", the South Korean tech giant said in a statement. Prices for 128 gigabit MLC NAND flash memory chips fell about 3.4 percent.

Samsung, the biggest manufacturer of smartphones and semiconductors in the world, stated that its forecast profit decline was due to increasing macro uncertainties.

Moreover, competition in the smartphone segment has intensified. The company just announced its earnings guidance for Q4 2018 with an estimated 29 percent drop in profit.

The company will disclose detailed earnings later in January.


Following a rare disappointing second quarter of 2018, Samsung returned to record profits in Q3 a year ago. The wider market was up 0.1 percent rise.

Samsung's sales for the fourth quarter, ended December 31, fell to 59tn won, compared with the 63.6tn won average projection compiled by Bloomberg.

Analysts are saying that Samsung may have to reduce its chip production capacity if it is to achieve a recovery in the second half considering the pressure the company and its smaller rival SK hynix face to cut chip prices.

Jia said the company should make more efforts in strengthening brand building, as well as expanding offline and online retail channels.

Roger Sheng, research director at consultancy Gartner Inc, said Samsung should design tailor-made smartphones for Chinese consumers and strengthen cooperation with local content providers to offer products that capture the attention of the younger generation.

"Samsung has already begun to take steps to deal with demand and supply imbalance by shifting some manufacturing lines away from memory into alternative areas". This was the fourth consecutive quarter of declines for the global smartphone market. Kwon Gye-hyun, president of Samsung Electronics China operations, said innovative and cutting-edge technologies will be deployed in Samsung's midrange smartphones.

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