Samsung Electronics on Tuesday flagged its first quarterly profit drop in two years and painted a grim outlook owing to mounting competition from Chinese smartphone makers and declining chip prices.
The shock warning added to concerns about the broader tech sector after Apple sent shudders through world markets last week by slashing its revenue forecast blaming weak sales in China and citing the trade war.
Samsung — the world’s top maker of smartphones and memory chips — has enjoyed record profits in recent years despite a series of setbacks, including a humiliating recall and the jailing of its de facto chief.
But operating profit during the October to December period was expected to be around 10.8 trillion won ($9.8 billion), down 28.7 percent from a year earlier, Samsung said in an earnings estimate.
The figure was below market consensus of about 13.5 trillion won, according to market researcher FnGuide. Sales dropped more than 10 percent to 59 trillion won in the period, Samsung said.
It cited “lacklustre demand in the memory business and intensifying competition in the smartphone business” for the dismal outlook.
“Memory earnings fell significantly… due to weaker-than-expected demand amid inventory adjustments at data-centre customers,” which led to a “greater-than-expected” drop in chip prices, it said.
“We expect earnings to remain subdued in the first quarter of 2019 due to difficult conditions for the memory business but strengthen in the second half.” But analyst Kim Sun-woo of Meritz Securities said worsening supply and demand for semiconductors and the structural challenges facing Samsung’s smartphone business will hit profits throughout 2019. Demand for DRAM memory chips “will hit a low in the fourth quarter of 2019”, he added.
Samsung withholds net profit and sector-by-sector business performance data until it releases its final earnings report, which is expected later this month. For 2018, the firm expects operating profit of 58.9 trillion won, up nearly 10 percent on-year, and sales to inch up 1.6 percent to 243.5 trillion won.
Shares in Samsung Electronics, the flagship subsidiary of the Samsung Group that dominates South Korea’s economy, were down 1.68 percent at the close.
Last week Apple said it expected to earn $84 billion in October-December, well down from the $89-$93 billion previously forecast as it blamed a steeper-than-expected “economic deceleration” in China and emerging markets.