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Samsung Elec flags earnings miss as chip prices slide

SEOUL (Reuters) – Samsung Electronics Co Ltd said on Tuesday first-quarter profit would likely miss market expectations due to fall in chip prices and slowing demand for the panels, in an unprecedented explanation for the earnings guidance.

FILE PHOTO of icipants at Samsung Electronics Co LtdÕs Extracted case, the testing of the new devices in San Francisco, California, USA, 20 February 2019, REUTERS/Stephen Nellis

The announcement came after the Apple Inc. supplier and competitor told shareholders last week that backlash of the global economic growth and softer demand for memory chips, its core business, would weigh on the activities in 2019.

“The company expects that the size of price decreases in the main memory chip products larger than expected,” Samsung said in a regulatory filing to anticipate the earnings guidance by next week.

Samsung did not elaborate on the purpose of the request. A company official confirmed, the global market leader in smartphones, televisions and computer chips had not previously given a response prior to the official earnings estimate.

The firm was forecast to post a 7.2 trillion won ($6.4 billion) operating profit for the January-March period, according to Refinitiv SmartEstimate, more than 50 percent below the 15.6 trillion won recorded in the same period a year ago.

The sale is expected to decrease to 53.7 trillion won from 60.6 trillion won a year ago, Refinitiv shows.

“The inventories are piling up at the memory chip side, and the weak performance of the panels business as a result of the poor sales of Apple’ s iPhones hurt profitability for Samsung,” said Lee Won-sik, an analyst at Shinyoung Securities.

DRAM chip prices fell more than 20 percent on average in the first quarter, according to DRAMeXchange, a unit of Trendforce that the traces of memory chip prices.

Daiwa Securities forecast Samsung’s display panel division to swing to an operating loss of 620 billion won in the first quarter, while the sector of the operational profit would shrink.

RECOVERY TIPPED

The uncertainties about the U.S.-china trade tensions and China’s sluggish economy are clouding the outlook for the global electronics makers, analysts say.

Chipmakers particularly hard hit by a glut in the global semiconductor industry caused by the weakening of the smartphone sales and declining investments in data center companies.

Samsung told the shareholders at the annual general meeting last week that sales of memory products would likely revive in the second half of the year after a difficult first half. Investors also took heart when U.S. chipmaker Micron Technology Inc forecast a recovery in the memory chip of the market around the middle of the year.

Daiwa Securities on Tuesday confirmed a buy rating on Samsung, saying that it expected demand for memory chips and organic light-emitting diode (OLED) panels to improve from the second half of the year 2019.

Samsung Electronics shares fell 0.2 percent by 0237 GMT, while the rest of the market was 0.3 percent higher.

“Samsung is giving a signal to the market, so that investors can be prepared and there will not be a surprise when the Samsung messages in the first quarter earning guidance of next week,” said Park Jung-hoon, a fund manager at HDC Asset Management, which owns Samsung Elec shares.

“The shares are not responding much, but such as concern about the first quarter have thought.”

($1 = 1,132.1000 won)

Reporting by Ju-min Park and Heekyong Yang; Editing by Richard Pullin and Stephen Coates

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