SEOUL (Reuters) – Samsung Electronics surprised the market on Tuesday with an estimated 29 percent drop in quarterly profit, blaming weak chip demand in a rare comment issued to “ease confusion among investors already fretting about a global tech slowdown.
The logo of Samsung Electronics is seen at its office in Seoul, South Korea January 7, 2019. REUTERS/Kim Hong-Ji
The South Korean company also said the profit is limited in the first quarter by the difficult conditions in the memory chips, but that the market is a chance to improve in the second half of the year as customers release new smartphones.
Weaker earnings at the world’s biggest maker of smartphones and semiconductors added to concerns for investors already on edge after Apple Inc. last week took the rare move of cutting its quarterly sales forecast, citing a poor iPhone sales in China.
China boasts the world’s largest smartphone market, but a slowing economy, exacerbated by a trade war with the United States, has shown that the demand for gadgets drop in the tech sector. Growing support for national champions is also affected foreign brands, with Samsung’s market share dropped to 0.9 percent from a high of 18.2 percent in 2013.
Still, the South Korean company’s chips power the handsets from most major makers, including Apple and China market leader, Huawei Technologies Co Ltd [HWT.UL]. His memory and the processor chips account for more than three-quarters of the total profits and about 38 percent of the revenue.
October-December, Samsung estimated operating profit of 10.8 trillion won ($9.67 billion), missing 13.2 trillion won average of 26 analyst estimates in I/B/E/S Refinitiv poll. Also, the estimated 11 percent drop in sales at 59 trillion won.
Samsung routinely releases estimated earnings figures for the posting of detailed results and the development in the direction of the end of the month. For the just ended quarter, but it brought in its first comment since the end of 2014, when the mobile phone profits fell.
It said weaker-than-expected demand from data center customers to adjust inventories drove chip prices and hurt profits in the face of the increasing macro uncertainty. It has no information about the customers, or deeper in to the macro uncertainty.
Data center demand – particularly from the United States currently accounts for as much as nearly 30 percent of the demand for Samsung’s DRAM chips in comparison with 5 percent five years ago, said analyst Kim Yang-jae at KTB Investment & Securities.
“Smaller investment of data centers, a really bad smartphone market in China, and the impact of the US-China trade war has hit Samsung’s chip business,” Kim said.
Generally, analysts expect Samsung’s profit to decline by 2019, with a slowing Chinese economy saps demand.
“Second – and third-tier Chinese smartphone-makers saw drastic fall in their turnover, which also took a toll on chip demand,” said analyst Kim Young-woo analyst at SK Securities.
Prices for DRAM chips, devices with temporary workspaces and allow them to multi-task, decreased from 10 percent in the fourth quarter, showed data from industry tracker DRAMeXchange. The prices of NAND flash memory chips, which hold data permanently, slid 15 percent.
DRAMeXchange expects memory chip prices to fall 10 percent on average in the first quarter of 2019.
Samsung also said a “stagnant and highly competitive smartphone market,” pressured income and that the company would continue to innovate its product line, such as with foldable handsets and models, fifth-generation (5G) networks.
“If Apple were not selling, then it is Samsung that is selling well? That it is not. The smartphone market is already saturated,” says senior analyst Greg Roh at Hyundai Motor Effects.
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“Apple’s iPhones do not sell well in China… That is even worse for Samsung, because that would drag with the chip prices down,” Roh said, referring to Apple and Samsung chip client.
Shares in Samsung opened 1.9 percent lower on Tuesday and fell 0.4 percent at midday compared with a 0.2 percent fall in the benchmark Kospi index. The stock lost 24 percent last year, amid a global tech selloff prompted by investor fears about the impact on the supply chains of the Sino-AMERICAN trade war.
(For an interactive graphic memory chip prices, click tmsnrt.rs/2GYDer8)
Reporting by Heekyong and Yang Ju-min Park; Editing by Christopher Cushing