Friday, 22 March, 2019

Samsung Flags First Profit Drop in 2 Years on Weak Chip Demand

Samsung has had a bad quarter and the next one won't be great either Samsung has had a bad quarter and the next one won't be great
Russell Knight | 09 January, 2019, 00:17

Semiconductors now account for more than three-quarters of Samsung's total profit, compared with the first quarter of 2013 when its phone business represented nearly three-quarters of profit.

Apple's surprise cut to its sales forecast last week suggested a worsening outlook for orders for Samsung. Both LG and Samsung will disclose detailed earnings later this month.

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

Samsung is blaming the decline in its memory chip business.

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

Many believe that chip sales have "passed their peak days" and as such Samsung are going to have to find new revenue streams or make something very compelling if they are to claw back some of these profits.

Samsung once also had a 20 per cent market share in China but has seen its sales tumble to less than one per cent of the world's largest smartphone market in the third quarter, and last month announced the closure of its factory in Tianjin. Apple receives memory chips and smartphone screens from Samsung and is the South Korean manufacturer's biggest customer, according to data compiled by Bloomberg.

"Apple's iPhones have not been selling well in China at least since Huawei's chief finance officer was arrested".

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Samsung has a less than 1 percent share of China's smartphone market, versus 9 percent for Apple.

"We expect earnings to remain subdued in the first quarter of 2019 due to hard conditions for the memory business", Samsung said, in a statement.

China is a major market for South Korean chipmakers that, led by Samsung and smaller rival SK Hynix, exported roughly 41 percent of their products to the mainland between January and November 2018.

The world's second-biggest television set maker behind compatriot Samsung Electronics Co Ltd estimated profit of 75.3 billion won (US$67.03 million) for October-December previous year.

"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".

Prices of NAND flash memory chips, which hold data permanently, slipped 15 per cent.

DRAMeXchange anticipates memory chip prices to fall 10 percent on an average in the first quarter of 2019.

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