Samsung Electronics warned of weaker earnings this year after reporting a 30 per cent drop in fourth-quarter net profit, hit by falling chip prices and slowing smartphone sales.
The South Korean company forecast the memory chip downturn to continue through the first half, as big technology companies cut back on spending amid the global economic slowdown and China’s trade war with the US.
“Looking ahead, Samsung expects demand in the memory business to remain weak in the first quarter due to seasonality and macroeconomic uncertainties as well as inventory adjustments by major customers,” the company said.
Net profit at the company fell to Won8.46tn ($7.5bn) in the last three months of 2018 from Won12.26tn a year earlier, its first drop in two years. This was much lower than the Won10.2tn estimate of analysts compiled by Bloomberg.
But the world’s largest memory chipmaker presented a brighter outlook for the second half of this year, expecting demand for chips and premium displays to rebound.
“For 2019, the company expects overall annual earnings to decline due to weaker performance by the memory business. Demand for memory products and [organic light-emitting diode] panels is expected to pick up from the second half,” Samsung said.
Operating profit of the semiconductor division, its biggest earnings driver, fell nearly 30 per cent to Won7.77tn while that of its mobile business slumped nearly 40 per cent to Won1.51tn.
Samsung is one of the best-performing South Korean stocks so far this year, rising 20 per cent on recovery hopes, after falling 24 per cent last year. The shares gained 0.65 per cent to Won46,700 on Thursday morning, while the Kospi composite index was little changed.
“We expect Samsung’s quarterly earnings to reach the trough in the first quarter of 2019 and begin to recover from the second half,” said CW Chung, an analyst at Nomura, in a report earlier this month.
Prices of DRam [dynamic random-access memory] chips, used to store data on personal computers and servers, are forecast to fall by more than 20 per cent in the first three months of this year from the previous quarter, according to TrendForce.
Weakening demand for memory chips is adding urgency for Samsung to develop growth drivers as the company also faces intense competition from China in smartphones and display panels.
Samsung is expanding its non-memory business including foundry and 5G device sales. It is also increasing its investment in Bixby, its voice assistant, as it makes connected technologies a central part of growth. The company plans to unveil a foldable phone this year, which it hopes will revive excitement for its products.
The world’s largest smartphone maker expects mobile earnings to improve in the first quarter, helped by the launch of its new flagship Galaxy smartphone next month and the introduction of 5G services in South Korea, its home market.
Samsung’s display division earned Won970bn of operating profit in the fourth quarter, down from Won1.41tn a year earlier, but it expects demand for flexible OLED panels for smartphones to rebound in the second half, when Apple launches new iPhones. Samsung supplies OLED screens to Apple.
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