Samsung flags lower-than-expected earnings as chip prices slide

March 26, 2019 10:46
Samsung Electronics earlier said it expects sales of memory products to revive in the second half of the year after a tough first half. Photo: Bloomberg

Samsung Electronics said on Tuesday first-quarter profit would probably miss market expectations due to falls in chip prices and slowing demand for display panels, Reuters reports.

The announcement came after the Apple supplier and rival told shareholders last week that slack global economic growth and softer demand for memory chips, its core business, would weigh on operations in 2019.

“The company expects the scope of price declines in main memory chip products to be larger than expected,” Samsung said in a regulatory filing pre-empting its earnings guidance due next week.

Samsung did not elaborate on the purpose of its filing. A company official confirmed the global leader in smartphones, televisions and computer chips had not previously provided comment before its official earnings estimate.

The firm was forecast to post a 7.2 trillion won (US$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.

Its sales were expected to fall to 53.7 trillion won from 60.6 trillion won a year ago, Refinitiv shows.

“Inventories piling up on its memory chip side and the weak performance of its display panels business due to bad sales of Apple’s iPhones is hurting 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 traces memory chip prices.

“With an aim to greatly reduce inventory levels, DRAM suppliers in general will continue to adopt large price-lowerings in order to stimulate sales,” DRAMeXchange said on Monday.

Samsung earlier said it expected sales of memory products to revive in the second half of the year after a tough first half.

Uncertainties over US-China trade tensions and China’s sluggish economy are clouding the outlook for global electronics makers, analysts say.

Chipmakers, in particular, have been hit hard by a glut in the global semiconductor industry triggered by weakening smartphone sales and falling investment from data center companies.

“Samsung is giving a signal to the market so that investors can be prepared and there will be no surprise when Samsung posts its first-quarter earning guidance next week,” said Park Jung-hoon, a fund manager at HDC Asset Management that owns Samsung Elec shares.

“Its shares are not reacting a lot, though, as concerns over its first quarter have been reflected.”

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