Samsung Reports 29% Plunge in Profit

Bad Q4
Samsung's new Galaxy X Curve mobile phone for 2019 (Photo: Samsung)

Samsung Electronics Co, Ltd, maker of the vaunted Samsung smartphones, has reported a 29 percent drop in revenues due to a set of unfortunate economic and political events.

A scant week after Apple, Inc issued guidance announcing a significant drop in sales and revenues, Samsung yesterday followed suit with a similar lament. Samsung announced a drop in quarterly operating profit for the first time in two years because of softer demand for its chips and smartphones.

In a regulatory filing, Samsung estimated profit at $9.67 billion for October to December 2018, down 29 percent year-on-year. The South Korean firm also estimated revenues might drop 11 percent on-year to $52.4 billion.

Samsung blamed "lackluster demand in the memory business and intensifying competition in the smartphone business" for the dismal October to December outlook.

Samsung said memory earnings fell significantly due to weaker-than-expected demand amid inventory adjustments at data-center customers. This drop led to a greater-than-expected fall in chip prices.

Samsung expects earnings to remain subdued in the first quarter of 2019 due to difficult conditions for the memory business but strengthen in the second half.

On the bright side, Samsung's has a rosier outlook for the entire year of 2018. It expects operating profit to hit $52.4 billion, up nearly 10 percent from 2017. Sales are forecast to improve slightly by 1.6 percent to $217 billion.

Analysts, however, expect Samsung's profit to decline through 2019 as China's economy continues to slow down.

Analysts fear the worst for Samsung this year, saying worsening supply and demand conditions for semiconductors and the structural challenges facing Samsung's smartphone business will drag down the firm's profits throughout 2019.

"If Apple's not selling, then is it Samsung that's selling well? It is not. The smartphone market is already saturated," said Greg Roh, senior analyst at Hyundai Motor Securities.

Samsung is the world's leading smartphone brand, with over 20% of the market. It is also the world's largest maker of memory chips.

Demand for DRAM memory chips will hit a low in the fourth quarter of 2019, according to some analysts.

Prices for DRAM chips, which provide devices with temporary workspaces and allow them to multi-task, fell 10 percent in the fourth quarter. Prices of NAND flash memory chips, which hold data permanently, fell 15 percent.

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

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