Samsung Electronics Posts 29% Profit Drop in Q4

South Korean smartphone maker Samsung Electronics Co. Ltd. posted an unexpected decline in quarterly profit, citing lackluster demand in the memory chip sector in a rare statement issued to ease confusion among investors already on the edge about a worldwide tech slowdown.

Samsung reported an estimated operating profit of ₩10.8 trillion ($9.67 billion) for October-December period, falling 29 percent from the same period in the previous year and missing the ₩13.2 trillion average forecast of 26 analysts.

The company also expects an 11 percent drop in revenue at ₩59 trillion.

Samsung regularly releases estimated earnings figures before presenting the full report and details toward the end of the month.

However, for the recent quarter, the consumer electronics firm issued its first background statement since late 2014, when its mobile phone profit tumbled.

The firm is due to disclose detailed earnings report later in the month.

The profit slump in the world’s largest maker of smartphones and semiconductors further spooked investors already alarmed after US tech giant Apple Inc. last week took the rare step of lowering its quarterly revenue guidance due to weak iPhones sales in the world’s second largest economy.

Lackluster Demand

Weaker-than-expected demand from data center customers adjusting inventories put Samsung under pressure, dragging down chip prices and hitting its earnings in the face of growing macro uncertainty.

Poor chip sales to Chinese major cloud companies raised Samsung’s inventory level which led to chip price declines, said analyst Kim Young-woo, adding that second and third-tier Chinese smartphone makers saw drastic drop in their sales, which also took a toll on chip demand.

As growth slows in China, analysts expect Samsung’s profit to weaken through 2019 due to faltering demand for its chips and handsets.

China takes pride in being the world’s biggest smartphone market, but a slowing economy, intensified by a trade war with US, has led to a slump in demand for gadgets across the tech sector.

Rising support for domestic champions has also hit foreign brands, with Samsung’s market share shedding 0.9 percent from a high of 18.2 percent in 2013.      

Analyst Kim Yang-jae stated that data center demand – mainly from the US – represents nearly 30 percent of demand for the company’s DRAM chips compared with 5 percent in 2014.

Smaller investment from data centers, a really bad smartphone market in China, and impact from the US-China trade war have all hit Samsung’s chip business, Kim said.

Data from an industry tracking firm showed prices for DRAM chips, which enable devices to multi-task and provide temporary workspaces, were down 10 percent in the fourth quarter. Prices of NAND flash memory chips, which permanently store data, shrunk 15 percent.   

For the first quarter of 2019, the industry tracker sees an average 10 percent fall in memory chip prices.

Samsung also stated that a stagnant and fiercely competitive smartphone market strained its income.

Apple’s iPhones have not been selling well in China and that is even worse for Samsung because that would drag its chip prices down, said Senior Analyst Greg Roh.

Still, the company expects the memory market to strengthen from the second half of the year, driven by the adoption of new central processing units and new smartphone launches.

Samsung would also continue to innovate its product line like with foldable handsets and models capable of fifth-generation (5G) networking.

Shares of Samsung dropped 24 percent in 2018 amid a worldwide tech sell-off sparked by investor concerns over the impact on supply chains of the US-China trade war.

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