Samsung forecasts huge profit drop on slower smartphone and chip sales

Jung Yeon-je  AFP  Getty Images

Jung Yeon-je AFP Getty Images

Samsung had seen record profits over the past year and a half thanks to a boom in smart devices around the world, but recent months have seen a major dropoff in smartphone demand.

It expects fourth-quarter sales to drop nearly 11 per cent from a year ago, to 59 trillion won ($52.4 billion).

Earnings calls are not something we normally keep a close eye on here at Ausdroid but when you see the biggest brand in Android drop 29 percent compared to the same time a year ago you sit up and take notice.

"Memory earnings fell significantly. due to weaker-than-expected demand amid inventory adjustments at data-centre customers, ' which led to a 'greater-than-expected" drop in chip prices, it said.

As for the smartphone market, Samsung said it expects to boost its prospects with foldable and 5G handsets.

Samsung had a smashing 2018 performance with multiple record-breaking quarters, mostly thanks to a boom in memory chips demand. Investors and analysts predicted the earnings to be 13.8 trillion Korean won, and Samsung is going to miss the market expectations by around 18.18%.

Analysts say that Apple's woes and Samsung's are indicative of tougher times ahead for global businesses, as dismal growth in the world's second-largest economy, exacerbated by a long China-US trade war, takes a toll.

"Recovering demand in the first quarter can not be expected, because it is a seasonally low period and customers also know prices are coming off, so there's no rush to buy", said Sanjeev Rana, a Korea technology analyst at CLSA."In the second quarter Samsung launches the Galaxy S10 and a lot of other Android makers announce new model launches that might help smartphone demand and enhance the demand for DRAM".

Prices for DRAM chips, which provide devices with temporary workspaces and allow them to multi-task, declined 10 percent in the fourth quarter, according to industry tracker DRAMeXchange.

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

But it faces mounting competition from Chinese rivals such as Huawei producing quality devices at lower prices.

"It's a surprise", said analyst Lee Jae-yun at Yuanta Securities.

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

Shares in Samsung opened down 1.9 percent but have since turned positive.

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