Samsung feels Apple’s pain as technology slowdown hits sales

By: |
Published: January 8, 2019 8:24:16 AM

Samsung Electronics Co.’s quarterly profit and sales missed estimates, as demand for memory chips slumped in the last three months of 2018, the same quarter that Apple Inc. reported anemic sales in China.

Samsung’s shares fell as much as 2.1 percent in early trading in Seoul.

Samsung Electronics Co.’s quarterly profit and sales missed estimates, as demand for memory chips slumped in the last three months of 2018, the same quarter that Apple Inc. reported anemic sales in China. The South Korean company’s operating income fell to 10.8 trillion won ($9.65 billion) in the period that ended in December, according to preliminary results released Tuesday, falling short of the 13.8 trillion-won average of analysts’ estimates compiled by Bloomberg.

Deteriorating relations between the U.S. and China — Samsung’s two biggest export destinations — has hit demand for memory used in everything from personal computers to mobile devices, raising the pressure on a company struggling to revitalize its smartphone business. Compounding that challenge is weakness at rival, and major customer of components, Apple, which shocked global markets last week when it cut its sales outlook for the first time in almost two decades.

“It’s a shock,” said Song Myung-sup, an analyst at Hi Investment & Securities Co. “It’s not just Apple, but also smartphone, server and PC manufacturers that are not buying. While the U.S.-China trade war hangs over them, these customers just won’t accept current prices, and Samsung faces pressure to cut chip prices.”

Sales for the fourth quarter fell to 59 trillion won, compared with the 63.6 trillion won average projection compiled by Bloomberg. Samsung didn’t provide net income, which it will do later this month when it releases final results.

Samsung’s shares fell as much as 2.1 percent in early trading in Seoul. The stock dropped 24 percent last year.

Memory chips account for the biggest portion of Samsung’s profit. Contract prices for 32-gigabyte DRAM server modules fell about 5 percent in the December quarter, according to InSpectrum Tech Inc. Prices for 128 gigabit MLC NAND flash memory chips fell about 3.4 percent.

“The trajectory of the memory downturn is increasingly turning unwholesome,” Lee Seung-woo, an analyst at Eugene Investment & Securities Co., wrote in a Jan. 3 report. “The reality is that the semiconductor industry is still under a thick mist with no outlook clearly seen.”

Apple’s surprise cut to its sales forecast last week suggested a worsening outlook for orders for Samsung. Apple receives memory chips and smartphone screens from Samsung and is the South Korean manufacturer’s biggest customer, according to data compiled by Bloomberg.

Samsung said it expects earnings to remain subdued in the first three months of the year due to difficult conditions for memory business. Profitability will recover in the second half, the company predicted, on projected improvements in memory market, with rising adoption of new CPUs and launches of new smartphone products.

While Samsung still leads the world in smartphone sales, it’s being squeezed by Chinese handset makers like Huawei Technologies Co. The South Korean company is pinning its hopes on a foldable-screen phone that it plans to ship this year, along with a flagship Galaxy S10 model that is said to feature an in-display fingerprint sensor and a near-zero bezel.

While sales of its own devices have foundered, the company does get a benefit from the success of rivals as it supplies organic light-emitting diode screens for Apple and Huawei. In contrast, its liquid-crystal display televisions are facing increasing challenges from Chinese rivals that seek to crowd out South Korean products.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.