Samsung Electronics said on July 5 its operating earnings more than halved in the second quarter from a year earlier amid the weak memory chip and handset market.
The operating profit was estimated at 6.5 trillion won ($5.6 billion) in the April-June period, a 56.3 percent drop from a year ago, according to its earnings guidance.
The Korean tech giant expected its overall sales to have fallen 4.2 percent on-year to 56 trillion won in the three-month period.
Samsung did not break down performances of its respective business divisions, saying it will announce the detailed earnings later this month.
Market watchers said a supply glut in DRAM and NAND flash chips, which account for more than two-thirds of the firm’s sales, dragged down its profitability, expecting the slump to continue in the second half in the wake of Washington’s ban on Huawei Technologies, a major client of Samsung’s memory chips.
Market research firm TrendForce anticipated DRAM prices to fall by between 10 and 15 percent in the third quarter, worse than its earlier estimate of a 10 percent decline, as data centers may cut capital expenditures due to rising uncertainties from the trade tension. It predicted prices of NAND flash chips will also trend down this year.
“As ripples from the US ban continue to spread, Huawei’s shipments of smartphone and server products are feared to face heavy obstacles for the next two to three quarters, impacting peak-season-demand for DRAM products in the second half,” TrendForce said in a report. “We may see the shipments of NAND flash chips failing to meet expectations for peak season Q3, and cause contract prices to fall uncontrollably.”
While Samsung earlier predicted its earnings to recover in the second half when inventory levels stabilize and demand picks up in the peak season, analysts anticipated the memory chip business to remain in the downward cycle later this year.
“It is expected to take more time for the memory chip market to get back on track as prices are anticipated to keep sliding in the second half of this year,” Kim Un-ho, an analyst at IBK Investment & Securities, said. “Chip demand for servers is expected to increase in the latter half, but it will be hovering below earlier estimates.”
The mobile division was also expected to have lackluster profits despite strong sales of Galaxy A series in emerging markets as the average sales prices of the midrange smartphones are cheaper than the flagship line.
“Samsung’s smartphone sales are expected to weaken in the third quarter compared with a quarter earlier despite the release of the Galaxy Note 10 in August,” Park Gang-ho, an analyst at Daishin Securities, said. “Demand for replacing 5G phones is expected to pick up in full swing starting from 2020.”
To boost demand in the premium segment, Samsung plans to unveil its latest phablet, the Galaxy Note 10, on Aug. 7 in New York, while gearing up for the release of the Galaxy Fold, which missed its April schedule due to durability issues of the foldable device.
Adding to the woes is Japan’s export restriction against Korea of hi-tech materials needed for semiconductor and display manufacturing.
By Ram Garikipati and newswires (firstname.lastname@example.org)