Samsung Electronics warns profit could fall 56%
SEOUL– Samsung Electronics Co. said it expects its second-quarter operating profit to decline 56.3% from a year earlier as sluggish demand for memory chips was exacerbated by the nagging U.S.-China trade dispute.
Samsung said it expects operating profit to fall to 6.5 trillion South Korean won ($5.56 billion) from 14.87 trillion won a year earlier. Revenue is expected to fall 4.2% to 56 trillion won. The company will report final results later this month.
The Suwon, South Korea-based company’s preliminary results exceeded market expectations. Analysts expected an operating profit of 6.01 trillion won and revenue of 54.6 trillion won for the quarter, according to S&P Global Market Intelligence.
Analysts say the company benefited in the quarter from a weaker-than-expected domestic currency and what the company described as a "one-time gain related to the display business."
Leading up to Friday’s preliminary earnings, some market watchers expected a one-time bump in Samsung’s display profits due to compensation fees from Apple Inc., which uses Samsung’s organic light-emitting diode, or OLED, displays in some of its iPhones.
Some analysts expected that Apple would have to compensate Samsung for failing to meet minimum order agreements because of poor iPhone sales.
It isn’t clear whether such a fee was factored into the earnings guidance released by Samsung on Friday and the company declined to comment.
Despite continued weak demand in the consumer electronics industry, some analysts say Samsung is expected to see an uptick in its display sales as a larger number of smartphone makers adopt OLED displays into their handsets. Samsung is the dominant producer of OLED panels used in smartphones, which can embed fingerprint-sensor technology into a phone’s touch screen.
Overall, however, the outlook is less rosy. Following a series of record profits in 2017 and 2018, Samsung saw its winning streak end late last year when demand from smartphone makers and data server companies fell, leading to lower memory chip sales.
Samsung, the world’s largest maker of memory chips, reaped more than 75% of its operating profit from chip sales in 2018.
In April, Samsung said it would invest $116 billion by 2030 to diversify its chip production beyond memory chips as it looks to tap into new growth drivers.
Samsung has been thrown off course in recent months by the U.S.-China trade fight and a ban on China’s Huawei Technologies Co. from acquiring U.S. technology, which hurt demand for memory chips, according to analysts. Huawei competes with Samsung in the smartphone market, but it is a buyer of the South Korean company’s memory chips.
The recent detente between the U.S. and China isn’t expected to lift Samsung’s fortunes, at least for now. "It’s a truce, not a peace deal," said Kim Dong-won, an analyst at KB Securities Co. in Seoul. "The issue remains unresolved."
The South Korean tech giant could experience further geopolitical headwinds in the coming months. Earlier this week, Japan effectively placed export restrictions on South Korea for three materials used to produce semiconductors and displays. The move could affect Samsung’s production yields for chips and displays since the materials can’t be easily replaced in the production process.
Write to Eun-Young Jeong at [email protected]
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