Abu Dhabi, UAEMonday 19 August 2019

Dip in chip demand pinches Samsung’s profit and sales

Apple has also taken steps to wean itself off Samsung products by developing its own microprocessors

The logo of Samsung Electronics is seen on a glass door at the Samsung building in Seoul. The company flagged its first quarterly profit drop in two years. AFP 
The logo of Samsung Electronics is seen on a glass door at the Samsung building in Seoul. The company flagged its first quarterly profit drop in two years. AFP 

Increasing competition from Chinese smartphone makers and a dip in demand for its memory chips have led consumer tech giant Samsung to miss analysts forecast of its profits and sales in the last quarter of 2018.

The Seoul-headquartered company’s operating income fell to 10.8 trillion won ($9.65 billion) in the period, according to preliminary results released on Tuesday, falling short of the 13.8tn won average of analysts’ projections compiled by Bloomberg.

“The memory pricing is going to get worse before it is going to get any better for Samsung and for the whole industry,” Neil Campling, co-head Global Thematic Group at Mirabaud Securities, told The National.

There have been significant supply constraints versus demand during the past few years, with supply exceeding demand in the fourth quarter of 2018. Samsung has started taking initiatives to minimise the negative impact of memory business on future revenues," Mr Campling added.

“Samsung has already begun to take steps to deal with demand and supply imbalance by shifting some manufacturing lines away from memory into alternative areas.”

Industry experts say tumbling chip market could also have far-reaching impact on other technology firms in 2019.

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“Plummeting demand in server memory could suggest that even companies like Facebook and Google are investing less in servers,” Abbas Ali, managing editor of TechRadar Middle East, said. “That could mean a slower year ahead for big tech giants such as AWS (Amazon Web Services) and Microsoft cloud.”

Samsung’s sales for the fourth quarter, ended December 31, fell to 59tn won, compared with the 63.6tn won average projection compiled by Bloomberg. Samsung didn’t provide net income, which it will do later this month when it releases final results.

Cupertino-based Apple also relied on Samsung for components such as chips and screens in the latest high-end iPhones. Surprise cut to its sales forecast suggested a worsening outlook for orders for Samsung. Apple is the South Korean manufacturer’s one of the biggest customers of memory chips and smartphone screens.

In recent years Apple has also taken steps to wean itself off Samsung products by developing its own future screen technology and device processors, Bloomberg reported.

“It’s a shock… it’s not just Apple, but also smartphone, server and PC manufacturers that are not buying [chips],” Bloomberg quoted Song Myung-sup, an analyst at Hi Investment & Securities, as saying.

“While the US-China trade war hangs over them, these customers just won’t accept current prices, and Samsung faces pressure to cut chip prices.”

Analysts said that dip in chip business was obvious after a global slump in smartphone business.

Smartphone vendors shipped 355.2 million units during the third quarter of 2018, resulting in a year-on-year decline of 6 per cent, according to Massachusetts-based International Data Corporation (IDC). This was the fourth consecutive quarter of declines for the global smartphone market.

There's is some optimism about a bounce back by Samsung, which is the biggest smartphone seller in the world.

"Samsung is more resilient than analysts might think... its capacity to bounce back is far more flexible than you'd ever believe,” Sam Blatteis, chief executive of The Mena Catalysts, noted.

Updated: January 9, 2019 03:56 PM

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