Samsung Issues Earnings Warning Amid Slowing Smartphone, Chip Sales

Citing a slowdown in China’s economy and a trade war between the U.S. and China, Samsung forecast a decline in operating profits for the fourth quarter, marking the first time in two years it had to issue a warning.

The Financial Times, citing Samsung, reported the South Korean consumer electronics giant said the issues in China and the trade war have resulted in lower demand for chips and smartphones. Citing “mounting macro uncertainties,” the FT reported Samsung said global demand was worse than the company expected as large tech firms made adjustments to investments in data centers. That hurt Samsung’s memory chip unit, with prices dropping more than forecast. For the first quarter, the consumer electronics giant expects pricing for semiconductors to face more pressure. It does expect the unit to see more demand in the second half of 2019, buoyed in part by seasonal buying. As for smartphone sales, Samsung said profitability was hurt by competition and demand that was stagnant.

For the fourth quarter, Samsung now expects operating profit to come in at Won10.8tn ($9.6bn), which the Financial Times reported is 28.7 percent lower than last year’s fourth quarter and 38.5 percent lower than the record of Won17.5tn reported in its third quarter. Fourth-quarter sales are projected to come in at Won59tn, which the report noted is down 10.6 percent from last year’s fourth quarter. Samsung plans to provide fourth-quarter results later in January, at which point it is expected to provide more details about the quarter.

The warning out of Samsung prompted Nomura to warn that it expects prices for memory chips to decline double digits this year, which will lower the operating profits for that business by 45 percent compared to last year. “We expect Samsung’s quarterly operating profit trough should be the first quarter of 2019,” said CW Chung, head of research at Nomura, in the FT report. He told the paper that he expects the business to improve in the second half of the year.