Samsung reports lower than expected fall in operating income

  • Business
  • Saturday, 06 Jul 2019

Samsung said in August last year that it expected to invest US$7bil over the next three years to expand its NAND memory chip production in China

Samsung Electronics Co’s quarterly profit more than halved after a global industry downturn and trade tensions hammered demand for its chips and high-end smartphones.

Korea’s largest company reported a less-than-expected 56% fall in operating income to about 6.5 trillion won (US$5.6bil) in the June quarter – but that was helped by an unspecified one-time gain from a customer that analysts estimate could have topped US$800mil.

The company won’t provide net income or break out divisional performance until it discloses final results towards the end of the month. Its shares slid as much as 1.5% in Seoul.

Samsung -- the world’s biggest producer of smartphone screens, semiconductors and mobile phones – is grappling with plateauing demand in the face of an economic slowdown. Its memory chips remain a barometer for everything from computers to smartphones and have been one of the hardest-hit components since Trump administration tariffs took effect in May.

Jitters over Samsung’s biggest cash cow grew this week when Japan slapped export restrictions on materials needed for display and chip production, potentially hammering also rival SK Hynix Inc.

“Considering the structural downturn in memory prices and the mobile business, it’s unlikely Samsung would exceed earnings estimates” in the second half, Meritz Securities analyst Kim Sunwoo said in a report after the release.

“As uncertainty over earnings have expanded on macro issues and around each division, the possibility of a special shareholder return plan has decreased significantly.”

A one-off gain for the display business assuaged some of Samsung’s pain. The company remains the foremost producer of high-margin organic light-emitting diode displays, but hit a snag last year when supplies to Apple Inc suffered after the marquee iPhone X fared worse than expected.

Samsung profit surpassed analysts’ average forecast for 6.1 trillion won thanks to a one-off gain.

Its display division had sought financial compensation from Apple because actual shipments of OLED displays for iPhones fell short of contractual estimates, the Electronic Times has reported.

The company could have secured as much as 1 trillion won in compensation from a US customer, Citigroup Global Markets has estimated.

But its chips division remains both the biggest driver of profit and the one most vulnerable to an economic downturn.

“It will take more time to see the recovery of business sentiment for semiconductors,” IBK Securities analyst Kim Woon-ho wrote in a July 2 note.

“Demand would rise in the second half but it will be lower than the prior estimates.” — Bloomberg

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