Samsung Warns of Profit Decline Due to Lower Demand for Memory

A man tries out a Samsung Electronics' Galaxy Note 9 at its store in Seoul South Korea Jan. 7 2019. Kim Hong-Ji Reuters

A man tries out a Samsung Electronics' Galaxy Note 9 at its store in Seoul South Korea Jan. 7 2019. Kim Hong-Ji Reuters

Samsung, due to publish preliminary fourth-quarter results on January 8, is expected to see a 12 percent year-on-year drop in operating profit to 13.3 trillion won ($11.85 billion) for the period, I/B/E/S data from Refinitiv shows. Operating profit, meanwhile, dropped 29 percent to about $9.7 billion, whereas it was expected to be $11.8 billion.

In a statement on Tuesday, the firm cited lacklustre demand and rising competition for its darkening outlook.

Samsung had a smashing 2018 performance with multiple record-breaking quarters, mostly thanks to a boom in memory chips demand. The turnover is expected to reach 59 trillion Won (EUR 46 billion), a 10.6 percent less than the prior-year quarter.

Samsung routinely releases estimated earnings figures before posting detailed results and elaboration toward the end of the month. Compounding that challenge is weakness at Apple, a major customer of components; the iPhone maker stunned global markets last week when it cut its sales outlook for the first time in nearly two decades. The market analyst prediction for the fourth quarter was 13.2 trillion won (~$12 billion). Samsung did not provide net income, which it is to do later this month when it releases final results.

"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".

Samsung, the biggest manufacturer of smartphones and semiconductors in the world, stated that its forecast profit decline was due to increasing macro uncertainties.

Samsung shares lost 24 per cent a year ago, capping its worst performance since 2000, as the stock took a beating from sliding chip prices and a slowdown in fresh smartphone demand. Prices for 128 gigabit MLC NAND flash memory chips fell about 3.4 percent.

The company warned that Q1 2019 earnings won't be stellar, either, though its memory business should improve in the second half of the year.

Samsung's news comes just a week after a similar grim forecast from Apple, which lowered its sales estimates for the first time in 15 years due to slowing iPhone sales in China, according to chief executive Tim Cook. Speaking of Huawei, it's aggressively trying to displace Samsung as the top global smartphone maker, perhaps as soon as this year. The decline led to a decline in prices, and sales, leading to the decline in profits for Samsung.

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