Memory chip landscape and slow iPhone sales take its toll on Korean company
Just a day after Huawei Technologies Consumer Business Group CEO Richard Yu announced that Huawei will take Samsung’s OEM crown within the year, Samsung has released its earnings guidance for Q1 2019 and it is not looking good for the Korean company. The company recorded its worst operating-profit drop in more than four years, with estimates of an operating profit of just 6.2 trillion won (around US$ 5.5 billion), which is less than half of its US$14.4 billion profit recorded in Q1 of 2018.
The drop in profits highlights the company’s struggle to cope slower orders from data centre owners and a lower demand for the OLED display it makes for Apple’s iPhone. This in turn has pushed down prices for memory and compounded the struggles for the South Korean company. Samsung even issued an unprecedented warning for investors last week that its earnings would be lower than market expectations to reflect these struggles.
We’ll only have the detailed breakdown and final numbers at the end of the month, but Samsung has stated that they’re counting on new devices such as the Galaxy S10 smartphone to help it fight back against increased competition.
“We do expect server DRAM demand to pick up as well as the S10 sales and foldable-phone sales to be better than expected going into the second half. Therefore the earnings pickup should lead the share price going into the future.”
Daniel Yoo, global strategist at Kiwoom Securities
Samsung’s Q1 profit actually includes the sales from their flagship Galaxy S10 smartphone released last month. The company has been struggling to stem a decline in its smartphone sales for a while now as consumers simply don’t upgrade to newer devices as often as they used to. Even Apple cut its revenue outlook in January for the first time in almost two decades, as the market just isn’t responding to new releases in the same way it use to.
The memory chip market in general just doesn’t seem to be doing well with SK Hynix also coming out and saying they could possibly cut investment if necessary. Even Micron said that it would be curtailing its output. These are the three biggest DRAM manufacturers we’re talking about so it’s fair to say that the outlook is grim.
