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

Earlier in the day, Samsung estimated a 29 per cent drop in quarterly profit, its first decline in two years, as it flagged tough memory chip and mobile phone markets.

But the final quarter saw the smartphone maker miss analysts' expectations and brought its first quarterly decline in profits in two years.

The South Korean electronics giant said Monday it expects to record an operating profit for the three-month period ending December 31 of around 10.8 trillion won ($9.6 billion), a 30 percent decrease from the year-ago period.

For 2018, the firm expects operating profit of 58.9 trillion won, up almost 10 per cent on-year, and sales to inch up 1.6 per cent to 243.5 trillion won.

The company added that it expected earnings to remain subdued in the first quarter of 2019 but to strengthen in the second half of the year.

On Tuesday, the South Korean tech giant said weaker-than-expected demand from some of its data centre customers adjusting inventories drove down chip prices and hurt earnings.

China is a major market for South Korean chipmakers that, led by Samsung and smaller rival SK Hynix, exported roughly 41 percent of their products to the mainland between January and November 2018.

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Its memory-chip shipments fell 10 percent on an average in the fourth quarter, according to brokerage Eugene Investment & Securities. At their earnings call overnight Samsung have announced such a drop for them.

Shares in Samsung Electronics, the flagship subsidiary of the Samsung Group that dominates South Korea's economy, were down 1.68 per cent at the close.

'But these Samsung results are quite damning suggesting there.

This headwind continued to buffet the industry in the fourth quarter, with overall sales in the world's top smartphone market China falling 8 percent in the preceding three months, according to Counterpoint Research.

Moving on to the reasons why, it seems the intensifying competition from Chinese rivals have affected the brand more than initially expected in the smartphone market. Its smartphones are also facing greater competition.

It also took another hit after the bribery conviction of Lee Jae-yong - the son and heir of the group's ailing current Chairman Lee Kun-hee.

But he was released from jail in February a year ago after several of his convictions were quashed on appeal.

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