You are here

Samsung net income misses estimates as chip demand slides

Samsung Electronics Co posted fourth-quarter profit below analysts' estimates in a sign of worsening demand for memory chips and smartphones as customers cut back on spending.

[SEOUL] Samsung Electronics Co posted fourth-quarter profit below analysts' estimates in a sign of worsening demand for memory chips and smartphones as customers cut back on spending.

Net income fell to 8.3 trillion won (S$10.05 billion) in the three months ended December, the Suwon, South Korea-based company said Thursday in a filing. That compares with the 10.2 trillion won average of estimates compiled by Bloomberg.

Falling demand for memory chips, worsening profitability in the display division and sliding sales of smartphones contributed to the results, according to Samsung. The figures underscore how the technology industry is reeling from a slowdown in smartphone demand and uncertainty over tensions between China and the US. Pessimism about the outlook for semiconductors increases the urgency of Samsung's push to shore up its mobile devices, networks and displays sales to maintain growth.

"Costs to reinforce product competitiveness are rising while shipping volumes are stagnating" in the mobile and network division, Kim Woon-ho, an analyst at IBK Securities, wrote in a Jan 16 report.

Operating profit was 10.8 trillion won on sales of 59.3 trillion won, Samsung said, confirming preliminary numbers released earlier this month.

Operating income from the chip unit was 7.8 trillion won, accounting for the lion's share of profit. Contract prices for 32-gigabyte DRAM server modules fell 9.6 per cent in the December quarter, according to InSpectrum Tech Inc, while prices for 128 gigabit MLC NAND flash memory chips fell 8.4 per cent. Server DRAM prices may fall by more than 20 per cent quarter-on-quarter in the first three months of this year, according to TrendForce.

Together with SK Hynix Inc and Micron Technology Inc, Samsung controls the bulk of the market for dynamic random access memory, or DRAM, chips, used to store data on personal computers and servers. Hynix earlier this month posted earnings that missed estimates, saying memory demand slowed in the second half of last year even though it is likely to pick up later in 2019 as data centers resume their expansion.

Samsung echoed that view, saying that it sees a rebound in demand for memory chips and organic light-emitting diode screens from the second half this year.

"Investment in data centers will continue even though the memory industry is undergoing a rapid short-term correction," Lee Soon-hak, an analyst at Hanwha Investment & Securities said in a Jan 22 report.

Samsung shares closed on Wednesday at 46,400 won. They have risen 20 per cent this year, after declining 24 per cent last year.

Samsung's smartphone division posted 1.5 trillion won in operating profit, down from 2.4 trillion won a year earlier. Profits fell due to a dip in sales caused by weak smartphone shipments amid a stagnant market despite strong seasonality, Samsung said. The company will unveil its latest flagship smartphones in San Francisco on Feb 20, possibly including a bendable-screen device that it bets will be a game-changer in a stalling handset market.

While Samsung is the world's biggest phone maker, it has been struggling with share of a stalling market as Chinese rivals Huawei Technologies Co. and Oppo catch up.

China's display makers also threaten Samsung in everything from legacy liquid-crystal televisions to state-of-the-art organic light-emitting diode smartphone screens. Samsung's display division earned 970 billion won for the company that supplies OLED screens to Apple for its iPhones.