Samsung Echoes Apple's Gloomy Outlook as Tech Woes Deepen
Samsung Echoes Apple's Gloomy Outlook as Tech Woes Deepen
The world’s largest maker of smartphones and semiconductors said its estimated profit decline comes “amid mounting macro uncertainties.” The Suwon, South Korea-based company pointed to “lackluster demand” for memory chips and “intensifying competition” in its handsets business.
Samsung is a bellwether for the global tech industry, producing devices like smartphones and televisions, while also supplying components for the world’s largest electronics companies.
Samsung’s struggles come a week after rival
Apple
Inc.
made a surprise cut to its revenue guidance, blaming China’s slowing economy for weakened iPhone demand. Major tech stocks have slid in recent months, erasing hundreds of billions of dollars in market value, amid uncertainties about the U.S.-China trade fight and slower revenue growth for some of Silicon Valley’s biggest companies.
Tepid iPhone sales aren't all that ail Apple in China. Competition from local smartphone rivals, trade-dispute fallout and a court battle could make 2019 a tough year for the company in its most important market outside the U.S. Photo composite: Crystal Tai.
On Tuesday, Samsung said it expected an operating profit of 10.8 trillion South Korean won ($9.7 billion), down 29% from 15.15 trillion won a year earlier. Samsung estimates revenue will decline to 11% to 59 trillion won. The company reports its final results later this month.
A poll of analysts by S&P Global Market Intelligence had predicted the company would post operating profit of 13.8 trillion won and revenue of 63.5 trillion won for the quarter ended Dec. 31.
Over the past 18 months, Samsung has delivered a string of record profits, as the proliferation of internet-connected devices and data servers drove up prices for memory chips. But demand has leveled off for smartphones, computers, data servers and other consumer electronics in recent months.
For the three months ended Sept. 30, global smartphone shipments fell 7% from a year earlier, the fourth straight quarter of declines, according to market researcher Canalys. The PC market was hurt by a shortfall in production of processing chips.
The global trade turmoil has further cooled investment in cloud computing and artificial intelligence—which require vast amounts of data storage and processing power.
“There still is growth in certain areas, but it’s not as big of growth as there was in the past,” said Patrick Moorhead, president of Moor Insights & Strategy, an Austin, Texas, technology consulting firm. “The uncertainty about China is key, and I do believe that these tariffs are starting to make a dent.”
Samsung said its memory business—which has represented about three-quarters of operating profit in recent quarters—would “remain subdued” during the first three months of 2019, though it anticipates results will strengthen by the second half of this year. The company’s mobile business is leaning on new technological advances to spark a turnaround.
Samsung, in recent earnings calls, cautioned memory-chip pricing was likely to fall at the end of 2018 and into this year. In October, the company said it would cut 2018 capital expenditures by more a quarter, as it sought to avoid an excess inventory of memory chips.
The average price for DRAM, which devices use for multitasking, fell 7% to 10% during the final three months of 2018 from the previous quarter, according to DRAMeXchange, which tracks semiconductor prices. Prices for another major type of memory, called NAND flash, which saves music and photos, dropped 10% to 15% over the same period.
Samsung is the largest maker of DRAM and NAND flash products.
In recent earnings calls, Samsung cautioned that memory-chip pricing was likely to fall at the end of last year and into this year.
Photo:
European Pressphoto Agency
Things could get worse. In the first three months of 2019, prices for DRAM are expected to drop by about 20% from the prior quarter—the largest pullback in eight years, according to DRAMeXchange. NAND flash prices are expected to experience similar declines.
“The memory chip’s down cycle is expected to be at a much deeper depth than expected,” said Lee Seung-woo, an analyst at
Eugene Investment & Securities
,
in a note last week.
Samsung, which makes about one of every five smartphones shipped world-wide, saw weak demand last year for its two flagship devices, the Galaxy S9 and the Galaxy Note 9. Consumers generally viewed the two devices as incremental upgrades over prior models.
Samsung shares have declined more than 25% over the past 12 months, as investors were concerned about how long the company could cash in on its memory chips business.
Write to Timothy W. Martin at timothy.martin@wsj.com
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