Samsung Electronics Co’s quarterly profit and sales missed estimates on sputtering demand for memory chips during the last three months of 2018, the same quarter that Apple Inc reported anemic sales in China.
The South Korean company’s operating income fell to 10.8 trillion won ($9.6 billion) in the period that ended in December, according to preliminary results released Tuesday, falling short of the 13.8 trillion-won average of analysts’ estimates compiled by Bloomberg.
Deteriorating relations between the US and China — Samsung’s two biggest export destinations — has hit demand for memory used in everything from personal computers to mobile devices, raising the pressure on a company struggling to revitalize its smartphone business. 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 almost two decades.
“It’s a shock,” Song Myung-sup, an analyst at Hi Investment & Securities Co., said of Samsung’s results. “It’s not just Apple, but also smartphone, server and PC manufacturers that are not buying. While the U.S.-China trade war hangs over them, these customers just won’t accept current prices, and Samsung faces pressure to cut chip prices.”
Sales for the fourth quarter fell to 59 trillion won, compared with the 63.6 trillion won average projection compiled by Bloomberg. Samsung didn’t provide net income, which it will do later this month when it releases final results.
Samsung’s shares fell as much as 2.1% before paring losses at midday in Seoul. The stock dropped 24% last year.
Memory chips account for the biggest portion of Samsung’s profit. Contract prices for 32-gigabyte DRAM server modules fell about 5% in the December quarter, according to InSpectrum Tech Inc. Prices for 128 gigabit MLC NAND flash memory chips fell about 3.4%.
Apple’s surprise cut to its sales forecast last week suggested a worsening outlook for orders for Samsung. Apple receives memory chips and smartphone screens from Samsung and is the South Korean manufacturer’s biggest customer, according to data compiled by Bloomberg.
Samsung said it expects earnings to remain subdued in the first three months of the year due to difficult conditions for memory. Profitability will recover in the second half, the company predicted, on projected improvements in the market, with rising adoption of new CPUs and launches of new smartphone products.
While Samsung still leads the world in smartphone sales, it’s being squeezed by Chinese handset makers like Huawei Technologies Co. The South Korean company is pinning its hopes on a foldable-screen phone that it plans to ship this year, along with a flagship Galaxy S10 model that is said to feature an in-display fingerprint sensor and a near-zero bezel.
While sales of its own devices have foundered, the company supplies organic light-emitting diode screens for Apple and Huawei. Samsung’s liquid-crystal display televisions are facing increasing challenges from Chinese rivals that seek to crowd out South Korean products.
“Recovering demand in the first quarter cannot be expected, because it is a seasonally low period and customers also know prices are coming off, so there’s no rush to buy,” said Sanjeev Rana, a Korea technology analyst at CLSA.“In the second quarter Samsung launches the Galaxy S10 and a lot of other Android makers announce new model launches that might help smartphone demand and enhance the demand for DRAM.”