Samsung Electronics Co shares slid after South Korea\u2019s most important company reported sharply lower profit amid global trade tensions and a wireless industry slump.<\/p>\n
Net income fell 54% from a year earlier to 5.06 trillion won ($4.3 billion) for the three months ended June, the Suwon, South Korea based company said in a statement, while revenue dropped 4% to 56.1 trillion won. Shares slid as much as 3.3%.<\/p>\n
The world\u2019s largest maker of memory chips and smartphones has been hammered by geopolitical tensions and a wireless slump. The US-China trade war has rattled the global tech-supply chain and weighed down the price of memory chips used in phones and data centers. In addition, Japan restricted the export of materials used in chips and displays to Korea, raising concern over potential disruptions at Samsung and SK Hynix Inc.<\/p>\n
Samsung had planned to announce its three-year shareholder return policy Wednesday, but put off the announcement until early next year, citing significant new challenges.<\/p>\n
\u201cShares are falling as Samsung delays shareholder return plans because of growing external uncertainties,\u201d Greg Roh, senior vice president at Hyundai Motor Securities, said by phone. \u201cAs for now, the extent of global cloud customers\u2019 investments and Japan\u2019s export restrictions are important factors for Samsung\u2019s outlook.\u201d<\/p>\n
Its stock originally traded higher and then dropped lower during an investor call as Samsung said it\u2019s facing uncertainty due to growing macroeconomic issues. Beyond the U.S.-China dispute, Japan may announce further export curbs against South Korea this week.<\/p>\n
\u201cEven though Japan\u2019s measures do not ban the export of the materials, we are facing difficulties due to the burden of new export approval process and uncertainties that this new process will bring,\u201d Robert Yi, an investor relations executive, said on an earnings call. \u201cWe are dedicated to minimizing any negative impact on our manufacturing process.\u201d<\/p>\n
Samsung did signal optimism about improvements for the memory business – its most profitable – for the rest of the year.<\/p>\n
\u201cIn the second half, demand is expected to grow although the company sees volatility in the overall industry due to increased external uncertainties,\u201d Samsung said in a statement Wednesday.<\/p>\n
The company said memory demand increased in the second quarter as data-center customers resumed purchasing and mobile applications adopted higher-capacity products. The company didn\u2019t commit to cutting capacity saying that expenditure plans for 2020 haven\u2019t been finalized.<\/p>\n
Samsung had reported preliminary numbers this month that showed operating profit fell more than 50% and its net income did exceed the 4.88 trillion won average of estimates compiled by Bloomberg.<\/p>\n
Shares have been little changed over the past year, though they\u2019ve gained in recent weeks with hope of a recovery in chip prices and of progress in the US-China trade dispute.<\/p>\n
Memory chips have been challenging this year. Contract prices for 32-gigabyte DRAM server modules, used to store data on PCs and servers, dropped by 25.1% in the June quarter, according to InSpectrum Tech Inc. Prices for TLC 128 NAND flash memory dropped 11.5%.<\/p>\n
Demand for DRAM is expected to rise on seasonal factors while servers will benefit as customers adjust inventory levels and resume purchasing, Samsung said in its statement. The NAND market should stabilize from the third quarter, it said.<\/p>\n
\u201cWe will continue to manage line operations flexibly depending on demand changes. Currently, we are not considering any artificial decrease of wafer input,\u201d Chun SeWon, executive vice president of the company\u2019s semiconductor business said during the earnings call.<\/p>\n
Chipmakers have been predicting a recovery in memory demand this year, but that\u2019s been delayed amid the trade war and slower expansion of data centers. \u201cA demand-driven oversupply in the DRAM market will push pricing down 42.1% in 2019 and the oversupply is expected to extend through the second quarter of 2020,\u201d Gartner Inc. said in a note on July 22.<\/p>\n
The mobile division of the world\u2019s largest smartphone maker posted a 42% decline in operating income to 1.56 trillion won. Samsung said its profitability eroded because of intensifying competition in low-to-mid range markets, and vowed to launch successfully the Galaxy Note 10 and Galaxy Fold in the second half of this year.<\/p>\n
Samsung\u2019s display division, which supplies organic light-emitting-diode screens for Apple\u2019s iPhones, posted operating profit of 750 billion won due to a one-time gain and a gradual demand recovery. The consumer electronics unit, which includes TVs and appliances, posted 710 billion won of profit.<\/p>\n
\u201cThere are many negative factors for Samsung, but its display business is improving,\u201d Song Myung-sup, analyst at HI Investment & Securities, said before earnings release. \u201cSamsung might start seeing a windfall from the U.S. ban on Huawei and more display orders from Apple.\u201d<\/p>\n