Samsung Warns of Profit Decline Due to Lower Demand for Memory

Roman Schwartz
January 11, 2019

These announcements come after Apple CEO Tim Cook sent a letter to investors last week cautioning them not to expect strong first quarter earnings since the company had sold fewer iPhone upgrades than expected, citing its Chinese market in particular, as well as "some developed markets".

Operating profit during the October to December period was expected to be around 10.8 trillion won ($9.8 billion), down 28.7 per cent from a year earlier, Samsung said in an earnings estimate.

While Samsung still leads the world in smartphone sales, it is being squeezed by Chinese handset makers such as Huawei Technologies Co.

Samsung said a "stagnant and fiercely competitive" mobile market had weighed on earnings as marketing spend rose but smartphone sales volumes remained flat.

Apple last week downgraded its sales forecast for the last three months of 2018, suggesting a drop in orders for Samsung, one of the major chip providers for iPhones.

Samsung wrote it expected its issues with the memory business to subside by the second half of the year, CNBC wrote, and it will try to regain ground in the smartphone market with new products like a "bendable" phone and gear designed for next-generation telecommunications networks. Revenue was 59 trillion won ($52.3 billion), significantly below analysts' estimates of 63.6 trillion won ($56.6 billion).

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The stock fell as much as 2.1 per cent only to erase that loss and climb 1.2 per cent, with some analysts saying the bleak results on slumping chip demand have largely been factored in. The US/China trade war has also caused problems.

China's factory activity contracted for the first time in over two years in December.

It marks the first such profit decline in two years, according to the report. The South Korean giant will announce more details later on this month alongside its full Q4 2018 report.

The prices of DRAM, a type of memory used for the temporary storage in computer systems, sank 10 percent in the fourth quarter from the previous quarter due to weak demand for PCs, servers and smartphones, according to corporate tracker DRAMeXchange.

Prices of NAND flash memory chips, which hold data permanently, slipped 15 percent.

Demand for DRAM memory chips "will hit a low in the fourth quarter of 2019", he added.

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