Samsung Electronics Q4 profits slump along with global demand

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Samsung Electronics, the world's biggest smartphone and memory chip maker, reported a slump in fourth-quarter net profits on Thursday, blaming a drop in demand for its key products.

Net profits in the October-December period were 8.46 trillion won (7.6 billion U.S. dollars), it said, down 31 percent year-on-year.

The firm is the flagship subsidiary of the giant Samsung Group, by far the biggest of the family-controlled conglomerates that dominate business in the world's 11th-largest economy, and it is crucial to South Korea's economic health.

It has enjoyed record profits in recent years despite a series of setbacks, including a humiliating recall and the jailing of its de facto chief.

But now the picture is changing, with chip prices falling as global supply increases and demand weakens.

It also has to contend with increasingly tough competition in the smartphone market from Chinese rivals like Huawei – which surpassed Apple to take second place last year – offering quality devices at lower prices.

"Unfavorable business and macroeconomic factors led to slower performance in the final quarter," Samsung Electronics said in a statement, when "earnings were affected by a drop in demand for memory chips used in data centers and smartphones."

It expected demand for chips to stay weak in the January-March period, "due to seasonality and macroeconomic uncertainties."

Weakening overseas demand for memory chips – one of South Korea's key trade items – is bad news for its export-driven economy.

A customer tries out a Samsung Electronics Co. Galaxy Note 9 smartphone at the company's D'light flagship store in Seoul, South Korea, January 28, 2019. /VCG Photo

Bank of Korea governor Lee Ju-yeol said earlier this month that Asia's fourth-largest economy could face a "considerable burden if the prolonged downturn continues in the semiconductor industry."

Samsung pointed to "global economic volatility" as a cause for "rapidly shrinking" chip demand.

The company's display businesses, it said, would be hit by "slow sales of premium smartphones," increasing competition, and "large-scale capacity expansions in the industry."

For the full year 2018, the firm reported record net profits of 44.3 trillion won, up 5.1 percent year-on-year.

But it projected overall earnings to fall this year, "due to a weaker performance by the memory business."

The net profit figure came in below analyst estimates, according to Bloomberg News, but Samsung Electronics shares were up 0.7 percent in morning trading.

Greg Roh of HMC Securities & Investment said that "sluggish" sales of DRAM chips – used in computers and servers – and weaker prices were behind Samsung's "weak" fourth-quarter performance.

"The first half of this year will be even more challenging," he told AFP, projecting operating profits to fall more than 30 percent year-on-year during the period.

Source(s): AFP