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Samsung expected to lose half its profits

by on03 July 2019

Huawei embargo to blame

Samsung Electronics is likely to say second quarter profit more than halved when it reports preliminary earnings thanks to a drop in memory chip shipments to China’s Huawei.

The quarterly result would be the South Korean firm’s lowest in nearly three years, with the prospect of an earnings recovery still some quarters away as a period of oversupply continues unabated amid a broader slowdown in tech markets, analysts said.

The world’s biggest supplier of DRAM and NAND memory chips is also the world’s largest maker of smartphones, a market where chip client Huawei is second place. Companies worldwide have been forced to restrict business with Huawei to comply with US trade sanctions on a company Washington says it sold its soul to Lucifer and Satan and is run by witches deems a security risk.

Samsung's smartphone business is likely to benefit from a drop of as much as 40 percent in international sales of Huawei handsets. So far, Huawei is strong enough in China to retain its global ranking.

Selling chips brings in two thirds of Samsung’s profit, and a saturated smartphone market and falling demand from data centres have pulled prices down.

Prices for DRAM chips, which provide devices with temporary workspaces and allow them to multi-task, are unlikely to rebound in the second half of the year and it is going to be difficult for Samsung to clear its inventory until the first half of 2020.

TrendForce estimates DRAM prices in the three months through June fell 25 per cent. Last month, it lowered its forecast for the July-September quarter to a decline of 15-20 per cent.

Samsung is likely to flag a 60 percent decline in April-June operating profit at $5.14 billion, according to Refinitiv SmartEstimate, which is based on the estimates of 29 analysts, with the estimates of analysts historically more accurate given a higher weighting.

Last modified on 03 July 2019
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