Tuesday, 30 July 2019

Samsung posts 55.6% drop in second-quarter profit as it copes with weak demand and a trade dispute

As it forecast earlier this month, Samsung reported a steep drop in its second-quarter earnings due to lower market demand for chips and smartphones. The company said its second-quarter operating profit fell 55.6% year-over-year to 6.6 trillion won (about $5.6 billion), on consolidated revenue of 56.13 trillion won, slightly above the guidance it issued three weeks ago.

Last quarter, Samsung also reported that its operating profit had dropped by more than half. The same issues that hit its earnings during the first quarter of this year have continued, including lower memory prices as major datacenter customers adjust their inventory, meaning they are currently buying less chips (the weak market also impacted competing semiconductor maker SK Hynix’s quarterly earnings).

Samsung reported that its chip business saw second-quarter operating profit drop 71% year-over-year to 3.4 trillion won, on consolidated revenue of 16.09 trillion won. In the second half of the year, the company expects to continue dealing with market uncertainty, but says demand for chips will increase “on strong seasonality and adoption of higher-density products.”

Meanwhile, Samsung’s mobile business reported a 42% drop in operating profit from a year ago to 1.56 trillion won, on 25.86 trillion won in consolidated revenue. The company said its smartphone shipments increased quarter-over-quarter thanks to strong sales of its budget Galaxy A series. But sales of flagship models fell, due to “weak sales momentum for the Galaxy S10 and stagnant demand for premium products.”

Samsung expects the mobile market to remain lackluster, but it will continue adding to both its flagship and mass-market lineups. It is expected to unveil the Note 10 next month and a new release date for the delayed Galaxy Fold, along with new A series models in the second half of the year.

“The company will promptly respond to the changing business environment, and step up efforts to secure profitability by enhancing efficiency across development, manufacturing and marketing operations,” Samsung said in its earnings release.

It’s not just market demand that’s impacting Samsung’s earnings. Along with other tech companies, Samsung is steeling itself for the long-term impact of a trade dispute between Japan and South Korea. Last month, Japan announced that it is placing export restrictions on some materials used in chips and smartphones. Samsung said it still has stores of those materials, but it is also looking for alternatives since it is unclear how long the dispute between the two countries may last (and it could last for a long time).