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Samsung Electronics’ Q1 profits drop by 60 percent

Posted May. 01, 2019 07:58,   

Updated May. 01, 2019 07:58


Samsung Electronics’ operating profit plunged to 4.12 trillion won at the first quarter of the year. This is the first time that the company saw its quarterly operating profit drop below the 5 trillion won mark since the fourth quarter of 2016 (4.9 trillion won).

The operating profit of the company’s display business also slipped into deficit (560 billion won) for the first time since the first quarter of 2016. The overall earnings slump in the South Korean tech giant’s Device Solutions (DS) division, which has been leading Samsung’s record-breaking profits for the recent several years, has resulted in the worst earnings report in the past 10 quarters.

Samsung Electronics announced its first-quarter earnings report on Tuesday. As previously announced, it recorded a sales of 52.39 trillion won and an operating profit of 6.23 trillion won, down 13.5 percent and 60.4 percent, respectively compared to the same period of last year.

During the latest quarter, 11.47 trillion won of Samsung’s revenue came from the sales of memory chips, a drop of 26 percent compared to the previous quarter. This is a sharper decline of 23 percent than a decrease in the overall revenue, which suggests that memory business is highly affected by market conditions. A sharp drop in the demand of chips for servers has been caused by data center companies’ consumption of their existing stock. Furthermore, the saturated global smartphone market has led to a weak demand in chips for smartphones. Weak smartphone sales in the Chinese market appear to have negatively affected the foundry business of the company.

As for the display business, a weak demand from Samsung’s major clients such as Apple has led to a drop in the shipment of OLED panels and the price of LCD fell sharply due to a surge in the supply of LCD from China.

Industry watchers predict that the introduction of 5G mobile communications will help Samsung rebound in the second half of this year but the prices of DRAM and NAND flash will continue to fall until the end of the second quarter.

Hi Investment Securities said, "China will start stimulating the economy centered on information technology (IT), and if the US-China trade dispute is reached, the industry will improve from the second half" Although "The price recovery is not easy until 2Q, but earnings will improve from 3Q". Nomura Securities analyst said, "Demand has fallen to its worst, but it has begun to get better with seasonal factors and price elasticity" However "prices will continue to weaken until 3Q, and the market will recover after 3Q, but it will be difficult to recover to" V ".

Samsung Electronics 2Q earnings consensus (average of forecasts) was 53.44 trillion won in sales and 6.85 trillion won in operating profit.

On the other hand, IT and mobile (IM) businesses such as smartphones posted an operating profit of 2.27 trillion won, up 50.3% from the previous quarter (1.51 trillion won) due to the launch of the Galaxy 10. But it fell 40.0% from 3.77 trillion won a year ago. Despite the traditional off-peak season, the consumer electronics (CE) division recorded an operating profit of W540bn, double the amount of last year (W280bn), in the aftermath of fine dust, thanks to seasonal electronics such as air purifiers.

Ji-Hyun Kim jhk85@donga.com · Dong-Jun Heo hungry@donga.com