Samsung's 2Q earnings plunge 56% on weak chip sales

Display division said to cushion memory chip downturn

By Jun Ji-hye

Samsung Electronics saw its operating profit plunge 56 percent in the second quarter from a year earlier due to weak semiconductor sales, the company said Friday.

However, its operating profit inched up from the previous quarter.

Analysts estimate that Samsung's earnings improved in the display division on the back of increased sales of premium organic light-emitting diode (OLED) panels, saying this may have offset the weak performance in the semiconductor segment.

In the report, the tech giant estimated its second-quarter sales at 56 trillion won ($48 billion) and operating profit at 6.5 trillion won.

Sales and operating profit decreased by 4.2 percent and 56.3 percent, respectively, from a year earlier.

Compared to the first quarter, sales increased by 6.9 percent, and operating profit by 4.3 percent.

Samsung showed a rise in its operating profit for the first time since the third quarter of last year.

The second-quarter operating profit exceeded a market consensus of 6 trillion won suggested by Seoul-based market tracking company FnGuide.

Although the guidance did not give details on the performance of each business, analysts surmised that slow sales of DRAM and NAND flash chips, which account for about two-thirds of the firm's sales, may have dragged down its profitability.

“Samsung's semiconductor unit has continued to experience a downtrend due to continued falls in selling prices,” Meritz Securities analyst Kim Seon-woo said.

But the display unit, which showed a loss in the first quarter, may have posted better-than-expected earnings during the second quarter, boosting the firm's overall performance, according to analysts.

The Korean tech firm has strength in the flexible OLED display used in premium smartphones.

“The weak Korean won and increased profit from flexible OLED displays may have resulted in improvement of the firm's operating profit compared to the previous quarter,” Hana Financial Investment analyst Kim Kyung-min.

Samsung also said in a release, “One-time profit related to displays has been reflected in the second-quarter earnings,” without going into details.

There is both optimism and pessimism about Samsung's future performance.

Some analysts presented that demand for memory chips and prices are expected to be recovered in the latter half of the year, with upcoming launches of Galaxy Fold and Galaxy Note 10 also expected to boost the firm's performance.

On the other hand, those who are pessimistic cited unfavorable factors facing the semiconductor and display markets, including a prolonged trade war between the United States and China in addition to Japan's decision to tighten the rules for exports of high-tech materials and chemicals needed for manufacturing semiconductors and displays.