Samsung, SK hynix faces earnings shock in 1st quarter

By Jun Ji-hye

Samsung Electronics and SK hynix are estimated to have suffered a sharp decline in their operating profits in the first three months of the year, mainly due to plunging memory chip prices amid shrinking global demand.

Market analysts have been painting a gloomy picture for the global chip market since last December, but they have begun to further downgrade their first-quarter earnings forecasts for the two companies.

According to market tracker FnGuide, Tuesday, the latest market consensus on Samsung Electronics' operating profit for the January-March period stood at 8.3 trillion won ($7.3 billion), down 46.8 percent from a year earlier.

The figure was sharply down from 12.3 trillion won suggested by local brokerages in late December and 9.5 trillion won in late January.

The latest market consensus on SK hynix's operating profit for the first quarter stood at 2 trillion won, down 52.2 percent.

The figure was also down from 3.99 trillion won suggested by securities firms in late December and 2.3 trillion won in late January.

Some brokerage firms were more pessimistic.

Korea Investment & Securities cut its estimate for Samsung Electronics' operating profit to 6.8 trillion won, citing that global prices for DRAM and NAND flash memory chips have declined by more than 25 percent compared to the previous quarter.

“The demand for DRAM has continued to languish,” said Yoo Jong-woo, an analyst at Korea Investment & Securities. “Samsung Electronics has failed to increase its shipments despite falling prices.”

Hanwha Investment & Securities estimated SK hynix's operating profit for the first quarter at 1.2 trillion won, citing similar reasons.

“Major clients have not rushed to purchase DRAM, resulting in a larger stock and falling prices,” said Lee Soon-hak, an analyst at Hanwha Investment & Securities. “NAND flash memory chips have shown supply excess.”

For 2019, Samsung Electronics is expected to post 36.7 trillion won in operating profit, down 37.7 percent from the previous year, while SK hynix is expected to post 9.5 trillion won, down 54.3 percent, according to local brokerages.

Regarding the issue, an official from Samsung Electronics said the firm's performance may begin to improve in the latter half of the year, saying, “Memory chips are expected to bounce back.”

An official from SK hynix said the first quarter is the “traditional off-season” for memory chips, saying, “We are managing stock in preparation for demand in the latter half of the year.”