Company's profit plunges 39% on falling chip demand
By Jun Ji-hye
Samsung Electronics suffered an earnings shock in the fourth quarter of 2018, with the firm's operating profit reported in its earnings guidance, Tuesday, significantly below market expectations.
Although the guidance did not give details on the performance of each business, analysts believe the sluggish results were due to weakening memory chip prices and stagnating demand.
The tech giant said in the report that during the October-December period sales stood at 59 trillion won ($52 billion) and operating profit at 10.8 trillion won.
Sales decreased by 9.87 percent from the previous quarter, while operating profit fell by 38.53 percent ― year-on-year, sales plunged 10.58 percent and operating profit 28.71 percent.
The fourth-quarter operating profit was below the market's estimate of 13.97 trillion won.
This was the first time for the firm's operating profit to dip below the 14 trillion won mark since the first quarter of 2017 when it posted an operating profit 9.9 trillion won.
For 2018, the company expects sales to reach 243.5 trillion won, up by 1.6 percent from the previous year, and operating profit to rise 9.8 percent to 58.9 trillion won. The sales estimate for 2018 is a record-high annual figure.
Samsung acknowledged the downturn in its memory chip business, which accounts for about 70 percent of the company's total operating profit.
"Amid growing external uncertainties, the performance of the memory chip business fell significantly due to a drop in demand, in addition to a slowdown in the smartphone business, which resulted in a sharp decline in the entire performance of the company from the previous quarter," Samsung said in the report.
Chipmakers enjoyed a semiconductor super cycle in 2017 and 2018 on the back of the emerging data economy in which Google, Amazon and other global IT companies became the main buyers of semiconductors to increase their number of servers to handle big data and cloud computing demand.
However, a crisis has been looming in the market as a trade conflict between the United States and China has raised uncertainty in the global economy, leading global IT companies to put their investments on hold.
Kim Seon-woo and Seo Seung-yeon, analysts from Meritz Securities, said in a report, "The semiconductor division of Samsung Electronics has suffered a shortage of orders," noting the firm's current pace of supply has led to the surplus.
They said such negative factors have begun to be reflected in the firm's performance.
Samsung said its performance is expected to continue slowing in the first quarter of 2019, but may begin to improve in the latter half of the year as the memory chip market is expected to bounce back.
By Jun Ji-hye
Samsung Electronics suffered an earnings shock in the fourth quarter of 2018, with the firm's operating profit reported in its earnings guidance, Tuesday, significantly below market expectations.
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The tech giant said in the report that during the October-December period sales stood at 59 trillion won ($52 billion) and operating profit at 10.8 trillion won.
Sales decreased by 9.87 percent from the previous quarter, while operating profit fell by 38.53 percent ― year-on-year, sales plunged 10.58 percent and operating profit 28.71 percent.
The fourth-quarter operating profit was below the market's estimate of 13.97 trillion won.
This was the first time for the firm's operating profit to dip below the 14 trillion won mark since the first quarter of 2017 when it posted an operating profit 9.9 trillion won.
For 2018, the company expects sales to reach 243.5 trillion won, up by 1.6 percent from the previous year, and operating profit to rise 9.8 percent to 58.9 trillion won. The sales estimate for 2018 is a record-high annual figure.
Samsung acknowledged the downturn in its memory chip business, which accounts for about 70 percent of the company's total operating profit.
"Amid growing external uncertainties, the performance of the memory chip business fell significantly due to a drop in demand, in addition to a slowdown in the smartphone business, which resulted in a sharp decline in the entire performance of the company from the previous quarter," Samsung said in the report.
Chipmakers enjoyed a semiconductor super cycle in 2017 and 2018 on the back of the emerging data economy in which Google, Amazon and other global IT companies became the main buyers of semiconductors to increase their number of servers to handle big data and cloud computing demand.
However, a crisis has been looming in the market as a trade conflict between the United States and China has raised uncertainty in the global economy, leading global IT companies to put their investments on hold.
Kim Seon-woo and Seo Seung-yeon, analysts from Meritz Securities, said in a report, "The semiconductor division of Samsung Electronics has suffered a shortage of orders," noting the firm's current pace of supply has led to the surplus.
They said such negative factors have begun to be reflected in the firm's performance.
Samsung said its performance is expected to continue slowing in the first quarter of 2019, but may begin to improve in the latter half of the year as the memory chip market is expected to bounce back.
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