World Markets

Samsung Elec braces for profit drop as China slowdown chips away at demand

Reuters

By Heekyong Yang and Ju-min Park

SEOUL, Jan 7 () - Samsung Electronics Co Ltd is set to post its first drop in quarterly operating profit in two years as slowing economic growth in China, a key market for the South Korean tech giant, erodes demand for its products.

Bleak results from the world's top maker of semiconductors and smartphones would add to worries for investors, already on edge after Samsung's biggest rival Apple Inc this week took the rare step of cutting its sales forecast on slowing iPhone demand in China.

"Depressed demand in China will further drive down Samsung's chip sales there. And China's overall smartphone market is stalled and declining, which will affect not only Apple but Samsung," Song Myung-sup, a senior analyst at HI Investment & Securities, told .

Revenue is expected to have slipped 5 percent, hurt by lower memory-chip shipments. Samsung had in October slashed its 2018 capex, calling an end to a two-year bonanza for memory chips as the global smartphone market slowed.

This headwind continued to buffet the industry in the fourth quarter, with overall sales in the world's top smartphone market China falling 8 percent in the preceding three months, according to Counterpoint Research.

.

Amid the smartphone woes, overall operating profit at Samsung's chip business is expected to have slipped 3.7 percent from a year ago to 10.5 trillion won.

Its memory-chip shipments fell 10 percent on an average in the fourth quarter, according to brokerage Eugene Investment & Securities.

South Korea's semiconductor exports to China dropped for the first time in more than two years in December.

China is a major market for South Korean chipmakers that, led by Samsung and smaller rival SK Hynix, exported roughly 41 percent of their products to the mainland between January and November 2018.

Samsung's profit is expected to decline through 2019 as the weakness persists, Refinitiv data showed.

Prices for DRAM chips, which provide devices with temporary workspaces and allow them to multitask, declined 10 percent in the fourth quarter, according to industry tracker DRAMeXchange.

Prices of NAND flash memory chips, which hold data permanently, slipped 15 percent.

DRAMeXchange anticipates memory chip prices to fall 10 percent on an average in the first quarter.

($1 = 1,122.3700 won)

Samsung earnings by segment


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks Economy

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More