Chips will be down as Samsung warns of turbulent year ahead

31 Oct 2018

Samsung Galaxy Note 9 smartphone. Image: nemanjazotovic/Depositphotos

Smartphone giant Samsung signals end to a two-year boom in memory chips.

Despite reporting record profits in the third quarter, Samsung has offered up a downbeat forecast for future chip sales.

Samsung has recorded a Q3 operating profit of 17.57trn won (approximately $15.5bn), up 21pc on the previous year. Quarterly revenues came in at 65.46trn won, up 5.5pc on last year.

Sales were driven by strong demand and production yield for the company’s memory products used in smartphones and data centres as well as demand for organic light-emitting diode (OLED) display panels.

However, Samsung also revealed that its mobile business saw a drop in earnings, despite solid sales of flagship Galaxy devices.

Thanks for the memories, Samsung

Samsung expects a quarter-on-quarter earnings decline in the fourth quarter due to weak demand for memory chips and higher smartphone marketing spend during the year-end holiday season. It predicts that overall earnings across the company will decline in the coming year as seasonal demand for semiconductors in particular looks set to ebb.

Although earnings from memory chips will decline in the year ahead, Samsung predicts demand for OLED panels will remain strong. Crucially, Samsung provides many smartphone makers, including Apple, with core components. The company’s memory chips business accounts for 80pc of its profits.

The linchpin of the problem could be the fact that smartphone sales are sliding because, as the price of phones goes up, people are buying devices with less frequency in order to protect their investment for longer. In general, the phones have never been more sophisticated, but the prices have never been higher. Why wouldn’t consumers vote with their feet if the average device is around the €1,000 mark?

Another factor dampening its ardour could be China’s growing prowess at chip manufacturing and memory products. Rival Huawei, for example, has already stolen a march on Samsung by including a 7nm Kirin processor in its flagship device, the Mate 20 Pro, four months ahead of Samsung’s next Galaxy reveal at Mobile World Congress 2019.

At the pinnacle of its success financially and technologically, the battle for Samsung in the year ahead will be maintaining momentum in a tricky mobile market.

Samsung Galaxy Note 9 smartphone. Image: nemanjazotovic/Depositphotos

Updated, 11.43am, 31 October 2018: This article was updated to clarify that Samsung recorded a Q3 operating profit of 17.57trn won.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years