Samsung is expecting earnings to decline as the ongoing pandemic hits sales of its core products.
Today (29 April), Samsung published its financial results for the first quarter of 2020, reporting a 7.6pc decrease in revenue from the previous quarter.
Samsung said this drop was due to “weak seasonality” for the firm’s display business and consumer electronics, and partially due the effects of Covid-19. The company said that it expects the decline to continue in the next quarter due to the ongoing impact of the pandemic.
Samsung warned that sales of TVs and smartphones are likely to “decline significantly” as Covid-19 takes its toll on demand and leads to store and plant closures around the world.
To address this, the company said that it will leverage its global production flexibility and supply networks, while strengthening its online sales capabilities.
New products planned
Although there is uncertainty surrounding what the next few months may look like, Samsung said it still plans to go ahead with the launch of new products later this year. This includes the Galaxy Note and new models of the company’s foldable smartphone.
The company plans to “enhance product competitiveness” by expanding 5G adoption to mass-market smartphones However, Samsung also said that it may slow down its work on 5G technology or cut back its investment.
Samsung’s operating profit for Q1 2020 was $5.2bn, up 3.4pc year on year, which is in line with the guidance the company published earlier in April. Heading into the next quarter, Samsung has said that it will “flexibly manage its product mix” to adapt to the current circumstances.
The postponement of the Tokyo Olympics and other major sports events is also likely to have a negative impact on the business, it added.
Increasing demand for chips
While Samsung struggled in some areas, the company said that there has been solid demand for PCs, servers and memory chips to support the shift to remote working and the need for online entertainment, such as streaming and gaming.
In the next quarter, the company expects its memory business to remain solid. However, Samsung added that overall earnings are likely to decline from the previous quarter because Covid-19 will “significantly impact” demand for several of its core products.
According to CLSA analyst Sanjeev Rana, chipmakers are currently benefiting from investments in data centres made by companies like Amazon, Microsoft and Google.
Speaking to CNBC, Rana said that there is strong demand for dynamic random-access memory (DRAM) semiconductors, which are used in computers and servers to run multiple applications at once, and will help Samsung’s chip business in the coming months.
“For the time being, I think this trend will continue,” he added. “We have strong visibility into the second quarter orders and pricing. We think that prices, especially for the server DRAM, will go up by like 20pc to 30pc.”