Despite recording its highest ever profits in Q3 2018, things are no longer looking as rosy for Samsung.
Last October, Samsung noted an operating profit for Q3 2018 of 17.57trn won (approximately $15.5bn), an increase of 21pc on the previous year. While this was a record profit level, the company noted that 2019 could pan out to be a tricky 12 months.
Today (8 January), the company said its earnings for the final quarter of 2018 are likely to have dropped due to feeble demand in the memory chip market, as well as increased competition from other smartphone providers.
A low-key end to the year
The downbeat guidance issued closely mirrors Apple’s recent announcement, although it is different in one key way. Samsung’s issues with memory chip sales are unique to the firm and further details are likely to provide a clearer picture.
According to figures issued by the company, operating profit for Q4 2018 was approximately 10.8trn won ($9.67bn). This is a drop of 28.7pc year on year. Analysts had already factored in the weakness in the semiconductor market, but had still said profits would have stood at around 13.2trn won.
Memory chips a thorny issue for Samsung
Samsung said that the slowing demand for memory chips from data centre customers caused a decline in shipments and a drop in memory chip prices. Mark Newman, managing director of Sanford C Bernstein, told CNBC that memory demand had “really fallen off a cliff” in the final quarter of the year.
Many of Samsung’s data centre clients have slowed their orders following a period of aggressive growth over the last number of years. At this stage, these large firms now have enough memory for their needs, so chip orders have dried up, at least for now.
Samsung said that its earnings will likely remain lacklustre for the first quarter of 2019 due to the difficulties its memory unit is experiencing. It added that things may swing upward in the second half of the year when many of its memory chip clients release new smartphone models to hopefully catch the attention of customers.
Smartphone market stagnation of course also played a role in the dour guidance issued by the South Korean firm. Consumers are now spoiled for choice when it comes to smartphones, and companies are finding it difficult to stand out in a saturated and competitive arena.
Dismal profit news was not just reserved for Samsung, as LG announced an 80pc year-on-year drop in quarterly profits. The company has not provided details as to the cause of the sharp dip, opting instead to wait until the official Q4 2018 results are released.