Samsung Electronics, South Korea's largest business saw its quarterly profit more than cut in half after a world-wide industry downturn plus trade tensions cut demand both for its chips and high-end smartphones.
The June quarter results
The fall of 56 percent in operating income was actually less than expected as there was a one time gain from one customer that could have been more than $800 million. The total revenue was about $5.6 billion. The company does not release net income figures or break out the performance of different divisions until the final results which will be released at the end of this month. Samsung shares have fallen 0.8 percent on the Seoul market.
Problems faced by Samsung
Samsung is the world largest producer of semiconductors, mobile phones and smartphone screens. However, demand appears to have peaked and may turn down as the global economy slows. The memory chip business has been hard hit since Trump tariffs took effect just last May. Concern over Samsung's biggest cash cow grew just this week as Japan has placed export restrictions on materials Samsung needs for its display and chip production.
Kim Sunwoo a Meritz Securities analyst said of the second half period: “Considering the structural downturn in memory prices and the mobile business, it’s unlikely Samsung would exceed earnings estimates. As uncertainty over earnings have expanded on macro issues and around each division, the possibility of a special shareholder return plan has decreased significantly.”
The trade war between the US and China has created an unpredictable future. The US and China are two countries where Samsung generates much of its revenue. There has been a downturn in the chip industry as demand tapers off. Micron Technology the largest US maker of memory chips said that it is intending to reduce its spending in 2020, and will also idle five percent of its memory chips production in the last quarter.
Prices for memory falling
In the second quarter alone prices for 32-gigabite DRAM server modules dropped 19.3 percent when compared to the previous quarter. Prices for 128 gigabite MLC flash memory chips fell five percent. DRAM price drops are expected to widen up to 15 percent during this quarter and as much as 10 percent during the fourth quarter according to TrendForce estimates.
Song Myung-sup an analyst at HI Investment and Securities said: “Memory prices are likely to keep sliding due to the ongoing trade war. Samsung’s smartphone business will start to benefit from the U.S. ban on Huawei.”
Chinese customers will place more orders later in the year as they will not be receiving as many products from the US, and prices will be higher for US products.
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