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Samsung Electronics’ first-quarter profits likely fell almost 60 percent from a year ago due to weakness in its display and memory business.
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The South Korean tech giant said on Friday its operating profit for the three months ended March would be around 6.2 trillion Korean won ($5.5 billion), a sharp decline from the 15.64 trillion won seen in the first quarter of 2018.
Friday’s number also missed analysts’ estimate of 6.8 trillion won.
Samsung is set to release full earnings for the first quarter later this month.
Samsung shares dipped 0.11 in morning trade, trailing behind the Korean benchmark Kospi, which traded in positive territory. The relatively neutral reaction in the stock market was likely because investors were already expecting the profit drop for the January-March period, following a warning from Samsung last month.
In a March regulatory filing, the smartphone and chip maker predicted a bigger-than-expected price decline for major memory products — its main profit-making business — due to seasonal weakness in demand. Those components are used in mobile handsets and enterprise servers.
A slowdown in data center companies buying memory chips as well as flagging smartphone sales have affected demand for Samsung’s memory chips, according to analysts. But the company isn’t alone — the entire semiconductor sector is undergoing a period of inventory adjustment, experts said.
Still, Samsung’s earnings are set to take further hits in the coming months, Sanjeev Rana, senior analyst at brokerage firm CLSA, told CNBC’s “Squawk Box” on Friday.
“I think this earnings decline will continue for the time being, especially on the memory side,” he said, adding that the average selling price for some memory chips could fall as much as 20 percent in the next quarter and continue further declines. “We expect 2Q (second quarter) to be the profit trough for memory earnings for companies like Samsung and (SK) Hynix.”
For its display business, Samsung previously said that LCD panel prices fell more than expected due to an expansion in capacity from Chinese competitors while demand from large-scale buyers of its flexible OLED display screens, which are typically used in high-end smartphones like Apple’s iPhone, also declined.
Consolidated sales for the first quarter was expected to be around 52 trillion won, down 14 percent from a year earlier, Samsung said Friday. It also missed market expectations.
In January, the world’s largest smartphone maker had issued a similar warning for the previous quarter’s earnings — operating profit for the three months ended December fell more than 28 percent annually and missed analysts’ predictions by 18 percent.