Samsung Electronics Co., Ltd., the world's largest manufacturer of consumer electronics and semiconductors by revenue, on Wednesday reported a 34% plunge in its operating profit from October to December 2019 mostly due to a marked drop in revenues from its lucrative memory chip and display businesses. The huge reduction, however, is still lower than those posted in the previous three quarters.
In its earnings guidance, Samsung said its fourth quarter operating profit before deduction of interest and taxes is expected to hit $6.02 billion (₩7.1 trillion), down from $9.29 billion (₩10.80 trillion) year-on-year. The Q4 figure was better than the $5.6 billion (₩6.5 trillion) predicted by Refinitiv SmartEstimate. In the previous three quarters of 2019, Samsung's operating profit was reduced by more than half from the same period in 2018.
Samsung expects consolidated sales for Q4 to come in at around $50.6 billion (₩59 trillion), about the same as its year-ago period. This will be lower than the market consensus of $52.2 billion (₩60.7 trillion) won from Refinitiv SmartEstimate. The earnings guidance released ahead of full earnings later this month didn't provide specific divisional results, however.
Analysts said the operating profit decline was likely due to a reduction in Samsung's revenue from its display business that supplies smartphone and TV screens, as well as lower prices for memory chips.
Samsung has been struggling in a hostile market environment where price and demand for memory chips have remained low for a prolonged period, due to inventory adjustments and a huge supply glut. Memory components used in smartphones and data centers account for much of Samsung's profits.
Analysts say there might be a slow recovery in the semiconductor industry. Market conditions are expected to improve gradually while phase one of the U.S. and China trade deal might make things better. Phase one remains unsigned and the bulk of the issues that triggered Trump's trade war remain unresolved.
Samsung earlier predicted "solid" demand in the memory business for 2020 while at the same time warning against lingering uncertainties. In Q3 2019, Samsung posted an operating profit of $6.7 billion (₩7.78 trillion), which was up almost 18% from Q2.
Samsung has also had to contend with rising phone prices and consumers upgrading less often. Samsung withstood these headwinds in the third quarter on strong sales of its Galaxy Note 10 and A-series phones. It later warned it expected smartphone shipments to decline in Q4 year-over-year as flagship sales weaken after postlaunch highs.
