Samsung projecting 56% drop in operating profit in third-quarter
Samsung Electronics said Tuesday it expects operating profit to fall by more than 50 per cent in the third quarter as the international chip market continues to decline.
Operating profit from July to September was expected to hit 7.7 trillion won ($6.4 billion), down 56.2 per cent from a year earlier, said a report by the world’s largest mobile and memory chip manufacturer.
That would be the fourth consecutive quarter in which the South Korean tech company registered a fall in profit in the face of falling semiconductor prices and weakening demand for its mobile devices.
Sales were expected to reach about 62 trillion won in the third quarter, down 5.3 per cent from last year’s same period.
Samsung withholds net profit and business performance sector-by-sector until it releases its final earnings report, expected later this month.
Samsung’s morning trading shares rose by 1 per cent in Seoul.
The company is the giant Samsung Group’s flagship subsidiary, by far the largest of the family-controlled conglomerates that dominate business in the 11th largest economy in the world, and crucial to the economic health of South Korea.
Analysts expressed optimism over the coming months, indicating that falling stock rates of semiconductors responsible for more than half of Samsung’s income would help stabilise chip prices after double-digit declines this year.
The third quarter estimates showed a slight rise from the April-June period, which analysts mainly attributed to mobile business improvements.
The company rolled out its new Note 10 smartphones in August which attach with superfast 5 G networks, which analysts say have performed significantly higher than their previous models to give Samsung a much-needed boost.
“The Note device will usually be released in August or September and will sell well through December, so I expect the demand to continue until the fourth quarter,” said Tom Kang, Counterpoint Research Director.
With the launch of its first foldable smartphone last month, Samsung appealed to high-end users after faulty screens forced an embarrassing delay in April.
The luxury mobile market has grown fiercely competitive, and overall sales have slowed as a lack of significant creativity has culminated in people waiting longer to update to new models.
According to sales tracker IHS Markit, the South Korean tech titan is leading the global smartphone market with a 23 per cent share of the industry, trailed by Chinese competitors Huawei and Oppo, with Apple fourth.
Samsung also took advantage of the U.S. trade ban on Huawei, “replacing a powerful crisis rival” with its mid-and low-level Galaxy A handsets, “said Counterpoint Research analyst Sujeong Lim.
Increased demand for OLED display panels used by rivals for handsets including the new iPhone 11 from Apple is also expected to help improve the quarterly profit of the product.
Samsung was swept up in a World War II trade war between Japan and South Korea.
The row saw Tokyo impose strict controls on South Korean tech giants ‘ critical exports in July, and Samsung Vice Chairman Lee Jae-yong — who called the situation a “crisis” — visited Tokyo to secure materials.
In addition to the woes of Samsung, Lee is currently facing a retrial on his role in a massive corruption scandal that brought down ex-President Park Geun-hye.
He was first sentenced for multiple convictions for five years in 2017, including corruption, which in August was shortened to a suspended sentence on appeal only to trigger a retrial for the Supreme Court.
The case’s first trials are expected to take place later this month.