Samsung Misses Profit Estimates as Chip Sector Weakens

(Bloomberg) -- Samsung Electronics Co. posted fourth-quarter profit below estimates as demand for memory chips slumps amid deteriorating relations between the U.S. and China.

Operating income fell to 10.8 trillion won ($9.65 billion) in the three months ended December, according to preliminary results released Tuesday from the Suwon, South Korea-based company. That compares with the 13.8 trillion-won average of analysts’ estimates compiled by Bloomberg.

Trade tensions between Samsung’s two biggest export destinations has hit demand for memory used in everything from personal computers to mobile devices, raising the pressure on a company struggling to revitalize its smartphone business. Compounding that challenge is weakness at rival, and major customer of components, Apple Inc. with Samsung’s share price dropping 24 percent last year.

“The trajectory of the memory downturn is increasingly turning unwholesome,” Lee Seung-woo, an analyst at Eugene Investment & Securities Co., wrote in a Jan. 3 report. “The reality is that the semiconductor industry is still under a thick mist with no outlook clearly seen.”

Sales for the fourth quarter fell to 59 trillion won, compared with the 63.6 trillion won average projection compiled by Bloomberg. Samsung didn’t provide net income or break out divisional performance, which it will do later this month when it releases final results.

Memory chips account for the biggest portion of Samsung’s profit. Contract prices for 32-gigabyte DRAM server modules fell about 5 percent in the December quarter, according to InSpectrum Tech Inc. Prices for 128 gigabit MLC NAND flash memory chips fell about 3.4 percent.

Apple last week cut its sales forecast for the first time in almost two decades, worsening the outlook for orders for Samsung. Apple receives memory chips and smartphone screens from Samsung and is the South Korean manufacturer’s biggest customer, according to data compiled by Bloomberg.

While Samsung still leads the world in smartphone sales, it’s being squeezed by Chinese handset makers like Huawei Technologies Co. The South Korean company is pinning its hopes on a foldable-screen phone that it plans to ship this year, along with a flagship Galaxy S10 model that is said to feature an in-display fingerprint sensor and a near-zero bezel.

While sales of its own devices have foundered, the company does get a benefit from the success of rivals as it supplies organic light-emitting diode screens for Apple and Huawei. In contrast, its liquid-crystal display televisions are facing increasing challenges from Chinese rivals that seek to crowd out South Korean products.

©2019 Bloomberg L.P.