Samsung Electronics flags 60% slump in Q1 operating profit

Photo: AFP

The world's biggest smartphone and memory chip maker Samsung Electronics warned Friday of a more than 60 percent plunge in first-quarter operating profits in the face of weakening markets.

Operating profits for January to March would be "approximately 6.2 trillion won", the firm said in a statement, down 60.4 percent on-year.

Sales were about 52 trillion won, it said, marking a 14 percent drop.

The firm is the flagship subsidiary of the giant Samsung Group, by far the biggest of the family-controlled conglomerates that dominate business in the world's 11th-largest economy, and it is crucial to South Korea's economic health.

It has enjoyed record profits in recent years despite a series of setbacks, including a humiliating recall and the jailing of its de facto chief.

But now the picture has changed, with chip prices falling as global supply increases and demand weakens.

Samsung Electronics warned investors last week to expect weak operating profits, citing "unfavourable market conditions" for displays and memory chips.

"Amid weak demand for memory business, a drop in price for signature products is expected," it said then.

"The company will seek to improve cost competitiveness through effective resource management," it added, "while enhancing product quality in the short term".

Samsung was also launching the 5G version of its top-end Galaxy S10 smartphone Friday - the first such device available anywhere - after South Korea this week won the global race to commercially launch the world's first nationwide 5G networks.

But the company has to contend with increasingly tough competition in the smartphone market from Chinese rivals such as Huawei - which in 2017 surpassed Apple to take second place - offering quality devices at lower prices.

Samsung supplies components to other manufacturers such as Apple as well as making its own devices.

But market prices for liquid crystal displays have fallen 10 percent quarter-on-quarter, said Sanjeev Rana, an analyst at investment firm CLSA, while demand for smartphones in China - the world's biggest market - has been weak.

Prices for NAND memory - used in smartphones and other devices - fell 20 percent in the first quarter, according to market tracker DRAMeXchange, which pointed the finger at consumers taking longer to replace their smartphones, and lower-than-expected sales for Apple's new devices.

DRAM chips, used in computer servers, fell by similar levels, it added.

Rival phone maker LG Electronics also predicted an operating profit for the first quarter Friday, forecasting it would drop 18.8 percent to 900 billion won.

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