It's not just Apple — Samsung is hurting, too

Samsung is the latest tech giant to warn that its business is suffering.The South Korean company said...

Posted: Jan. 8, 2019 12:18 PM
Updated: Jan. 8, 2019 12:18 PM

Samsung is the latest tech giant to warn that its business is suffering.

The South Korean company said Tuesday that its fourth-quarter operating profit is set to plunge nearly 30% from a year earlier, well below analysts' forecasts. It blamed the sharp drop on "lackluster demand" for its memory chips and "intensifying competition" in the smartphone industry.

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Samsung's guidance comes after Apple (AAPL) set off alarm bells last week by warning that it will sell fewer iPhones than previously expected, mainly because of disappointing demand in China amid an ongoing trade war with the United States.

Samsung, the world's largest smartphone maker, didn't mention China specifically in its earnings guidance on Tuesday, but it said "mounting" macroeconomic uncertainties are affecting its business.

Shares in Samsung ended the day down about 1.7% in Seoul. The stock lost nearly a quarter of its value last year.

China, the world's largest smartphone market, is experiencing a deepening economic slowdown that's affecting businesses around the world.

As well as selling its own phones, Samsung supplies key parts like chips and display screens to other major device manufacturers. Apple's latest iPhones use Samsung's OLED screens.

The South Korean company said it expects operating profit for the fourth quarter of 2018 to come in at 10.8 trillion won ($9.6 billion), compared with about 15.2 trillion won ($13.5 billion) in the same period a year earlier. It predicted sales will drop about 11% to 59 trillion won ($52.5 billion).

It warned the weak performance is likely to continue, predicting its earnings will "remain subdued in the first quarter of 2019 due to difficult conditions for the memory business" before improving later in the year.

The company is also hoping that the introduction of new technology like 5G services and foldable smartphones will help boost its mobile division.

Analysts weren't entirely surprised by Samsung's bleak statement.

"There is obviously the competition from the Chinese players that is limiting the growth of Samsung in many markets including the high-growth ones like India and South East Asia," said Kiranjeet Kaur, a Singapore-based analyst with research firm IDC.

According to IDC's latest report, Samsung still sells the most devices globally, but experienced a 13% decline in sales in the third quarter of 2018, compared with the same period a year earlier. Chinese smartphone maker Huawei, meanwhile, posted 33% growth.

And while many smartphone makers still use Samsung as a supplier, memory chip prices have "passed their peak days," Kaur added.

Samsung will report full fourth-quarter results at the end of this month.

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