Samsung Electronics counts on better second half after first-quarter profit drops

SEOUL (Reuters) – Samsung Electronics Co Ltd on Tuesday flagged better second-half results after posting a 60 percent drop in first-quarter profit, pointing to higher expected sales of memory chips and smartphones.

FILE PHOTO: Attendees at Samsung Electronics Co Ltd’s Unpacked event test out the company’s new devices in San Francisco, California, U.S., February 20, 2019 REUTERS/Stephen Nellis

The world’s top maker of semiconductors warned however that there was more short-term pain to come in the second quarter, with memory chip prices likely to decline further before demand rebound as data centers re-stocked later in the year.

“For the second half of 2019, the company expects memory chip demand for high-density products to increase, but uncertainties in the external environment will persist,” the South Korean tech giant said in a statement.

Hit by falls in chip prices and slowing demand for display panels, Samsung posted operating profit of 6.2 trillion won ($5.4 billion) in the January-March quarter, in line with its guidance issued earlier this month.

Revenue fell 13.5 percent to 52.4 trillion won, also in line with its earlier estimates.

Samsung’s core semiconductor business booked a 64 percent fall in operating profit to 4.1 trillion won, while the display business logged 560 billion won in losses.

Memory chip makers have been hurt by a downturn in the global smartphone market and a fall in demand from the data centers behind cloud computing services, amid a broader economic slowdown.

Samsung’s smaller rival, memory chip maker SK Hynix, last week posted the slimmest quarterly operating profit in more than two years, but said it was confident chip demand would recover later this year.

Samsung said its server DRAM chip customers would start rebuilding inventories from the end of the second quarter, while new smartphone models would support sales of mobile DRAM.

An easing in trade tensions between China and the United States also could unlock some pent-up demand for consumer electronics, and encourage Chinese cloud service providers that had stockpiled chips in anticipation of a prolonged trade war to lower their inventories to more normal levels, analysts said.

“On the macroeconomic side, China may give a boost to its IT industry to support the economy and if there’s a trade agreement signed between China and United States, these will drive up demand for Samsung’s products, like chips,” senior analyst Song Myung-sup at HI Investment and Securities said.

MOBILE WORRIES

The world’s top smartphone maker said its mobile business posted a 40 percent drop in operating profit to 2.3 trillion won in the first quarter.

The Apple Inc rival and supplier is hoping to revive flagging growth in its mobile business with its latest handset, featuring a big, bending screen.

But in a blow to its renewed focus on innovation, Samsung delayed global sales of its upcoming foldable phone after reviewers discovered problems with the display.

Samsung, which supplies screens for its own folding phones, forecast weak second-quarter earnings in the display business as demand for flexible screens was expected to remain weak.

But it said demand for flexible display panels would likely pick up and sales for its smartphones were also expected to rise in the second half, led by new models in all segments including the low-end Galaxy A series.

Reporting by Ju-min Park and Heekyong Yang; Editing by Stephen Coates

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