Samsung Flags First Profit Drop in 2 Years on Weak Chip Demand

A man tries out a Samsung Electronics' Galaxy Note 9 at its store in Seoul South Korea Jan. 7 2019. Kim Hong-Ji Reuters

Shares of Samsung Electronics slipped 1.7 percent to end at 38,100 won on Tuesday, underperforming the broader market's 0.6 percent fall.

Analysts said likely causes included profit margins for its high-end TVs being thinned by increasing competition, while the firm's smartphone business continues to lose money. "Home appliance sales were worse in emerging markets and China, while its high-end TV business isn't making profit as much as before".

Sales are expected to have fallen by 5%, following Samsung's decision to cut its 2018 capital expenditure, which had fuelled a boom in memory chip sales over the past two years.

It also estimated a 11 per cent on-year revenue decline at 59 trillion won. Below is the recent history of operating profit from Samsung since 2016, it should be noted Q4 is typically the most profitable month for them, which will not be the case this year.

Prices of NAND flash memory chips, which hold data permanently, slipped 15 percent.

The figure was below market consensus of about 13.5 trillion won, according to market researcher FnGuide. In the first commentary the company had attached to any of its regulatory filings since late 2014, Samsung said profits would remain weak in the first quarter of this year, but could be expected to rebound in the second half on the anticipated recovery of the memory chip market. Samsung also acknowledged that its own smartphone business is struggling in a "stagnant and fiercely competitive market", CNBC wrote.

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"Apple's iPhones have not been selling well in China".

It marks the first such profit decline in two years, according to the report.

Children try out Samsung Electronics' Galaxy S9 phone at its store in Seoul, South Korea, on Monday.

The shock warning added to concerns about the broader tech sector after Apple sent shudders through world markets last week by slashing its revenue forecast blaming weak sales in China and citing the trade war.

Samsung's shares were very volatile after the news, switching between positive as well as negative territory in trading in Asia this morning.

"Samsung is losing its ground to Chinese rivals, such as Huawei and Xiaomi that offer reasonably priced smartphones, not only in the domestic market, but also in Southeast Asia and European countries", said Jia Mo, a research analyst with technology consultancy Canalys.

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