Samsung Electronics flags 56% fall in third quarter profits

“Samsung took advantage of the US trade ban against Chinese rival Huawei.”

PHOTO: CNBC

Samsung Electronics says it expects operating profits to drop more than 50% in Q3 amid a continued slump in the global chip market. Operating profits for July to September was expected to reach 7.7 trillion won (US$6.4 billion), down 56.2% from a year earlier – this from the world’s largest maker of smartphones and memory chips.

It marks the fourth consecutive quarter in which the South Korean tech company has recorded a drop in profits in the face of falling semiconductor prices and weakening demand for its mobile devices. Sales for the third quarter were expected to drop 5.3% from the same period last year.

The South Korean tech titan leads the global smartphone market with a 23% share of the sector, trailed by Chinese competitors Huawei and Oppo, with Apple in fourth place, according to sales tracker IHS Markit.

Samsung withholds net profit and sector-by-sector business performance until it releases its final earnings report, which is expected later this month.

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. Analysts voiced optimism for the coming months, noting that falling inventory levels for semiconductors – which account for more than half of Samsung’s profit – will help stabilise chip prices after double-digit drops this year.

Sujeong Lim, an analyst at Counterpoint Research, said, that in the mobile business, Samsung took advantage of the US trade ban against Chinese rival Huawei, “replacing a strong competitor in crisis” with its mid-to-low tier Galaxy A handsets.

“The new A series has turned out to be an effective weapon to take share from its Android competitors.”

Samsung appealed to high-end users with the launch of its first foldable smartphone last month after faulty screens forced an embarrassing delay in April. The firm also rolled out its flagship Note 10 devices which analysts say have sold far better than its previous models, giving Samsung a much-needed boost in its mobile sales.

The premium smartphone market has grown fiercely competitive and overall sales have cooled as a lack of major innovation has caused people to wait longer before upgrading to new models. Samsung has also been caught up in a trade war between Japan and South Korea stemming from World War II disputes.

The row saw Tokyo impose tough restrictions on exports crucial to South Korean tech giants in July, and Samsung vice chairman Lee Jae-yong – who called the situation a “crisis” – has visited Tokyo to secure materials. Adding to Samsung’s woes, Lee is currently facing retrial over his role in a massive corruption scandal that brought down former president Park Geun-hye.

He was initially jailed for five years in 2017 on multiple convictions including bribery, which was reduced to a suspended sentence on appeal, only for the Supreme Court in August to order a retrial.

SOURCE: Agence France-Presse