Weak chip demand to dent Samsung earnings - USA

Weak chip demand to dent Samsung earnings - USA

Tech giant Samsung Electronics has flagged its first quarterly profit drop in two years, painting a grim outlook amid growing competition from Chinese smartphone makers and declining chip prices.

Samsung estimated profit at about 10.8 trillion won ($9.67 billion) for October-December last year, down 29 percent from the same period a year earlier. The operating profit decreased in the last quarter of the Year to 28.7 per cent compared to the previous year, reported Samsung on Tuesday in a preliminary estimate. The same story points the finger at the trade aggro between the United States and China as a major reason for the drop off, citing reduced demand for memory chips which are a big thing for Samsung. Total sales are also down 10.6% from the year prior to $52.7 billion.

Samsung is considered a gauge for the technology sector and makes devices such as smartphones and other electrical appliances, and is also a supplier of components to some of the world's biggest companies. Apple cited China's slowing economy leading to a weakened demand for its iconic iPhones as a reason for the lowered forecast. According to market research firm Counterpoint, in the third quarter, Samsung sales accounted for 1 percent of the Chinese market. Samsung didn't provide net income, which it will do later this month when it releases final results.

Samsung shares lost 24 per cent past year, capping its worst performance since 2000, as the stock took a beating from sliding chip prices and a slowdown in fresh smartphone demand. The memory chip business was also hit by a drop in prices, the company said. Apple receives memory chips and smartphone screens from Samsung and is the South Korean manufacturer's biggest customer, according to data compiled by Bloomberg.

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Despite the deteriorating market environment, Samsung expressed confidence that its profitability would recover in the second half.

Analysts have said that features and functionality in smartphones have become so similar that there aren't any distinguishing features between different companies' products.

"The most important thing from here is for the pace of decline in chip prices to slow, which I expect will happen in the second quarter".

Analysts expect Samsung's profit to decline through 2019 as weakness in China persists, Refinitiv data showed.

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