Samsung warns weak chip and display markets to hit earnings
Analysts wary over timing and robustness of expected second half rebound for electronics
Samsung Electronics has warned its earnings for the first three months of the year will be below market expectations amid a downturn for the company’s chip and display businesses, in the latest sign of woes hitting the global electronics supply chain.
In a rare regulatory disclosure ahead of the company’s scheduled earnings guidance next month, Samsung blamed an expansion of panel capacity among Chinese competitors for driving down display prices. The South Korean tech giant, which is the world’s largest memory chipmaker, also noted slow demand for the memory segment.
Chipmakers and other electronics companies have been hit by flailing demand and rising stock inventories following a slump in smartphone sales and a sharp fall in demand from cryptocurrency mining coupled with a broader economic slowdown and worries over the US-China trade dispute.
Samsung was forecast to report operating profit of Won7.2tn ($6.4bn) for the first quarter, according to Refinitiv, which would have marked a 54 per cent decrease from the same period a year ago.
In January, the company reported fourth-quarter operating profit had slumped 30 per cent to Won10.8tn. At the time it cautioned weaker earnings ahead in 2019 after two years of records sales, but expected demand to improve for its memory and display panel units in the second half.
Optimism over a potential second-half recovery for chip demand — on hopes of an uptake of 5G networks, the release of new foldable phones and augmented and virtual reality — last week helped buoy the benchmark Philadelphia semiconductor index to near a record high.
While analysts broadly expect the market to improve later this year, they are wary about the timing and robustness of a potential rebound.
A spate of poor global manufacturing data has marked a “negative prelude” heading into the upcoming earnings season, Morgan Stanley semiconductor sector analysts said in a research note overnight.
“Bad news has not mattered this year, with stocks continuing to rally on hopes of a [second-half] recovery. But we can't help to think that this divergence will be reconciled at some point — either growth starts to surprise to the upside to sustain the move or the more likely scenario that [the second half] disappoints,” the Morgan Stanley analysts wrote.
Prices for dynamic random-access memory chips for personal computers have slumped nearly 30 per cent in the first quarter, the biggest decline since 2011, according to TrendForce. The research house has forecast quarterly declines for the full DRAM market, which includes memory chips for servers and other devices, of 20 per cent in the second quarter and 10 per cent through the second half.
“Excessive high inventory is still an ongoing issue and will get even worse in the second quarter,” said Avril Wu, a TrendForce analyst.
CLSA last week made a double-digit cut to its forecast for Samsung’s full-year earnings. Its analysts noted that shipments of Samsung’s organic light-emitting diode (OLED) panels — which are used in the latest smartphones — as well as higher production costs and competition weighing on the company’s handset segment.
The CLSA analysts also said global handset shipments remained weak, “especially in China”, however, they still expected a “strong rebound” for the company’s second-half earnings.
Samsung shares were down 0.7 per cent in Seoul while the Kospi Composite index added 0.3 per cent.