A global price decline for its memory chips and consequently revenues apparently has caused a 56 per cent drop in the second quarter operating profits for the biggest smartphone maker of the world and the South Korean tech giant Samsung. The company’s performance resulted in a steep drop in its stocks.
There was a Drop of as much as 3.3 per cent in the shares of Samsung Electronics Co Ltd in Seoul after the announcement of the second quarter reuslts of the company. There was some recovery in the stocks to ultimately close with a drop of 2.6 per cent.
Samsung said in a statement that for the three-month period that ended June, the operating profit reported by the company was 6.6 trillion Korean won or $5.6 billion. In comparison the company had clocked operating profits of 14.87 trillion Korean won or $12.6 billion during the same period a year ago.
There was also a 4 per cent year on year drop in revenues which came in at 56.13 trillion Korean won or $47.5 billion in the second quarter of the current year.
“The weakness and price declines in the memory chip market persisted as effects of inventory adjustments by major data center customers in the previous quarters continued, despite a limited recovery in demand,” the company said.
The company also said that economic uncertainty has also forced down a demand for its smartphones globally. There is a general slowing demand for premium products resulting in a drop in sale of Samsung’s flagship devices such as the Galaxy S10, the company said. It also added that there was an increase in the sale of its cheaper Galaxy A Series smartphones.
There was a huge drop of almost 42 per cent in the overall profits of the company in its smartphone business which came in at 1.56 trillion Korean won or $1.32 billion.
“In the second half, the overall mobile market demand is expected to remain weak due to growing uncertainties over the global economy and trade,” Samsung said.
In the previous quarter, Samsung had reported a huge 60 per cent drop in its group operating profit and blamed the performance on significant fall in prices for its chip and a slowing demand for its display business.
The company also warned of continued troubles for its memory chip business for the rest of 2019 because of continued pressure and slowdown in the over all global economy. “In the second half, demand is expected to grow although the company sees volatility in the overall industry due to increased external uncertainties,” it said.
Analysts believe that in the coming months, the global chipmaking business will also come under pressure because of a trade spat between South Korea and Japan where in Japan has curbed the export to South Korea of three chemical materials in July. According to companies and analysts, these three materials are critical for the South Korean chip and display makers and they have traditionally depended on supply of those materials from Japan.
This trade spat is likely to have an impact on Samsung and other major memory chip producers like SK Hynix.
(Adapted form CNN.com)