Samsung Electronics Co. said Friday its operating revenues more than halved in the second quarter of the year before in the midst of the weak memory chip and handset market.
The operating profit was estimated at 6.5 trillion (5.6 billion) in April-June, down 56.3 percent from the previous year, according to revenue guidance.
The Korean technological giant expects total sales to have fallen 4.2 percent this year to 56 trillion won over the three month period.
The figures were above market expectations of 6.07 trillion won, based on the survey conducted by Yonhap Infomax, the economic arm of the Yonhap News Agency at 23 Korean brokers. The sales estimate was averaged 54 trillion won.
Samsung does not break down performances from their respective business divisions and said it will announce detailed earnings later in the month.
Market watchers said a supply liquor in DRAM and NAND flash chips, which accounts for more than two-thirds of the company's sales, pulled down profitability, expecting the downturn to continue in the second half in the wake of Washington's ban on Huawei, a major client of Samsung memory chips.
Market research firm TrendForce anticipated that DRAM prices will fall by between 10 and 15 percent in the third quarter, worse than previous estimates of 10 percent decline, as data centers can cut investments due to increasing uncertainty from trading tensions. The expected price of NAND flash chips will also slow down this year.
"As US ripple ripples continue to spread, Huawei's smartphone and server product shipments are feared to face major barriers for the next two to three quarters, affecting peak season demand for other DRAM products,
. ] TrendForce said in a report, "We can see that the transfers of NAND flash chips do not meet the peak season 3Q expectations and cause contract prices to fall unchecked."
While Samsung previously predicted that earnings would come in the second half when stock levels stabilize and demand high season, analysts assume that the memory chip industry would remain in the downward cycle later this year.
"It is expected to take more time for the memory card market to get back on track as prices are expected to continue pushing in the second half of the year, says Kim Un-ho, analyst at IBK Investment & Securities, said. "Chip demand for servers is expected to increase in the second half, but it will fluctuate below previous estimates."
The mobile division was also expected to have defective profits despite the strong sales of the Galaxy A series in emerging markets as the average sales prices of mid-sized smartphones are cheaper than the flagship.
Although the world's largest smartphone maker has advocated reinforcing the flattering smartphone market by releasing 5G smartphones in select markets in the second quarter, including South Korea and the United States, the real benefits will be realized after 2020, analysts predicted.
"Samsung's smart phone sales are expected to weaken in the third quarter, compared to last quarter, despite the release of the Galaxy Note 10 in August," said Park Gang-ho, analyst at Daishin Securities. "Demand to replace 5G phones expected to pick up in full as of 2020. "
To increase demand in the premium segment, Samsung plans to unveil its latest phablet, Galaxy Note 10, on August 7 in New York while giving up for the release. by Galaxy Fold, who missed his April plan due to the durability problems of the collapsible device.
The addition is Japan's export restriction against South Korea of high-tech materials needed for semiconductor and display production.
Samsung is a major buyer of Japanese chemical companies that produce fluoropolyimide used to create flexible OLED monitors, as well as resist and etch gas needed in the semiconductor manufacturing process.
Industrial Utility s say the export restrictions can interfere with the supply chain of South Korean semiconductors and display industries if the Japanese government deliberately takes the time to review the process – possibly up to 90 days.
Japan produces about 90 percent of the fluoropolyimide and resists and 70 percent of the etching gas in the world, forcing Korean buyers to find alternatives if the restrictions are largely adopted and for a long time.
Prior to Japan's export restrictions, which came into force on Thursday, Samsung sent a letter to its shipper customers, promising to ensure that shipments of their products would be made within their planned supply plan.
"If the Japanese government reduces exports of key materials to South Korea, it may interfere with the production of Korean chip makers," says NHH & Analyst Doh Hyun-woo. "Although Korean companies produce some of the materials, many of them joint ventures with Japanese companies and their chemical materials have lower purity levels than Japanese products. "(Yonhap)