Samsung's Q2 profit plunges over slow chip, smartphone markets

The South Korean tech giant reported sales of 56.13 trillion and 6.6 trillion in operating profit during the April-June period.

The quarterly turnover and operating profit were down 4 percent and 56 percent respectively from the same period last year.

(Yonhap)

Compared to the third quarter of 2018, when Samsung reported its largest quarterly operating profit of 17.57 trillion won, the figure in the second quarter was reduced to one third.

The overall decline stemmed largely from the most lucrative chip manufacturing business that recorded the smallest operating profit of $ 3.4 trillion gained since the third quarter of 2016, due to continued price declines.

Semiconductors division posted 16.09 trillion won in sales.

The operating margin of the chipmaking division fell 55.6 percent in the first quarter last year to 21.1 percent in the second quarter. The second quarter operating margin recorded a recent low dating to the second quarter of 2014.

“The weakness and price decline in the memory chip market persisted as the effect of inventory adjustments from large data center customers in previous quarters continued, despite limited recovery in demand, an official said during a conference call.

According to DRAM eXchange, the average price of 8-gigabit DDR4 halved from $ 7.25 at the end of last year to $ 2.94 in July.

Unlike SK hynix, the world's second largest memory provider, Samsung is not considering any move to cut the production of memory chip products.

After announcing a full 89 percent drop in operating profit for the second quarter, SK hynix said it will begin to reduce DRAM production in the fourth quarter.

US-based memory manufacturer Micron has announced that it will reduce DRAM production by 5 percent this year due to the fall in prices.

"The company does not consider any intentional reduction in disk input," said Jeon Se-won, vice president of Samsung's chipmaking business.

"Efforts to streamline production lines are running flexibly in response to demand."

Samsung has reworked the equipment and operation of its DRAM lines since early this year, which can naturally lead to a general decline in production.

The company's mobile division also reported 41.6 percent in operating profit from a year earlier, suggesting that the smartphone market is still stagnant.

It earned 25.86 trillion won in sales and 1.56 trillion won in operating profit.

"The smartphone unit posted stronger shipments on new mass market models, but was generally weighed down by slower sales of flagship Galaxy S10 phones and increased marketing costs," the official said.

Meanwhile, the network unit delivered solid results for commercializing 5G services in Korea.

The Consumer Electronics division showed a slight increase in quarterly operating profit, from its own 510 billion second quarter last year to 710 billion won this year, on modest sales of the latest QLED TVs.

In the second quarter alone, Samsung's capital expenditures of 6.2 trillion won, including 5.2 trillion won spent on semiconductors and 500 billion won on monitors.

Total capital expenditure in the first half was 10.7 trillion won, including 8.8 trillion won for semiconductors and 800 billion won for monitors.

"The annual capital (capital expenditure) has not yet been confirmed," said a company official. "But some investments will be made in the second half of the year as part of efforts to build infrastructure for medium and long-term demand."

By Song Su-hyun (song@heraldcorp.com)