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Samsung Flags First Revenue Drop in 2 Years on Weak Chip Demand

South Korea’s Samsung Electronics Co on Tuesday estimated a 29 % drop in quarterly working revenue, its first decline in two years, because it flagged powerful reminiscence chip and cell phone markets in a uncommon commentary.

Weaker earnings on the world’s largest maker of smartphones and semiconductors provides to worries for buyers already on edge after Apple final week took the uncommon transfer of reducing its quarterly gross sales forecast, citing poor iPhone gross sales in China.

Samsung, in a regulatory submitting, estimated revenue at KRW 10.eight trillion ($9.67 billion) for October-December final 12 months, down 29 % from the identical interval a 12 months earlier. That in contrast with the KRW 13.2 trillion common of 26 analyst estimates in a I/B/E/S Refinitiv ballot.

It additionally estimated an 11 % on-year income decline at KRW 59 trillion.

The corporate doesn’t often clarify the main points behind its estimates, however on Tuesday issued a background assertion together with its fourth-quarter earnings steering to “ease confusion” amongst buyers as its estimate was far beneath market forecasts.

“We anticipate earnings to stay subdued within the first quarter of 2019 because of tough situations for the reminiscence enterprise,” it mentioned.

It launched the same word for buyers in late 2014, when it additionally missed market estimates as cell revenue fell.

On Tuesday, the South Korean tech large mentioned weaker-than-expected demand from a few of its knowledge centre clients adjusting inventories drove down chip costs and damage earnings. It didn’t establish the shoppers.

“Poor chip gross sales to Chinese language main cloud firms raised Samsung’s stock stage which led to chip worth declines,” mentioned analyst Kim Younger-woo at SK Securities.

“Second- and third-tier Chinese language smartphone makers noticed drastic drops of their gross sales, which additionally took a toll on chip demand,” Kim mentioned.

Samsung’s reminiscence and processor chips, which account for over three-quarters of its earnings and about 38 % of gross sales, energy smartphones together with these from China’s largest handset maker Huawei Applied sciences Co.

Samsung will disclose detailed earnings later in January.

Analysts anticipate Samsung’s revenue to say no by way of 2019 as a slowing Chinese language economic system erodes demand for its chips and handsets.

(For an interactive graphic on reminiscence chip costs, click on right here)

Costs for DRAM chips, which give units with momentary workspaces and permit them to multi-task, declined 10 % within the fourth quarter, in response to business tracker DRAMeXchange.

Costs of NAND flash reminiscence chips, which maintain knowledge completely, slipped 15 %.

DRAMeXchange anticipates reminiscence chip costs to fall 10 % on a mean within the first quarter of 2019.

Samsung mentioned the reminiscence market is probably going to enhance from the second half of the 12 months as a result of adoption of latest central processing models in addition to smartphone launches.

It additionally mentioned a “stagnant and fiercely aggressive smartphone market” pressured its revenue and that the agency would proceed to innovate its product line akin to foldable and 5G fashions.

“If Apple’s not promoting, then is it Samsung that is promoting effectively? It’s not. The smartphone market is already saturated,” mentioned senior analyst Greg Roh at Hyundai Motor Securities.

“Apple’s iPhones haven’t been promoting effectively in China no less than since Huawei’s chief finance officer was arrested. That is even worse for Samsung as a result of that will drag its chip costs down,” Roh mentioned, referring to Apple as a Samsung chip shopper.

Huawei CFO Sabrina Meng was arrested in December in Canada on the request of the USA in relation to Iran-related transactions. The agency has mentioned it was not conscious of any wrongdoing.

Shares in Samsung opened down 1.9 % however have since turned constructive. The broader market was up zero.1 % rise.

© Thomson Reuters 2019

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