Samsung Reports Feeble Q2 Profit Dragged by Chip Turmoil

Samsung Reports Feeble Q2 Profit Dragged by Chip Turmoil

On Monday, Samsung Electronics cautioned about Japanese curbs on chip-making materials exports distorting its outlook. The smartphone maker said it would delay returning money to shareholders due to “significant new challenges.”

Samsung also reported its quarterly revenue plummeting to 56% due to the oversupply of memory chips continuously weighing prices down.

The decline in profit and unstable forecast overshadowed Samsung’s bright outlook that the chip market had hit rock bottom and would start to recover in the later half of the year.

Shares of Samsung dropped 3%, performing disappointingly in comparison to the broader market.

According to Robert Yi, Samsung’s head of investor relations, “In addition to already high uncertainties caused by prolonged global trade conflicts, the external environment regarding our component business has recently come under significant new challenges.”

“As a result, we no longer believe it is possible to reasonably predict or forecast our free cash flow for 2018 through 2020,” Yi added.

Worth noting is Samsung’s suffering, similar to other key tech sector players, has been caused by a long-drawn-out trade war between the United States and China. To add, an escalating conflict between Japan and South Korea is more than likely to weigh on third-quarter results.

Investors closely watch the chip leader’s outlook to gauge the demand for smartphones and similar electronics.

The tech giant will be flexible when it comes to producing memory chips, Samsung said.

Like Samsung, its smaller South Korean rival, SK Hynix said it would slash investment and production to limit chip supply.

As the world’s largest producer of smartphones, Samsung said its mobile business remained to be dampened. Despite its stock having gained 20% in the current fiscal year so far, it decreased 2.6%, weaker than the broader market’s slump by 0.9%.

A Weaker Samsung Mobile Sector

The company said its inventories of NAND chips began falling significantly. According to Samsung, server customers were also buying DRAM chips more abundantly starting from late in Q2.

A halt in production at Japan’s Toshiba Memory a month prior constricted NAND supply.

“Server demand is expected to increase gradually as customers adjust their inventory levels and resume purchasing, while PC demand is also likely to expand,” Samsung stated.

Samsung’s operating profit in the chip business bottomed out to 3.4 trillion won, or a 71% plunge from last year’s 11.6 trillion won profit report.

The mobile business booked 1.6 trillion won in quarterly revenue. It was down 42% last year as it was weighed by slower flagship-model sales and increased marketing expenses.

According to the tech giant, it is betting that two high-end smartphone product launches in the second half will allow it to regain profit, although weakness in the global smartphone market is probably going to limit any upside.

In the second quarter, global smartphone shipments slumped 3% according to Strategy Analytics, a research firm.

Samsung, however, boosted shipments by 6.7% and defended its market share of 22%.

Its prominent rival, Apple, reported another quarter of weaker iPhone sales on Tuesday, but overall sales rose due to the rise in contribution from paid and non-paid content services like music and other apps; a strategic feature Samsung currently lacks.