Samsung shares slide

By Bloomberg | 31 Jul 2019 at 12:46hrs
Samsung boss
Samsung Electronics Co. shares slid after South Korea's most important company reported sharply lower profit amid global trade tensions and a wireless industry slump.

Net income fell 54% from a year earlier to 5.06 trillion won ($4.3 billion) for the three months ended June, the Suwon, South Korea based company said in a statement, while revenue dropped 4% to 56.1 trillion won. Shares slid as much as 3.3%.

The world's largest maker of memory chips and smartphones has been hammered by geopolitical tensions and a wireless slump. The U.S.-China trade war has rattled the global tech-supply chain and weighed down the price of memory chips used in phones and data centers. In addition, Japan restricted the export of materials used in chips and displays to Korea, raising concern over potential disruptions at Samsung and SK Hynix Inc.

"The most challenging issue for Samsung is whether the U.S.-China trade war will push down the global economic growth or not," Song Myung-sup, an analyst at HI Investment & Securities, said ahead of the earnings release.

Samsung did signal optimism about improvements for the memory business - its most profitable - for the rest of the year.

"In the second half, demand is expected to grow although the company sees volatility in the overall industry due to increased external uncertainties," Samsung said in a statement Wednesday. The company said memory demand increased in the second quarter as data-center customers resumed purchasing and mobile applications adopted higher-capacity products.

Samsung had reported preliminary numbers this month that showed operating profit fell more than 50% and its net income did exceed the 4.88 trillion won average of estimates compiled by Bloomberg.

Its stock originally traded higher and then dropped lower during an investor call as Samsung said it is facing uncertainty due to growing macroeconomic issues. Beyond the U.S.-China dispute, Japan may announce further export curbs against South Korea this week.

In addition, Samsung had planned to announce three-year shareholder return policy Wednesday, but delayed the announcement. It is hard to predict free cash flow due to high external uncertainties, Robert Yi, an investor relations executive, said in the conference call. Samsung said it will share the plan early next year.

Shares have been flat over the past year, though they've gained in recent weeks with hope of a recovery in chip prices and of progress in the U.S.-China trade dispute.

Memory chips have been challenging this year. Contract prices for 32-gigabyte DRAM server modules, used to store data on PCs and servers, dropped by 25.1% in the June quarter, according to InSpectrum Tech Inc. Prices for TLC 128 NAND flash memory dropped 11.5%.

"For DRAM, overall demand is expected to increase due to seasonal effects amid external uncertainties. 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 said in its statement. "For NAND, demand for high-density, high value-added data center and mobile storage is likely to continue to grow and the market is expected to gradually stabilize from the third quarter."

Chipmakers have been predicting a recovery in memory-chip demand this year, but that's been delayed amid the trade war and slower expansion of data centers. "A demand-driven oversupply in the DRAM market will push pricing down 42.1% in 2019 and the oversupply is expected to extend through the second quarter of 2020," Gartner Inc. said in a note on July 22.

The mobile division of the world's largest smartphone maker posted a 42% decline to 1.56 trillion won in operating income. Samsung said its profitability eroded because of intensifying competition in low-to-mid range markets, and vowed to launch successfully the Galaxy Note 10 and Galaxy Fold in the second half of this year.

Samsung's display division posted operating profit of 750 billion won, which supplies organic light-emitting-diode screens for Apple's iPhones, due to a one-time gain and a gradual demand recovery. The consumer electronics unit, which includes TVs and appliances, posted 710 billion won of profit.

"There are many negative factors for Samsung, but its display business is improving," Song Myung-sup, analyst at HI Investment & Securities, said before earnings release. "Samsung might start seeing a windfall from the U.S. ban on Huawei and more display orders from Apple."



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