Samsung Profits Below Estimates as Smartphone Sales Hurt Bottom Line

South Korean tech giant Samsung Electronics Co estimated on Friday earnings would grow at the slowest pace in more than a year in the second quarter, as analysts said weak smartphone sales likely offset record high chip earnings.

The world’s biggest maker of memory chips, smartphones and TVs said April-June operating profit would grow 5.2 percent to KRW 14.8 trillion ($13.2 billion), just missing an average estimate of KRW 14.9 trillion from 18 analysts polled by Thomson Reuters.

While the chip business would post its seventh consecutive record quarterly profit, analysts say, smartphone earnings growth was weak, fueling concerns the mobile business is running out of ideas to underpin sales of its premium Galaxy devices.

“It is going to be tough. The smartphone market is not growing anymore but the competition is intensifying,” said Lee Won-sik, an analyst at Shinyoung Securities.

Revenue likely lost 4.9 percent from a year earlier to 58 trillion won, Samsung said, versus analysts’ average forecast of 59.7 trillion won. The firm did not elaborate and will release detailed earnings in late July.

Samsung shares were down 1 percent in early Friday trade, compared with a 0.2 percent rise for the broader market. The stock has slid about 9 percent this year on concerns over slowing profit growth and a lack of technological innovation to drive future smartphone sales.

Competition from cheaper Chinese brands like Xiaomi Corp and Huawei have seen Samsung lose market share in China and India, the world’s top smartphone markets.

Instead, the firm’s profits are being driven by strong global sales of DRAM and NAND chips which account for about a third of its revenue.

Production of Apple’s next iPhone should support the price of NAND flash memory chips, which fell by up to 15 percent in the second quarter, according to chip price tracker DRAMeXchange.

The average selling price of DRAM chips, which help devices perform multiple tasks, is forecast to climb 14.8 percent this year, research firm Gartner says.

“Overall, third-quarter profit will be stronger than the second quarter as Samsung will perform better in the semiconductor and display businesses,” Song Myung-sup, an analyst at HI Investment & Securities, said.

Analysts have warned that a Chinese price-fixing probe into chipmakers including Samsung could muddy the outlook for DRAM pricing, as China is the largest importer of memory products.

The high cost of chips has hurt many electronics makers, with Chinese manufacturers among the hardest hit as they operate at lower margins than rivals.

© Thomson Reuters 2018

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