SEOUL • Samsung Electronics' quarterly profit more than halved after a global industry downturn and trade tensions hammered demand for its chips and high-end smartphones.
South Korea's largest company reported a less-than-expected 56 per cent fall in operating income to about 6.5 trillion won (S$7.54 billion) for the April-June quarter - but that was helped by an unspecified, one-time gain from a customer that analysts estimate could have topped US$800 million (S$1.09 billion).
The company will not provide net income or break out divisional performance until it discloses final results towards the end of the month. Its shares slid 0.8 per cent in Seoul yesterday.
Samsung - the world's biggest producer of smartphone screens, semiconductors and mobile phones - is grappling with plateauing demand in the face of an economic slowdown. Its memory chips remain a barometer for everything from computers to smartphones and have been one of the hardest-hit components since tariffs imposed by the Trump administration took effect in May.
Jitters over Samsung's biggest cash cow grew this week when Japan slapped export restrictions on materials needed for display and chip production, potentially hammering rival SK Hynix as well.
"Considering the structural downturn in memory prices and the mobile business, it's unlikely Samsung would exceed earnings estimates" in the second half, Meritz Securities analyst Kim Sun-woo said in a report after the release.
Percentage by which Samsung's shares slid in Seoul yesterday.
"As uncertainty over earnings has expanded on macro issues and around each division, the possibility of a special shareholder return plan has decreased significantly."
Unpredictability surrounding the trade war between the United States and China - where Samsung earns the bulk of its revenue - has sustained a downturn in the chip industry as smartphone demand tapers off and the pace of data centre construction decelerates.
Micron Technology, the largest US maker of computer memory chips, said last week it intended to "meaningfully" reduce spending in its fiscal year 2020, on top of plans to idle 5 per cent of memory chip production in the last quarter.
In the second quarter, contract prices for 32-gigabyte DRAM server modules fell 19.3 per cent compared to the previous quarter, while those for 128-gigabit MLC Nand flash memory chips skidded 5 per cent, according to inSpectrum Tech.
DRAM prices are projected to tumble up to 15 per cent in the current quarter and as much as 10 per cent in the fourth quarter, TrendForce has estimated.
"Memory prices are likely to keep sliding due to the ongoing trade war," said Mr Song Myung-sup, an analyst at HI Investment & Securities, adding that shipments should be stable as Chinese customers who have not received products from US chipmakers are likely to increase their orders.
"Samsung's smartphone business will start to benefit from the US ban on Huawei" in the second half, he added, although the US may ease some of the restrictions.
Japan's move to restrict the export of chip materials to South Korea also alarmed industry players because it threatened to derail domestic production. But some analysts say it could boost memory prices and remain hopeful Japan will not pull the plug on the world's largest memory chip-makers.
A one-off gain for the display business assuaged some of Samsung's pain. The company remains the foremost producer of high-margin organic light-emitting diode (Oled) displays, but hit a snag last year when supplies to Apple suffered after sales of the marquee iPhone X fared worse than expected.
Its display division had sought financial compensation from Apple because actual shipments of Oled displays for iPhones fell short of contractual estimates, the Electronic Times has reported. The company could have secured as much as 1 trillion won in compensation, Citigroup Global Markets has estimated.
But its chip division remains both the biggest driver of profit and the one most vulnerable to an economic downturn.
"It will take more time to see the recovery of business sentiment for semiconductors," IBK Securities analyst Kim Woon-ho wrote in a July 2 note. "Demand would rise in H2 but it will be lower than the prior estimates."