Samsung Q2 profit falls short of estimates on weak phone demand

A woman walks past an advertisement for the Samsung Galaxy S9 at a mobile phone shop in Seoul, South Korea.
A woman walks past an advertisement for the Samsung Galaxy S9 at a mobile phone shop in Seoul, South Korea. PHOTO: AFP

SEOUL (BLOOMBERG) - Samsung Electronics Co posted earnings that fell short of estimates on weaker demand for smartphones.

Operating income rose to 14.8 trillion won ($13.2 billion) in the three months ended June, according to preliminary results released on Friday (July 6) from the company. That compares with the 15.3 trillion-won average of analysts' estimates compiled by Bloomberg.

While the world's biggest chipmaker dominates in both Dram and Nand markets, the company has struggled with weaker-than-projected sales of its Galaxy S9 smartphones unveiled in the first three months of the year. Sales of organic light-emitting diode screens to Apple have also been weaker than expected, while the growth of chip prices has been slowing.

"Phones aren't selling and Nand prices are particularly weak," said Claire Kim, an analyst at Daishin Securities Co. "It's not a surprise given that Samsung itself has been toning down its earnings expectations."

Sales for the second quarter fell to 58 trillion won, compared with the 60.8 trillion won average projection compiled by Bloomberg. Samsung won't provide net income or break out divisional performance until it releases final results later this month.

Samsung warned in April that its mobile business would see "stagnant sales of flagship models amid weak demand and an increase in marketing expenses" in the second quarter. Samsung's market share is forecast to fall to 20.4 per cent in the second quarter from 21.4 per cent in the previous quarter, while Huawei Technologies Co, Oppo and Xiaomi Corp would all raise theirs, according to TrendForce.

Samsung also faces an investigation in China over allegations of collusion in chip sales with Micron Technology and SK Hynix while facing regulatory pressure at home over corporate governance. The stock has declined 9.8 per cent this year after trading near record highs in 2017.

The semiconductor business forms the largest portion of Samsung's profit. Contract prices for 32-gigabyte Dram server modules climbed 2.8 per cent in the June quarter from the March period, which saw them rise 5.6 percent. Prices for 128 gigabit MLC Nand flash memory chips fell about 9 per cent, according to inSpectrum Tech Inc.