Samsung Electronics’ net profit falls 60% in Q1 on weakness in chips

Samsung Electronics’ operating profit plummeted 60 percent in the first quarter, its worst performance in two and a half years largely due to falling memory chips prices and weak demand for displays.

According to a company earnings guidance released Friday, operating profit for the first quarter was estimated to be 6.2 trillion won ($5.4 billion), down 60.36 percent from the same period the previous year.

It is the smallest operating profit since the third quarter of 2016’s 5.2 trillion won. And it is the first time operating profit fell into the single digits since the first quarter of 2017’s 9.9 trillion won.

Sales declined 14.1 percent to 52 trillion won in the three-month period.

Samsung didn’t break down performances of business divisions and will announce detailed earnings later this month.

The fall in first quarter operating profit was particularly striking as the company posted record high earnings in the third quarter of last year, 17.6 trillion won.

But the decline was expected as Korean semiconductor exports have been falling sharply on declining demand and rising inventories following lukewarm global smartphone sales.

KTB Investment & Securities estimated in a report Friday that operating profit from Samsung’s semiconductor division was 4.2 trillion won, down almost 64 percent from 11.6 trillion won a year earlier.

Samsung Electronics’ semiconductor division accounts for nearly 60 percent of the company’s total earnings. The company is the world’s largest producer of dynamic random-access memory (DRAM) and NAND flash chips.

The report estimated the operating profit for DRAM flash chips went from 7.5 trillion won to 3.9 trillion won, and operating profit from NAND chips decreased from 3.6 trillion won to 39 billion won.

According to research group Trendforce, prices for NAND flash chips dropped 20 percent in the first quarter, their steepest fall since early 2018. Prices for DRAM chips slumped nearly 30 percent in the same period, the research group said.

“The cost from an alleged defect in the DRAM products for servers was also reflected in the first quarter earnings,” the report said. Samsung declined to comment on the issue earlier.

Analysts estimate that Samsung’s display business saw an operating loss of 631 billion won, down from a 410 billion won profit last year, due to falling demand for organic light-emitting diode (OLED) panels from Apple amid slow iPhone sales. Seasonal fluctuation in demand for liquid crystal display panels also hurt the division’s profitability, Hana Investment & Securities said in a report Friday.

The mobile division performed comparatively well. Its operating profit decreased 33 percent to 2.5 trillion won in the first quarter from 3.8 trillion won a year ago. Strong early sales of the Galaxy S10 smartphone released last month helped the division sustain its profits, the report said.

Analysts expected downbeat earnings when the electronics company warned investors last week that its first quarter earnings would fall short of even those low market expectations. It was the first time Samsung released a public comment on its performance ahead of announcing preliminary figures.

“Our performance results are expected to be significantly lower than analysts’ expectations,” said a Samsung spokesman last week. “This public announcement was made in order to enhance investors’ understanding of our current business.”

Upon hearing the warning, some local securities companies lowered their profit expectation to the 6 trillion won level.

Although the short-term outlook for the company remains dim, some analysts expect Samsung Electronics to recover its earnings toward the end of this year.

BY KO JUN-TAE [ko.juntae@joongang.co.kr]