April 4, 2019, 9:53 p.m. EDT

Samsung expects 60% tumble in Q1 operating profit

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By Timothy W. Martin

SEOUL -- Samsung Electronics Co. said it expects to post a 60% decline in first-quarter operating profit as memory-chip demand has faded, the latest fallout from a global pullback in spending.

On Friday, Samsung said it expected an operating profit of 6.2 trillion South Korean won ($5.5 billion), down from 15.64 trillion won a year earlier. The company expects revenue to decrease 14% to 52 trillion won for the quarter ended March 31. The company reports its final results later this month.

The pace of the economic decline appeared to take the South Korean technology giant by surprise, as the company issued a regulatory filing last week warning that memory price drops were "larger than expected."

Samsung's projected results fall below analysts' estimates, which had predicted the company would post operating profit of 6.8 trillion won and revenue of 53 trillion won for the quarter, according to S&P Global Market Intelligence.

The company's expected operating profit would mark its lowest since the third quarter of 2016, when the South Korean technology giant issued a costly global recall of Galaxy Note 7 handsets that overheated.

Samsung Electronics shares, though, have risen 22% in 2019, as investors hold out optimism that chip prices will rebound later this year.

The world's largest smartphone and memory chips maker by shipments has felt the economic slowdown acutely. Companies and consumers, hesitant to spend amid the U.S.-China trade fight, according to tech industry executives, have delayed smartphone purchases and moderated investments into areas like data servers.

Samsung's results are closely watched because of its dual role as one of the world's biggest hardware makers and a major supplier of electronics companies -- including to rivals such as Apple Inc., which buys displays and chips from the Suwon, South Korea, company.

One bright spot for Samsung is bigger-than-expected demand for its new flagship device, the Galaxy S10, which hit shelves on March 8. Preorders for the flagship phone were the highest in company history, Samsung said.

The Galaxy S10 phone could hit 38 million shipments this year, according to Susquehanna analyst Mehdi Hosseini, an increase from 33 million shipments with the Galaxy S9 handset. On Wednesday, Samsung launched a 5G-enabled variant of the Galaxy S10 device in South Korea and is expected to begin selling its foldable-screen phone later this month.

But Samsung's cash cow of late has been semiconductors, which in the prior quarter represented roughly three-quarters of operating profits. The Galaxy S10's sales increase "is not sizable enough" to compensate for the memory declines, Mr. Hosseini said in an investor note.

Write to Timothy W. Martin at timothy.martin@wsj.com

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