Samsung earnings sluggish as a consequence of weak smartphone gross sales

(Reuters) — South Korean tech large Samsung Electronics estimated on Friday earnings grew on the slowest tempo in additional than a 12 months within the second quarter, as analysts mentioned weak smartphone gross sales doubtless offset document excessive chip earnings.

Samsung shares fell 2 p.c because the steerage gave buyers perception into how badly the decline in smartphone profitability is hurting the corporate’s backside line, after it warned in April of an earnings slowdown amid more durable competitors.

The world’s greatest maker of reminiscence chips, smartphones and TVs mentioned April-June working revenue would develop 5.2 p.c to 14.eight trillion Korean gained ($13.2 billion), simply lacking a mean estimate of 14.9 trillion gained from 18 analysts polled by Thomson Reuters.

While the chip enterprise would publish its seventh consecutive document quarterly revenue, analysts say, lackluster smartphone earnings progress fueled issues the cellular enterprise is operating out of concepts to underpin gross sales of its premium Galaxy units.

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

Samsung shares are down about 12 p.c this 12 months on issues over slowing revenue progress and a scarcity of technological innovation to drive smartphone gross sales.

New month-to-month knowledge launched on Thursday by cell phone market tracker Counterpoint Research highlighted Samsung’s issues, displaying its newest Galaxy 9 Plus premium handset had been overtaken by Apple Inc’s (AAPL.O) iPhone eight because the world’s top-selling smartphone as a consequence of weak gross sales in Europe.

Competition from cheaper Chinese manufacturers like Xiaomi Corp (1810.HK) and Huawei have already seen Samsung lose market share in China and India, the world’s prime smartphone markets.

While the smartphone enterprise struggles, Samsung’s earnings are being pushed by sturdy world gross sales of DRAM and NAND chips which account for a few third of its income.

Overall gross sales doubtless fell four.9 p.c from a 12 months earlier to 58 trillion gained, Samsung mentioned, versus analysts’ common forecast of 59.7 trillion gained. The agency didn’t elaborate and can launch detailed earnings in late July.

The outlook for chips stays upbeat, with manufacturing of Apple’s subsequent iPhone more likely to help NAND flash reminiscence costs after they fell by as much as 15 p.c within the second quarter, in accordance with chip value tracker DRAMeXchange.

The common promoting value of DRAM chips, which assist units carry out a number of duties, is forecast to climb 14.eight p.c this 12 months, analysis agency 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, mentioned.

Investors are rising more and more involved nonetheless in regards to the prospect of an all-out commerce warfare between China and the United States, and the way this might affect main exporters like South Korea’s tech champions.

“Sentiment is absolutely not positive as South Korea heavily relies on exports, but we should see if that really hurts financially key exporters like Samsung,” mentioned Park Jung-hoon, a fund supervisor at HDC Asset Management that owns Samsung shares.

There are additionally fears Chinese price-fixing probe into chipmakers together with Samsung might restrict the upside for DRAM costs, as China is the biggest importer of reminiscence merchandise.

The excessive price of chips has damage many electronics makers, with Chinese producers among the many hardest hit as they function at decrease margins than rivals.

(Reporting by Ju-min Park and Heekyong Yang; Editing by Stephen Coates)

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