In the first quarter of this year, Samsung predicted an unnerving 60 percent drop in year-to-year revenue. Despite moving millions of its new Galaxy 10 smartphone, the company’s declining semiconductor business has driven down its overall profitability. Sadly, the firm’s recently announced second-quarter forecasts are just as bleak.
Last week, the firm revealed that it expects to report a 55 percent drop in second-quarter profits later this month.
Memory Chip Slump
On July 5, the South Korean conglomerate reported that it expects to post an operating revenue of $5.6 billion for Q2 2019. Last year, Samsung posted profits of $12.7 billion in Q2 2018. As such, the corporation is facing its weakest sales since the exploding Galaxy Note 7 scandal emerged in mid-2016. The firm’s steep income decline stems from the fact that it’s the world’s largest producer of memory chips.
Since last year, the entire semiconductor industry has struggled with market consolidation, falling sales, and pricing issues. However, the memory chip segment has been walloped because of a contemporaneous downward trend. The once-hot mobile device market has cooled considerably after helping companies like Samsung achieve record sales.
Once consumer demand for new mobile devices decreased significantly, manufacturers were left with excess quantities of DRAM and NAND chipsets. As such, memory chip-centric firms like Samsung and Micron have experienced precipitous drops in revenue.
Trade War Impact
It’s also worth noting that the ongoing U.S.-China trade war has harmed Samsung’s semiconductor business.
In recent years, embattled Chinese electronics company Huawei has become one of Samsung’s biggest chip clients. However, after the Trump administration blacklisted the firm, its sales plummeted. Consequently, the Sino telecommunications company has cut back on its device manufacturing and its component purchasing.
As a rival smartphone maker, Huawei’s struggles have benefited Samsung’s mobility business. Unfortunately, the conglomerate is also dealing with significant issues in its cellular segment.
In February, the firm revealed it was going to be releasing the Galaxy Fold, the world’s first foldable smartphone. However, the company discovered it’s would-be flagship product had severe design flaws after sending out review units to tech journalists. Subsequently, the corporation canceled the devices hotly-anticipated April launch.
Additionally, earlier this week, the Australian Competition and Consumer Commission filed suit against the company for improperly boasting about the waterproof capability of its Galaxy phones. Though Samsung has announced it will challenge the commission’s allegations in court, the lawsuit’s timing couldn’t be worse.
Last month, banking advisory firm Evercore predicted that the memory chip segment would begin to recover in the second half of 2020. The firm estimates that by then, manufacturers will have burnt through their inventories of DRAM and NAND and will need to buy more. However, with its increasingly dire financial outlook, Samsung may not be able to take full advantage of the semiconductor recovery.