In early July, Samsung offered forecasts indicating it would experience a 55 percent drop in revenue in the second quarter. On Tuesday, the company posted its Q2 2019 financial reports and confirmed its earlier predictions. The corporation generated $5.6 billion in revenue, a 55 percent year-on-year decline.
The conglomerate’s severely underwhelming performance in Q2 follows its 60 percent income shortfall in Q1.
Failure to Launch
Samsung’s abysmal 2019 financial performance is due to significant declines in its mobility and chipset segments.
The South Korean conglomerate stated it made $1.13 billion in smartphone sales in the second quarter, a 40 percent decline from its Q1 2018 sales. The firm blamed its plunging mobile device revenues on the underperformance of its flagship device, the Galaxy S10. The company explained there is a lack of demand for premium handsets in the current global wireless market.
Accordingly, Samsung noted it shipped more midrange Galaxy A smartphones in the second quarter than it did the first. It’s also worth noting the conglomerate failed to launch a new flagship device in Q2. Earlier this year, Samsung announced plans to release its Galaxy Fold in late April. However, after reviewers discovered several critical defects in the flexible electronic device, the corporation dumped its release back to September.
As Samsung reported, AT&T’s first preorder of Galaxy Folds sold out. The company’s financial picture would likely be a lot different now if the heavily promoted smartphone launched on time.
The company offered guidance of stagnant handset sales throughout the rest of the year, even with the forthcoming release of the Samsung Galaxy Note 10.
Continued Memory Woes
Though Samsung’s Q2 smartphone sales were bad, its semiconductor sales were even worse. The company reported it generated $2.87 billion in chip revenue during the second quarter. As such, the firm’s component business fell by 71 percent year-to-year.
Samsung’s chip business suffered because the company specializes in manufacturing high-quality DRAM and NAND. However, since last summer, the memory market has experienced steep declines in sales and pricing. The one-two punch of the U.S.-China trade war and the stagnation of the consumer smartphone market has devastated that segment of the components industry.
As the market leader of memory chips for the mobile devices sector, Samsung has borne the brunt of that market contraction. The conglomerate predicted its semiconductor sales would increase in the second half of the year as many smartphone makers will be introducing new handsets.
However, Samsung’s revenues might suffer due to an emerging trade war between Japan and South Korea.
In June, Japan placed export restrictions on materials essential to the production of memory chips and smartphones. Tokyo enacted the sanctions because the South Korean Supreme Court ruled Japan owed the nation reparations for its actions during World War II. Subsequently, Seoul ordered the liquidation of local assets of Japanese firms that benefited from South Korean forced labor during the war.
Samsung noted it has enough raw materials to maintain its production schedule. But if the trade war drags on, the firm might have to realign its supply chain. If that happens, the company will have to contend with both a sales slump and a product shortage.