Samsung operating profits down by 56 percent in Q3 2019


On Monday, Samsung reported its financial performance forecast for the third quarter. On balance, the South Korean corporation did not have good news for its investors as its operating income fell by 56 percent year-on-year. However, the company also beat analysts’ projections due to stronger-than-expected smartphone and handset component sales.

Furthermore, Samsung’s overall sales, though not good, support the notion that the semiconductor sector is gradually recovering.

Smartphone Sales are Climbing

According to Samsung’s guidance, the firm estimates operating profits of $6.43 billion in Q3 2019 against $52 billion in revenue. That’s a 56.17 percent decline from the electronics maker’s Q3 2018 income of $14.7 billion. If the corporation confirms that estimate in its official earnings report later this month, it will have posted over 50 percent declines in profitability for three consecutive quarters.

However, while Samsung’s 2019 has been awful, the firm has seemingly entered a recovery phase. For one thing, the firm improved its income by 14.82 percent from the second quarter. Though the firm won’t offer segment breakdowns of its revenue until posting its official earnings, a Cape Investment & Securities analyst attributed the company’s resurgent profits to its mobile device division.

Bloomberg also notes sales of the Samsung Galaxy Note 10 and Galaxy Fold have provided the corporation with a financial cushion. Indeed, despite its troubled release, the conglomerate sold out of the $2,000 device the first day it went on sale. Moreover, the company also likely benefited from the launch of the iPhone 11, for which it provides OLED screens.

Even with Samsung’s recent decision to end the production of its devices in China, the company’s mobile segment should do well next year. Indeed, the company is fully prepared to take advantage of the imminent worldwide deployment of 5G technology. Plus, Apple increased production of the iPhone 11, which will increase the South Korean firm’s component revenue.

Though definitive answers won’t be available until after the holiday season, the global slowdown of smartphone sales is seemingly ending.

Drips and Drabs

Like the rest of the semiconductor industry, Samsung’s revenues have suffered this year due to the U.S.-China trade war and manufacturer inventory gluts. Accordingly, the company’s chip revenue is recovering in dribs and drabs as electronics makers are placing new component orders once again. Indeed, Citi analysts forecast the company will report a 30 percent increase in NAND and DRAM sales in Q3 2019.

Furthermore, J.P. Morgan reports that inventory de-stockings will promptly fuel a revival in memory chip sales in 2020. However, the firm cautioned that the sector’s recovery would be more gradual than in previous cycles.

It’s worth noting chipmakers like Samsung aren’t just struggling because of trade and supply issues. Component manufacturers are also dealing with increased competition from Chinese semiconductor producers. Because the Chinese government is dedicated to establishing itself as the world leader in technological development by 2025, local component makers have benefited from robust subsidies and state contracts.

Consequently, Sino fabricators have offered their wares at prices that have driven down revenues throughout the industry.

As such, Samsung and its contemporaries can’t depend on traditional sales cycles to fuel their success. Instead, non-Chinese chipmakers will need to innovate at an unprecedented level to remain competitive.