According to the news report by MarketWatch, Samsung Electronics Co. announced that it was expecting its Quarter 4 operating profit to be down by 29%. This announcement has surprised market analysts, who were expecting a much higher result in the fourth quarter. It also highlights the challenges that the technology sector is currently facing.
Samsung, the biggest manufacturer of smartphones and semiconductors in the world, stated that its forecast profit decline was due to increasing macro uncertainties. The company said that a weak demand for memory chips and well as increasing competition in the smartphone segment has caused it to lower its guidance.
Samsung is considered a gauge for the technology sector and makes devices such as smartphones and other electrical appliances, and is also a supplier of components to some of the world’s biggest companies.
This announcement comes just one week after its rival tech company, US based Apple Inc. surprised markets by cutting its revenue guidance for the fourth quarter. Apple cited China’s slowing economy leading to a weakened demand for its iconic iPhones as a reason for the lowered forecast.
Other major technology companies’ stocks have also declined in the last few months, wiping out hundreds of billions of dollars in capitalization thanks to the lack of certainty about the US-China trade war as well as a slowing down of revenue growth in the tech sector.
Samsung announced that it was expecting an operating profit of about 10.8 trillion won (~$9.7 billion), which is 29% lower than the 15.15 trillion won (~$13 billion) operating profit it posted a year before. The market analyst prediction for the fourth quarter was 13.2 trillion won (~$12 billion).
CNBC also reported that Samsung is expecting a revenue drop of about 11% to about 59 trillion won (~$52 billion) for one year ago. According to a Reuters poll, market analysts had predicted that the South Korean company would generate revenues of about 62.8 trillion won (~$56 billion).
CNBC gave more details about Samsung’s reasons for its lowered forecast. A lower than expected demand from data center customers as well as sharp drop in memory chip prices impacted the company’s revenues as well as profits.
Added to that, the smartphone market is now stagnating and competition is fierce. Marketing expenses as well as flat sales volumes have impacted Samsung’s profitability.
In fact, according to data supplied by the International Data Corporation, in the third quarter of 2018, Samsung saw an over 13% year-on-year drop in its global smartphone shipments.
Analysts have said that features and functionality in smartphones have become so similar that there aren’t any distinguishing features between different companies’ products. The devices are no longer as innovative as they used to be. However, they are hoping that the next generation of high-speed 5G mobile internet could shake things up in the smartphone industry.
Samsung, for its part, stated that it would continue to focus on developing new innovations such as foldable smartphones and 5G enabled devices.
The South Korean technology giant announced that it would release its detailed earnings results later this month. The company also wanred that challenging business conditions in the memory chip segment would likely mean that earnings would also be below expected levels for the first quarter of 2019.
According to Mehdi Hosseini, the senior tech hardware analyst for Susquehanna Financial Group, the quarter 4 weakness in Samsung’s earnings were not as big a surprise as some would think. He said that companies like Samsung have very expensive operations that have high overhead costs. Thus, if revenue or shipments miss targets, they are strongly impacted.
Samsung’s shares were very volatile after the news, switching between positive as well as negative territory in trading in Asia this morning.