Samsung Q1 Profits Plummet From Lowered Chip Demand

Samsung Electronics has posted its lowest profits since the Galaxy Note 7 debacle for the first quarter of 2019 due to sluggish memory demand, the company announced.

The South Korean tech giant posted operating profits of 6.23 trillion won and revenues of 52.39 trillion won for the first quarter, a drop of 60.2% and 13.5% respectively from a year ago.

Samsung said lowered demand for its memory chips and displays were the main reasons for the steep drop, while its mobile business saw profits increase due to solid sales of the Galaxy S10.

The company's chip business is still its largest contributor however, adding 4.12 trillion won in operating profits, while Samsung's mobile business earned 2.27 trillion won.

Its display business, meanwhile, saw operating losses of 560 billion won but its consumer electronics sales offset this with its operating profit of 540 billion won. The operating profits of the company's consumer electronic business was thanks to the strong sales of its QLED TVs.

The firm's QLED TVs have shown increased profitability due to lowered LCD panel prices and increased demand for TVs larger than 65-inches. 

At the same time, its display business has suffered from lower than expected demand for its OLED panels aimed at smartphones due to weaker sales of iPhones from its main client Apple, while its large-sized Liquid Crystal Display has suffered huge price drops due to the increased capacity of Chinese rival BOE.

Samsung said demand for its OLED panels will recover going forward with launch of flagship phones from clients.

Samsung's memory chip business helped the company clinch record profits for past two years. But memory chips, essentially a commodity that has traditionally followed an up-cycle and down-cycle, is now going through a down-cycle.

The company said it expects demand for memory chips to increase in the second half of the year but uncertainty remains.

Samsung's logic chip businesses saw increases in profits from sales of application processors but this is likely due to strong demand for the S10. Earlier this month, Samsung announced that it would invest $120 billion into its logic chip businesses for the next 10 years to balance its profit streams for the long-term. The company also announced its success in developing EUV 5nm process for clients.

In mobile, despite the Galaxy S10's strong performance, heated competition in the low to mid-end hurt profitability, the company said. The world's largest smartphone maker has put more focus on its mid-tier phones in recent years, such as through the introduction of the A80 series to compete with Huawei and Xiaomi, particularly in Southeast Asia and India.

Earnings for its network business have also increased, thanks to the commercial launch of 5G in South Korea, with Samsung being the biggest vendor for that.

Samsung made no direct reference in its earnings statement to the Galaxy Fold, which saw its launch be delayed due to faulty review units. Prior to the decision to delay the Galaxy Fold's launch, the company said it expected to move over a million units.

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