Business / Corporate

Shares fall as Samsung reveals profit plunge and warns outlook unclear due to Japan export curbs

Reuters

Samsung Electronics Co. warned Wednesday that Japanese controls on the export of chip-making materials was blurring its outlook and said it would delay a plan to return money to shareholders due to “significant new challenges.”

The South Korean tech giant also posted a 56 percent plunge in quarterly profit through June as an oversupply of memory chips continued to weigh down prices.

The profit decline and uncertain outlook overshadowed the company’s optimism that the chip market had bottomed out and would start to recover in the second half. Samsung shares fell more than 3 percent at one point.

“In addition to already high uncertainties caused by prolonged global trade conflicts, the external environment regarding our component business has recently come under significant new challenges,” Robert Yi, Samsung’s head of investor relations, said on an earnings call.

“As a result, we no longer believe it is possible to reasonably predict or forecast our free cash flow for 2018 through 2020,” Yi added.

Like other global tech companies, Samsung has been hurt by the long-running trade war between the United States and China, and an escalating spat between Japan and South Korea is likely to pressure third-quarter results.

Outlook from the chip leader is closely watched by investors as a barometer of demand for smartphones and other electronics, as well as servers that process massive amounts of data.

The company will be flexible about memory chip production, Samsung said on a post-earnings call. Smaller South Korean rival SK Hynix Inc., which has also warned of possible disruption to its chip manufacturing due to the Japanese export controls, said it would cut investment and production to curtail supply.

Samsung, also the world’s biggest smartphone-maker, said its mobile business remained weak.

The firm projected that inventories of NAND chips — which provide long-term data storage — had started to come down significantly and said server customers were also buying more DRAM chips from late in the second quarter. DRAM chips provide devices with temporary workspaces and allow them to multi-task.

An output halt at Toshiba Memory in June due to a power outage briefly tightened NAND supplies.

“Server demand is expected to increase gradually as customers adjust their inventory levels and resume purchasing, while PC demand is also likely to expand,” Samsung said in a statement, referring to DRAM demand.

Operating profit in Samsung’s chip business, its biggest earner, plunged 71 percent to 3.4 trillion won (¥312 billion), from 11.6 trillion won a year earlier.

The mobile business booked 1.6 trillion won in quarterly profit, down 42 percent from a year ago, weighed by slower sales of flagship models and increased marketing expenses.

Samsung is betting that two high-end mobile product launches in the second half — including its first foldable device — will revive its profits, but weakness in the global smartphone market is likely to limit any upside.

Global smartphone shipments fell 3 percent in the second quarter, according to research firm Strategy Analytics, while Samsung boosted shipments by 6.7 percent and stayed on top with a 22 percent market share.

Arch rival Apple Inc. on Tuesday reported another quarter of lower iPhone sales but boosted overall revenue thanks to the rising contribution from content services such as music and apps, which Samsung lacks.

Samsung’s Galaxy Fold phone will go on sale from September in selected markets. Analysts say headlines about glitches with sample Folds will dampen consumer excitement around the launch.

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