By Timothy W. Martin
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 31, 2019).
SEOUL -- Samsung Electronics Co.'s net profit dropped 53% during
its second quarter, as consumers' decreasing appetite for
smartphones and other gadgets sapped demand for the company's
cash-cow components business.
The world's largest smartphone and memory-chips maker has been
dogged by a global spending pullback exacerbated by the protracted
U.S.-China trade fight.
But more recently, Samsung's core businesses have come under
threat from Japan's new trade restrictions that slow shipments of
essential materials needed for semiconductors and flexible
displays.
Samsung is a bellwether for global trade, as the company is a
major electronics producer itself and supplies parts for products
or services offered by other tech companies like Apple Inc.,
Microsoft Corp. and Amazon.com Inc.
On Wednesday, Samsung said it notched a second-quarter net
profit of 5.18 trillion South Korean won ($4.4 billion), a decline
from 11.04 trillion won a year earlier.
Revenue slid to 56.13 trillion won from 58.5 trillion won a year
earlier.
Samsung's results topped analysts' estimates that had
anticipated net profit of 5.1 trillion won and revenue of 52.4
trillion won for the quarter ended June 30, according to S&P
Global Market Intelligence.
Samsung could receive a modest boost in the coming months from
the planned releases of two high-end smartphones. The Galaxy Note
10 will be unveiled next week at a New York event, while the
company's much-anticipated foldable-screen device, the Galaxy Fold,
will be released by September.
During the first three months of 2019, Samsung's smartphone
shipments fell 8%, a bigger drop than the industry's 6.6% decline,
according to International Data Corp., a market researcher.
Revenue from Samsung's mobile unit rose, though operating profit
declined 42% from the prior year, a sign the South Korean company
has needed aggressive promotions to gin up sales. The company's
semiconductor division reported a 71% slide in operating
profit.
Several years ago, Samsung reaped most of its operating profit
from smartphones. However, consumers have slowed their purchases of
upgraded devices, as the updates have left buyers unimpressed and
more likely to keep their current phone.
Now, Samsung derives roughly three-quarters of its operating
profit from chip sales.
After a series of record profit in 2017 and 2018, Samsung's
winning streak ended late last year when demand from smartphone
makers and data-server companies fell, leading to lower memory-chip
sales.
To diversify beyond memory chips, Samsung said in April it would
invest $116 billion by 2030 in other semiconductor areas, seeking
to tap into new growth drivers.
The company has a dominant foothold in both major types of
memory chips. During the second quarter, Samsung said its unsold
inventories of DRAM memory chips, which give devices multitasking
speed, had been reduced, while the glut had been minimized even
more for its content-storage NAND Flash memory chips.
Samsung said it expects NAND inventories to balance supply with
demand during the July-to-September period, while demand for DRAM
chips is projected to rise, said Chun Se-won, an executive vice
president for the company's semiconductor business, on Wednesday's
earnings call.
"Overall demand is expected to increase," Mr. Chun said.
Samsung Electronics shares slid 2.7% late Wednesday morning in
Seoul versus a 1.1% decline for South Korea's benchmark Kospi
index.
Samsung said its display business received a one-time gain in
mobile displays.
Analysts have expected the company would receive compensation
fees from Apple, which uses some of Samsung's flexible displays in
some of its iPhones. On Tuesday, Apple reported iPhone sales had
declined 12% for the three months ended June 29.
Japan's recent moves to slow shipments of certain chemicals to
South Korea took effect July 4, so the financial impact won't be
visible until Samsung reports results for the current quarter.
But Tokyo's trade policy could have far-reaching implications
for Samsung's business and the global tech supply chain, industry
experts say.
On the earnings call, a Samsung investor relations official said
the company is facing difficulties because of Japan's new trade
moves, plus the uncertainties created by a longer approval
process.
Write to Timothy W. Martin at timothy.martin@wsj.com
(END) Dow Jones Newswires
July 31, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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