Samsung Electronics Co.’s surprise profit warning didn’t rattle many investors.
The world’s biggest chipmaker on Tuesday said first-quarter results will fall short of estimates as prices for memory chips and displays slid more than expected, just days ahead of releasing preliminary earnings. That came after Apple Inc., which buys smartphone screens from Samsung, cut its revenue outlook in January for the first time in almost two decades.
While Samsung’s disappointing outlook underscored a global economic slowdown and stagnant PC and smartphone markets, expectations are mounting that chip demand — the main source of Samsung’s profits — will bottom out soon. Samsung and competitors such as Micron Technology Inc.have said the current weakness is a low point for the memory industry and that, once the inventory has been worked through, demand and pricing will improve in the second half of 2019.
“The inventory correction will last until the end of 2Q or early 3Q. We are already seeing signs of inventory consumption by hyperscale and smartphone customers,” Sanjeev Rana, an analyst with CLSA Securities Korea, told Bloomberg Television. Hyperscale refers to large-volume server clients. “Inventories are gradually starting to come down.”
Prices for computer memory have been hit by slower orders from data center owners such as Amazon.com Inc. and Alphabet Inc.’s Google, which have accumulated stockpiles of unused parts. Personal computer shipments, another major end-user of memory chips, have also been limited by a shortage of processors from Intel Corp. Samsung had been expected to post a 12 percent slide in first-quarter revenue — its steepest decline since the same three months of 2015. Analysts on average projected a halving in operating income.
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Samsung’s shares fell less than 1 percent in Seoul trading; they’ve gained 18 percent this year through Monday’s close. The company usually provides an estimate of its revenue and operating profit days after each quarter ends. It then provides a full breakdown of its performance later in the same month, holding a conference call with investors.
Together with SK Hynix Inc. and Micron, the Korean company controls the bulk of the market for DRAM chips, used to store data on personal computers and servers. Samsung said in January it was reducing spending this year to focus on the profitability of its memory operations after its net income slumped the most in two years. And Micron this month said it was curtailing output, which would further address market imbalances.
“Last week, chips stocks had a big rebound. Samsung 1Q guidance is in a way backward looking,” Rana said. “Micron’s production cut will have an impact on chip inventory and prices a few months down the line, while Samsung was about 1Q.”
The industry may be long overdue for some good news. Prices for dynamic random-access memory slid almost 30 percent from an originally projected 25 percent in the first quarter, “resulting in the sharpest decline in a single season” since 2011, TrendForce said on March 5. Inventory levels continued to rise after overall contract prices dropped in the fourth quarter, according to the research firm.
“Most DRAM suppliers are currently holding around a whopping six weeks’ worth of inventory,” TrendForce said. “The excessively high inventory will continue to cause down-corrections in prices this year if demand doesn’t make a strong comeback.”
Aside from its memory-chip woes, Samsung has been struggling to stem a decline in its smartphone sales as consumers wait longer to upgrade their devices. Its display division, which supplies Apple, has also been hurt by lower-than-expected sales of iPhone devices and competition from Chinese makers of monitors and televisions.
“Samsung’s trying to spread out the shock over its results,” said Song Myung-sup, an analyst at HI Investment & Securities Co. “Market watchers are bracing for a bad situation.”―Bloomberg