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Samsung Electronics Quarter One Earnings Under Pressure As Chip Prices Fall

The odds are stacked against Samsung Electronics Co Ltd ahead of the release of its first-quarter earnings guidance on Friday, with memory chip prices falling and its pricey premium smartphones struggling to be profitable.

The South Korean tech giant took the exceptional step last week of issuing a pre-guidance warning that the quarter would likely miss market expectations due to falls in chip prices and slowing demand for display panels.

Samsung Electronics was forecast to post a 6.9 trillion won ($6.1 billion) operating profit for the January-March period, according to Refinitiv SmartEstimate, more than 50 percent below the 15.6 trillion won recorded in the same period a year ago.

“After Samsung’s rare statement about missing market expectations, I am waiting if there’s an earnings shock for the first quarter and expecting difficult times for Samsung to continue into the second quarter until the fall in chip prices slows,” said Kwon Sung-ryul, an analyst at DB Financial Investment.

Chipmakers, in particular, have been hit hard by a glut in the global semiconductor industry triggered by weakening smartphone sales and falling investment from data center companies.

On top of this, China’s slowing economic growth, the Sino-U.S. trade war and Brexit are combining to drag down profits for makers of consumer electronics around the world.

Shares in Samsung Electronics – the world’s biggest maker of memory chips, smartphones and display panels – have lost 6 percent in the past 12 months, while its South Korean chipmaking rival, SK Hynix Inc, has fallen 6 percent in the same period.

Although Samsung’s DRAM chip business remains its earnings engine-room with strong margins, its NAND flash memory chips are forecast to post losses as prices slump, analysts say.―Reuters

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