Samsung's third quarter operating profit falls 56 per cent

Strong smartphone sales were weighed down by continued weakness in the company's memory chip business

Samsung expects a slight recovery in chip demand in the fourth quarter. AFP
Samsung expects a slight recovery in chip demand in the fourth quarter. AFP

The world's biggest smartphone and memory chip maker, Samsung Electronics, reported a 56 per cent plunge in third-quarter operating profit due to a weakening chip market.

Operating profit in the three months to September 30 fell to $6.6 billion (Dh24.2bn), the South Korean consumer tech giant reported.

“Memory chip prices continued its downward trend amid the industrywide weakness since the end of 2018,” Samsung said in a statement.

While the company recorded strong smartphone sales and increased demand for its mobile displays — which are used by leading smartphone manufacturers, such as Apple — overall growth was “weighed down by continued weakness in the memory chip market”, the company said.

This is the fourth consecutive quarter where Samsung’s operating profit fell year-on-year. The company’s quarterly revenue also skidded to $52.8bn from $55.8bn last year.

Samsung’s mobile earnings in the third quarter improved on increased shipments of its latest flagship product the Galaxy Note 10 (rolled out in August), a better product mix and higher profitability in mass-markets such as India and China, said Samsung.

The Galaxy Note 10 in the third quarter exceeded the sales performance of its predecessor the Note 9, recording double-digit growth in volume, the company said, without disclosing the exact number.

Looking ahead to the fourth quarter, Samsung expects a decrease in mobile business earnings as “marketing costs will rise and shipments will decline slightly, with flagship model sales weakening from their post-launch peaks”.

However, the company predicts “solid sales” of its budget-conscious A series smartphones in the fourth quarter.

Samsung also expects a “slight recovery” in chip demand on the back of inventory building by customers in response to global macroeconomic uncertainties.

To enhance its competitiveness in 2020, the company plans to offer more 5G devices and foldable products. It also teased a new foldable smartphone concept at its developer conference in San Jose that folds vertically like a traditional flip phone.

“In 2020, consumer demand for 5G devices is expected to rise as 5G networks expand globally, while competition is likely to remain fierce,” it said.

Global smartphone shipments grew 3 per cent in the third quarter, according to US market researcher Strategy Analytics. This was the first quarter of positive growth in the past two years.

Samsung boosted shipments of its smartphones in the period by 8 per cent year-on-year and stayed on top with a 21.3 per cent market share. It was followed by Huawei with an 18.2 per cent market share and Apple with 12.4 per cent.

Cupertino-based Apple — Samsung's arch rival in the premium smartphone market — posted a 2.8 per cent year-on-year drop in its net profit to $13.7bn in the third quarter to September 28, as earnings from its flagship product the iPhone declined.

Sales of the iPhone dropped 9.2 per cent to $33.4bn in the third quarter from a year ago, the tech giant said. The company posted a quarterly revenue of $64bn, an annual increase of almost 2 per cent. Global sales — outside the US market — accounted for 60 per cent of the quarter’s revenue.

The company generated more than half of its total quarterly revenue from sales of the iPhone at nearly $33.3bn. Total revenue from services, however, grew more than 18 per cent while revenue from wearables, home and accessories products increased by almost 54 per cent.

Updated: October 31, 2019 02:51 PM


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