Samsung warns of Q4 profit drop amid weak chip demand

Samsung warns of Q4 profit drop amid weak chip demand

Shares traded at 38,150 won as of Tuesday's closing, a 1.68 percent drop from the previous trading day.

Turns out Apple is not the only company expecting to disappoint investors with its next set of quarterly results - Samsung and LG are in the same boat.

It also estimated a 11 per cent on-year revenue decline at 59 trillion won.

Samsung did not announce the net profit for the fourth quarter, nor the performances of respective business divisions. This is the first time they have commented on an earnings report since 2014.

That's down more than 10 percent in won terms from the same period in 2017. The tech-heavy Nasdaq Composite index has fallen 16 percent since setting a record high on August 30.

"Memory earnings fell significantly. due to weaker-than-expected demand amid inventory adjustments at data-centre customers, ' which led to a 'greater-than-expected" drop in chip prices, it said.

Sales of smartphones also slowed in the maturing market with promotion costs in the peak season cutting into its profitability, it noted.

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The firm has warned of lower profit until early 2019, citing a likely end to a two-year boom in memory chips that has fuelled record figures despite slowing demand for its handsets.

One reason for these results is lower demand for memory chips, due to worsening relations between USA and China as well as poor sales of Apple's iPhone, which uses Samsung chips.

Memory chips account for the biggest portion of Samsung's profit. "In the mid and long term, the supply and demand will be in balance as technical barriers and capital intensity will put pressure on the supply side". It also highlights the challenges that the technology sector is now facing. Samsung saw a 13.4 percent year-over-year decline in global smartphone shipments in the third quarter of 2018, according to International Data Corporation.

Analysts projected downbeat prospects for the world's largest chip and phone maker in 2019.

"It's a surprise", said analyst Lee Jae-yun at Yuanta Securities.

"The reality is that the semiconductor industry is still under a thick cloud with no clear outlook".

Samsung said a "stagnant and fiercely competitive" mobile market had weighed on earnings as marketing spend rose but smartphone sales volumes remained flat.

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