Today, Samsung Electronics said that profits for the three months that ended June more than halved from a year earlier following continued weakness in the price and demand of memory chips.
Memory components, which are used in mobile handsets and enterprise servers, comprise Samsung’s main profit-making business. Analysts say that DRAM and NAND flash chips also saw drastic price drops in the past months leading to decreased earnings.
The Korean tech giant relies heavily on the industry as an estimated two-thirds of its income comes from there. In addition to that, one of its biggest clients – Huawei found itself in trouble following the US ban, which brings more uncertainty heading into the second half of 2019.
According to earnings guidance released by the company today, Samsung the world’s largest smartphone maker and supplier of memory chips said its operating profit was at 6.5 trillion Korean won ($5.56 billion). This was slightly better than an industry estimate of 6 trillion won but was down about 56% from a year earlier.
This would be Samsung’s lowest profit since Q3 2016 when the company was hit by the Galaxy Note 7 debacle. Samsung doesn’t provide full explanations along with its earnings guidance, but analysts have suggested that the Huawei crackdown could have had a significant impact on Samsung’s critical chip business. Although, it’s also likely to help Samsung’s smartphone sales in certain markets.
On a more positive note, things could have been even worse for Samsung this quarter had it not benefited from a one-off gain in the display division that boosted profit. According to analysts who spoke to Reuters, Samsung was reimbursed about 800 billion won ($684 million) by Apple because the US company, which uses Samsung’s OLED screens in its iPhones, missed a sales target that had been agreed upon.
Samsung is also bracing for the impact of tightened Japanese controls on exports of high-tech materials used in semiconductors and displays. The Seoul government sees the Japanese measures, which went into effect on Thursday, as retaliation against South Korean court rulings that called for Japanese companies to compensate aging South Korean plaintiffs for forced labor during World War II. Seoul plans to file a complaint with the World Trade Organization.
The full earnings report is expected by the end of the month. If those numbers match with today’s guidance, as they usually do, it would be the second consecutive quarter where Samsung’s operating profit more than halved from the same period a year earlier.