Samsung sees 'challenges' ahead after profit drops 56% in second quarter

Samsung stock dropped on Wednesday after the world's biggest smartphone maker...

Posted: Jul 31, 2019 12:31 PM

Samsung stock dropped on Wednesday after the world's biggest smartphone maker reported a 56% fall in its operating profit for the second quarter, citing price declines in its memory chip business.

Shares in Samsung Electronics Co Ltd tumbled as much as 3.3% in Seoul following the announcement. The stock later recovered some losses to trade down 2.6%.

Operating profit was 6.6 trillion Korean won ($5.6 billion) for the three-month period that ended June, compared with 14.87 trillion Korean won ($12.6 billion) the same period a year ago, Samsung said in a statement on Wednesday.

Revenue also dropped 4% year on year to 56.13 trillion Korean won ($47.5 billion) during the same period.

"The weakness and price declines in the memory chip market persisted as effects of inventory adjustments by major data center customers in the previous quarters continued, despite a limited recovery in demand," the company said.

Demand for smartphones has also declined because of economic uncertainty, Samsung said.

Sales of the company's flagship devices such as the Galaxy S10 fell because of slowing demand for premium products, while sales of the cheaper Galaxy A Series have increased, it added.

Profit in its smartphone business slumped by nearly 42% to 1.56 trillion Korean won ($1.32 billion).

"In the second half, the overall mobile market demand is expected to remain weak due to growing uncertainties over the global economy and trade," Samsung said.

The company had posted a 60% drop in group operating profit in the previous quarter on falling chip prices and a weak display business.

Samsung said it expects troubles in the memory business to continue for the rest of 2019 as the global economy comes under pressure.

"In the second half, demand is expected to grow although the company sees volatility in the overall industry due to increased external uncertainties," it said.

A trade fight between South Korea and Japan is expected to cast a shadow over the global chipmaking business in the coming months.

Tokyo placed controls on exports of three chemical materials to South Korea earlier in July. The materials are used to make computer chips, among other things.

Samsung and other major memory chip producers like SK Hynix are likely to come under pressure.

Samsung's core semiconductor business reported an operating profit of 3.4 trillion Korean won ($2.9 billion) for the second quarter, down 71% from a year earlier. The segment's revenue also dropped 27% to 16.09 trillion Korean won ($13.6 billion) during the same period.

Correction: An earlier version of this story gave an incorrect figure for second quarter revenue.

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