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Samsung flags first quarterly slump in two years, operating profit down 30%

For 2018, the firm expects operating profit of 58.9 trillion won, up nearly 10 per cent on-year, and sales to inch up 1.6 per cent to 243.5 trillion won

AFP | PTI  |  Seoul 

The logo of Samsung Electronics is seen at its office building in Seoul | Photo: Reuters

Electronics on Tuesday flagged its first quarterly profit drop in two years and painted a grim outlook owing to mounting competition from Chinese makers and declining chip prices.

The shock warning added to concerns about the broader tech sector after sent shudders through world markets last week by slashing its revenue forecast blaming weak sales in and citing the trade war.

- the world's top maker of and - has enjoyed record profits in recent years despite a series of setbacks, including a humiliating recall and the jailing of its de facto chief.

But operating profit during the October to December period was expected to be around 10.8 trillion won ($9.8 billion), down 28.7 per cent from a year earlier, said in an earnings estimate.

The figure was below market consensus of about 13.5 trillion won, according to

Sales dropped more than 10 per cent to 59 trillion won in the period, Samsung said.

It cited "lacklustre demand in the memory business and intensifying competition in the business" for the dismal outlook.

"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.

"We expect earnings to remain subdued in the first quarter of 2019 due to difficult conditions for the memory business but strengthen in the second half."

But of said worsening supply and demand for and the structural challenges facing Samsung's business will hit profits throughout 2019.

Demand for "will hit a low in the fourth quarter of 2019", he added.

Samsung withholds net profit and sector-by-sector business performance data until it releases its final earnings report, which is expected later this month.

For 2018, the firm expects operating profit of 58.9 trillion won, up nearly 10 per cent on-year, and sales to inch up 1.6 per cent to 243.5 trillion won.

Shares in Samsung Electronics, the flagship subsidiary of the that dominates South Korea's economy, were down 1.68 percent at the close.

Last week said it expected to earn USD 84 billion in October-December, well down from the USD 89-USD 93 billion previously forecast as it blamed a steeper-than-expected "economic deceleration" in and emerging markets.

The battered world equities, with observers saying problems at the usually reliable US titan could point to broader demand weakness and the China-US trade war cited as a key factor.

"When sounded the alarm bells for last quarter results, there was some thought the drops in sales was an anti-Apple backlash due to escalating US-China tensions," said Stephen Innes, of trade at "But these are quite damning suggesting there... (is) a and manufacturer slowdown afoot."

While Samsung leads the global smartphone market with a 20 per cent share, it faces mounting competition from Chinese rivals like - which surpassed Apple to take second place last year - offering quality devices at lower prices.

"Samsung is losing ground to Huawei, and other Chinese rivals in the huge China and markets," Neil Mawston, Strategy Analytics, said in a report.

Samsung once also had a 20 percent market share in China but has seen its sales tumble to less than one percent of the world's largest smartphone market in the third quarter, and last month announced the closure of its factory in

It will reportedly roll out a new line-up of its flagship Galaxy handsets at next month's World Mobile in as it seeks to regain a competitive edge in a market segment it once dominated.

Samsung is also set to introduce the world's first bendable smartphone in the first half.

It reputation suffered a major blow after a damaging worldwide recall of its Galaxy Note 7 devices over exploding batteries in 2016, which cost the firm billions of dollars and shattered its global brand image.

It also took another hit after the bribery conviction of -- the son and heir of the group's ailing

The 50-year-old scion was a key figure in the scandal that ousted former South Korean following massive nationwide protests, and was sentenced to five years in jail last year.

But he was released from jail in February last year after several of his convictions were quashed on appeal.

First Published: Tue, January 08 2019. 18:00 IST