Samsung Electronics recorded its highest ever profits last quarter,
but three months on things aren’t looking so great. The company issued
guidance today warning that revenue and profits for the three months
ending December 31st 2018 will be sharply down year-on-year. Samsung
expects sales of about 59 trillion won (about $52.5 billion), down 11
percent from 12 months prior, while operating profit is set to drop 29
percent to about 10.8 trillion won (about $9.6 billion).
LG Electronics followed suit, saying that it expected its
fourth quarter operating profit to drop 80 percent from the same period
a year earlier, far below expectations.
LG’s and Samsung’s forecasts shocked investors and analysts. As CNBC notes,
Samsung analysts were expecting 13.2 trillion won of operating profit
from 62.8 trillion in revenue. Unusually, Samsung has issued a statement
explaining its guidance; the company normally waits for the full
earnings release before commenting on its performance in detail. LG did
not offer any reasons for the downward guidance. Both companies will
report earnings at the end of January.
The two main factors in Samsung’s poor performance are
identified as “lackluster demand in the memory business” and
“intensifying competition in the smartphone business.” Memory shipments
are said to have declined due to unforeseen inventory adjustments from
Samsung’s data center customers, while the company says it spent more on
smartphone marketing in the face of flat sales and strong seasonality.
Results were also apparently affected by an unspecified “non-recurring
expense.”
As for the current quarter, Samsung expects earnings to
remain “subdued” because of ongoing slow memory demand, but things are
expected to pick up in the second half of the year. Samsung is pointing
to 5G and foldable devices to improve its mobile division’s performance,
meanwhile, and says its OLED panels for smartphones will continue to
increase market penetration.
It’s tempting to compare LG’s and Samsung’s predicaments to that of Apple, which also issued an uncharacteristic earnings warning this month. All three companies are suffering from plateauing smartphone demand, and while only Apple singled out China specifically as a major factor, Samsung has similarly faced
intense competition in that market from the likes of Huawei and Xiaomi.
The difficulties with the memory business are unique to Samsung,
however, and we’ll have to wait for the full earnings release later this
month to find out more specific financial details.