Samsung Cautions on Near-Term Chip Sector Weakness But Tops Q3 Earnings Estimate
Getty
Samsung Electronics (SSNLF) shares edged higher Wednesday even as the world's biggest semiconductor maker cautioned that memory markets would soften over the near-term, thanks in a part to a glut in chips that has weakened pricing power, and slashed it capital spending plans despite posting record third quarter profits.
Samsung posted operating earnings for the three months ending in September of 17.6 trillion Korean won ($1.55 billion), up 21% from the same period last year, as weaker handset sales lower group revenues by 4.6% to 65.5 trillion won. Both figures, however, came in modestly better than the company had guided earlier this month. Samsung said it would lop 27% from its 2018 capex plans, reducing the total to $2.8 billion, and said fourth quarter earnings, as well as profits for first first three months of next year, would weaken amid a global downturn for semiconductor prices.
"Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve," Samsung said in a statement.
Samsung shares closed 0.12% higher in Seoul Wednesday at 42,400 won each, a move that trims its year-to-date decline to around 16.8% and values the country's biggest tech group at around $247 billion.
Samsung said profits in its semiconductor business, the biggest in the world and the key growth driver for the broader company, rose 37% to 13.7 trillion -- with an operating margin of 55.1% , as overall sales rose 13% from the previous quarter to 13.7 trillion won. Samsung said NAND demand will overtake supply, next year, but not until the second half as producers clear a glut in global inventory.
Mobile and IT profits were down 33% from the same period last year at 2.2 trillion won on sales of 24.9 trillion won, clipping the division's operating profit margin to just 8.9%, with the group citing marketing and promotional costs linked to the launch of its Galaxy S-9 and foreign currency headwinds linked to the slide in the Chinese yuan over the three months ending in September.