Samsung Electronics (SSNLF) forecast its third consecutive quarterly profit decline Friday, as the U.S. blacklisting of China's Huawei Technologies and a glut in global semiconductor markets continues to hit the bottom line of the world's biggest smartphone chipmaker.
Samsung said it sees second quarter profits falling 56% from last year to 6.5 trillion Korean won ($5.6 billion, a modestly better-than-expected figure that was flattered by one-time boosts in its business display division, but still the third straight year-on-year slump in bottom line profits. Group revenues, are likely to fall 4.2% to 56 trillion Korean won, Samsung said in its traditional pre-earnings forecast. Official figures are expected on July 31.
"While the onetime gain for the display business drove a positive surprise overall, we assume weaker earnings for the mobile business led to softer-than-expected earnings for 2Q19," said Daiwa Capital Markets analyst SK Kim. "Although we assume an increase in sales of smartphones (77m units, up 7% QoQ), weak sales of premium smartphones (GS10) and aggressive promotions
for mid-end models such as the Galaxy A series, which is a lower-margin product, negatively impacted product mix and earnings in 2Q19."
Samsung shares were marked 0.76% by the close of trading in Seoul, against a 0.09% gain for the benchmark Kospi index, to end the session at 45,650 Korean won each, a move that still leaves the stock nearly 18% higher on the year.
Huawei Technologies, Samsung's biggest customer, is likely buying fewer chips from its global suppliers following a U.S. blacklisting of the China-backed group last month which prevents it from doing most of its business with American firms. White House officials are also pressing global security allies such as Britain, Germany and Australian to exclude Huawei from having any significant role in the construction of 5G networks.
Last month, U.S. chipmaker Broadcom Inc. (AVGO) - Get Broadcom Inc. Report said that a prolonged U.S.-China trade war, as well as the extended blacklisting of Huawei, would disrupt global chip demand and clip it near-term profit potential.
Broadcom said it expects to see full-year 2019 revenues of $22.5 billion, well shy of the Refinitiv forecast of $24.31 billion, with around $17.5 billion of the coming from the semiconductor solutions business, a figure that would represent a year-on-year decline.
"While enterprise and mainframe software demand remained stable, particularly in North America and Europe, with respect to semiconductors, it is clear that the U.S./China trade conflict, including the Huawei export ban, is creating economic and political uncertainty and reducing visibility for our global OEM customers," CEO Hock Tan told investors on June 19.