Samsung Electronics (SSNLF) warned that its first quarter profits, already hit by slowing semiconductor sales and limp smartphone demand, would likely miss estimates as the world's biggest chipmaker provided a rare pre-earnings update to market regulators Tuesday.
Samsung said weaker-than-expected business conditions in two of its key markets -- memory chips and panel displays -- would likely mean it first quarter profits will fall short of analysts' forecast. Investors had been expecting operating profits of 7.2 trillion Korean won ($6.4 billion) on sales of 53.7 trillion Korean won for the three months ending in March, an 11.4% decline from the same period in 2018 and the steepest slide in four years.
Samsung, which makes OLED display screens for Apple Inc. (AAPL - Get Report) iPhones, referenced "a decline in demand from large customers", alongside intense price competition, for the business decline. Apple slashed its iPhone revenue forecasts in January, citing broad-based weakness in China, and reported reported a 15% decline in first quarter handset sales of $51.98 billion.
The company also said inventory overhangs for memory, including DRAM chips, "are likely to exceed previous expectations amid overall weak demand under seasonality", but would pick up over the second half of the year.
"To overcome difficult business conditions, the Company will strengthen product differentiation based on its technological leadership while also enhancing cost competitiveness via efficient resource management," Samsung said in statement filed to stock exchange regulators ahead of its pre-earnings statement on April 5. "In the mid to long term, we will continue efforts to strengthen key capabilities by boosting competitiveness of our major businesses while securing sustained growth via strategic investments in R&D, new businesses, etc."
Samsung shares ended the session 0.55% lower in Seoul to close at 45,250 Korean won each, a move that trims the stocks's year-to-date gain to around 16.8%.
Daiwa analysts think Samsung will now post first quarter revenues in the region of 53.4 trillion Korean won and operating profits of around 6.7 trillion Korean won, with most of that -- 4.3 trillion -- coming from its memory business.
Last week, DRAM chipmaker Micron Technology (MU - Get Report) posted stronger-than-expected second quarter earnings and echoed semiconductor sector rivals by forecast an uptick in global demand over the second half of the year.
Micron said it would cut capital expenditures this fiscal year to $9 billion, while forecasting revenues of between $4.6 billion and $5 billion that missed estimates compiled by Refinitiv, but predicted, as have most of its rivals in the chip sector, that semiconductor demand will accelerate in the second half of the year as inventory overhangs erode and global smart phone sales rebound.
"We expect to see signs of a market bottom for semiconductors from 2Q19, such as shipment growth, decrease in inventory levels and slowing ASP declines, given strong seasonal demand for smartphones and PCs," said Shinhan Investment analyst Doyeon Choi. "Set makers tend to build up their inventories from 2Q ahead of the high season in 2H."