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Samsung Sees 'Inevitable' Q2 Earnings Slump As Coronavirus Hits Handset Division; Chip Demand Looks Solid

Apple rival Samsung said handset demand will continue to decline in the current quarter, while intensifying competition will likely pressure profits into the second half of the year.

Samsung Electronics  (SSNLF) said Wednesday that work-from-home orders and a surge in memory demand would support one of its key business units, but forecast weaker profits and tough times ahead for its handset division amid the coronavirus pandemic.

Samsung, the world's biggest memory chipmaker, said operating profits for the three months ending in March came in at 6.4 trillion Korean won ($5.2 billion), a 3.2% increase from the same period last year that matched its prior estimate. Group revenues, Samsung said, rose 5% from last year to 55.3 trillion Korean won.

Looking into the current quarter, as well as the 2020 financial year, Samsung said its memory division will see solid profits, but that will likely be offset by declines in its mobile phone business, which competes with Apple Inc  (AAPL) - Get Free Report, although the group declines to provide a detailed full-year outlook. 

"Demand for server and PC to remain solid as more people work from home, but a decline in mobile demand to remain a risk," Samsung said in a statement alongside its earnings release. "Shrinking market and store closures make a drop in earnings seem inevitable (and) 5G network investments may face reductions or delays domestically and internationally."

Samsung shares ended the Wednesday session in Seoul 0.2% lower at 50,000 Korean won each, a move that extends the stock's year-to-date decline to around 10.4%.

"Besides memory, Samsung did not sound very positive for the rest of the business heading into the near to medium term," said BMO Capital Markets analyst Ambrish Srivastava, who carries a market perform rating with a $60 price target on Samsung. "The company highlighted the headwinds faced by its various consumer facing businesses, including mobile for memory, in an environment of a lower consumer spend."

"However, for memory, the company continues to see strong demand on the datacenter side," he added. "Memory also continues to benefit from a sanguine supply-demand environment heading into this crisis."