Samsung warns of sharp sales and profit decline

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).

The forecast has shocked investors and analysts, which CNBC notes 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.

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 Samsung’s predicament to that of Apple, which also issued an uncharacteristic earnings warning this month. Both 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.