Earlier this month, tech giant Apple posted quarterly revenue projections of just $US84 ($118) billion, much lower than its previous projections of $US89 ($125) to 94 billion, setting off a “flash crash” in global currency markets. According to a Monday report by Bloomberg, its South Korea-based rival Samsung also appears to be hitting a wall right now.
Samsung’s last quarter ending in December drew in nearly a fifth less operating income than estimated by analysts, Bloomberg wrote, with “sputtering demand for memory chips” produced by the firm largely to blame:
The South Korean company’s operating income fell to 10.8 trillion won ($US9.6 ($13) billion) in the period that ended in December, according to preliminary results released Tuesday, falling short of the 13.8 trillion-won average of analysts’ estimates compiled by Bloomberg.
Deteriorating relations between the U.S. and China — Samsung’s two biggest export destinations — has hit demand for memory used in everything from personal computers to mobile devices, raising the pressure on a company struggling to revitalize its smartphone business.
As noted by CNBC, Samsung operating income is “28.71 per cent down from a year ago.”
One factor behind troubles at the company is the lower sales projections from Apple, a major Samsung memory and smartphone screen buyer—for which a wide variety of explanations have been proposed including the ongoing U.S.-China trade war, an associated slowdown in the Chinese economy, increasing competition in the phone market from emerging players like Huawei, and the fact that Apple products are prohibitively priced for some international markets. Samsung also acknowledged that its own smartphone business is struggling in a “stagnant and fiercely competitive market,” CNBC wrote.
But in Bloomberg’s telling, the trade war is one of the biggest problems for Samsung and the primary cause of its memory woes. That part of the company had been booming, but demand appears to be drying up.
Hi Investment & Securities Co. analyst Song Myung-sup told Bloomberg, “It’s not just Apple, but also smartphone, server and PC manufacturers that are not buying. While the U.S.-China trade war hangs over them, these customers just won’t accept current prices, and Samsung faces pressure to cut chip prices.” The network added:
Memory chips account for the biggest portion of Samsung’s profit. Contract prices for 32-gigabyte DRAM server modules fell about 5 per cent in the December quarter, according to InSpectrum Tech Inc. Prices for 128 gigabit MLC NAND flash memory chips fell about 3.4 per cent.
Fortunately for the company, the poor revenue estimates failed to shock its stock, with some analysts telling Bloomberg that no one had expected the news to be much better.
Samsung wrote it expected its issues with the memory business to subside by the second half of the year, CNBC wrote, and it will try to regain ground in the smartphone market with new products like a “bendable” phone and gear designed for next-generation telecommunications networks. However, CNBC added that if the trade war continues, the company could face a rockier outlook for its memory sales and consumer electronics business in China, as well as its production plants there.
There are some signs that the trade war may resolve soon, Bloomberg separately reported, with U.S. officials trying to project a sense of optimism that a deal will soon be reached amid mounting costs for both sides. On the other hand, according to CNBC, the U.S. may be underestimating China. Extensive government stimulus efforts there have “so far failed to stem weakening,” CNBC wrote, though they could begin to bear fruit as “U.S. growth weakens later in the year, shifting the advantage to China.”