Samsung Cuts Back On Semiconductor Spending as Profits Shrink
Samsung Profit Misses Estimates as Chip Demand Slides
(Bloomberg) -- Samsung Electronics Co. is reducing spending this year to focus on the profitability of its memory chips after posting its biggest net-income decline in two years.
Net income fell to 8.3 trillion won ($7.5 billion) in the three months ended December, the Suwon, South Korea-based company said Thursday in a filing. That compares with the 10.2 trillion won average of estimates compiled by Bloomberg.
Falling demand for memory chips, sliding sales of smartphones and deteriorating profitability in the display division contributed to the results, according to Samsung. While the figures underscore the impact of a global economic slowdown and U.S.-China trade tensions, Samsung said it’s taking steps to trim back capital expenditures.
“There’s a tug of war taking place between Samsung and its customers in the chip market,” said Lee Joo-wan, a semiconductor analyst at Seoul’s Hana Institute of Finance. “Clients are waiting to see how much further prices will fall before they’ll start buying again and Samsung is trying to control supplies to keep prices from falling too sharply.”
Samsung shares rose less than 1 percent in trading in Seoul. They have climbed more than 20 percent this year, after declining 24 percent in 2018. Operating profit was 10.8 trillion won on sales of 59.3 trillion won, Samsung said, confirming preliminary numbers released earlier this month.
Samsung is sticking to its principle of focusing on profitability over market share, company officials said in a call with investors, without saying how much it will reduce annual capital expenditures. Samsung said in a separate statement that it spent 23.7 trillion won on semiconductor equipment in 2018, compared with the 24.9 trillion won it forecast in October.
Operating income from the chip unit was 7.8 trillion won, accounting for the lion’s share of profit. Contract prices for 32-gigabyte DRAM server modules fell 9.6 percent in the December quarter, according to InSpectrum Tech Inc., while prices for 128 gigabit MLC NAND flash memory chips fell 8.4 percent. Server DRAM prices may fall by more than 20 percent quarter-on-quarter in the first three months of this year, according to TrendForce.
Demand will probably rebound starting in the second quarter as smartphone vendors adopt bigger memory and data centers clear out their inventories, Samsung said, adding it will produce memory in line with demand growth in the market.
“The view among institutional investors is that as long as demand stays stagnant, prices won’t hold up, no matter how much you dry up the supplies,” said Lee Jin-ho, a fund manager at Eugene Asset Management in Seoul.
Together with SK Hynix Inc. and Micron Technology Inc., Samsung controls the bulk of the market for dynamic random access memory, or DRAM, chips, used to store data on personal computers and servers. Hynix earlier this month posted earnings that missed estimates, saying memory demand slowed in the second half of last year even though it is likely to pick up later in 2019 as data centers resume their expansion.
Samsung’s smartphone division posted 1.5 trillion won in operating profit, down from 2.4 trillion won a year earlier. Profits fell due to a dip in sales caused by weak smartphone shipments amid a stagnant market despite strong seasonality, Samsung said. The company will unveil its latest flagship smartphones in San Francisco on Feb. 20, possibly including a bendable-screen device that it bets will be a game-changer in a stalling handset market.
While Samsung is the world’s biggest phone maker, it has been struggling with its share of a stalling market as Chinese rivals Huawei Technologies Co. and Oppo catch up.
China’s display makers also threaten Samsung in everything from legacy liquid-crystal televisions to state-of-the-art organic light-emitting diode smartphone screens. Samsung’s display division earned 970 billion won for the company that supplies OLED screens to Apple for its iPhones.
--With assistance from Heejin Kim.
To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net
To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson
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