Samsung flags 29% profit slump for Q4 as Chinese demand weakens

South Korean tech giant Samsung Electronics on Tuesday said it expects a 28.7% fall in operating profit for the fourth quarter, plagued by weakening demand from the Chinese economy. The lesser profit will mark the firm’s decline in operating profit for the first time in two years. In a regulatory filing, Samsung said it estimates a profit of 10.8 trillion won (US£9.6 billion) for the three months ended in December.

The estimate fell short of the 13.8 trillion won analysts had expected, in a poll by Bloomberg. The group also predicted an 11.0% year-on-year fall in revenue for the same period, at 59.0 trillion won. Samsung said it will provide a detailed report on its earnings for the fourth quarter later this month.

Samsung said a “lacklustre demand in the memory business and intensifying competition in the smartphone business” had contributed to the profit slack. For the full year of last year, operating profit is expected to reach 58.9 trillion won, almost a 10.0% gain from the previous year. Sales are expected to rise by 1.6%, to 243.5 trillion won.

Samsung shares receded 1.16% by 3.02pm in Seoul, down 450 won to 38,300 won.

Sluggish Chinese demand, even as Chinese smartphone makers turn up the heat

Samsung’s plight follows other tech giants who are suffering from sluggish demand from China. Last week, Apple had warned of slow iPhone sales due to China’s economic weakness. Trade tensions between the United States and China have affected businesses and dampened demand due to trade tariffs on goods, including the demand for memory products used in gadgets such as personal computers and mobile devices.

Memory chips account for the largest portion of Samsung’s profit pie. According to Bloomberg data, Apple is Samsung’s biggest customer, receiving memory chips and smartphone screens from the smartphone manufacturer. Other than the weak demand, the tech giant is also feeling squeezed from tough competitors in the smartphone market.

According to data firm Strategy Analytics, Samsung currently maintains a 20.1% share of the global smartphone market as of the third quarter of 2018, but that number has shrank compared to a 21.2% global share a year ago. Compared to a year ago, Chinese smartphone makers including Huawei and Xiaomi have been steadily gaining market share. Huawei which held a 9.9% global stake in the third quarter of 2017, has risen to a 14.4% stake in just a year.

Xiaomi has also followed closely behind, up at 9.2% from 7.0% a year ago.

For this year, Samsung said its earnings are expected to remain subdued for the first the first three months of the year due to the difficult sales for its memory items segment.

An expected rise in adoption of new central processing units and new smartphone products would likely propel the group’s profitability to recover in the second half of the year.

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