By Heekyong Yang and Ju-min ParkSEOUL: Samsung Electronics surprised market on Tuesday with an estimated 29 per cent drop in quarterly profit, blaming weak chip demand in a rare commentary issued to "ease confusion" among investors already fretting about a global tech slowdown.The South Korean firm also said profit would remain subdued in first quarter due to difficult conditions in memory chips, but that market is likely to improve in second half of year as customers release new smartphones.Weaker earnings at world's biggest maker of smartphones and semiconductors adds to worries for investors already on edge after Apple Inc last week took rare move of cutting its quarterly sales forecast, citing poor iPhone sales in China.China boasts of world's biggest smartphone market, but a slowing economy, exacerbated by a trade war with United States, has seen demand for gadgets drop across tech sector.
Growing support for domestic champions has also impacted foreign brands, with Samsung's market share falling to 0.9 per cent from a high of 18.2 per cent in 2013.Still, South Korean firm's chips power handsets of most major makers, including Apple and China's market leader Huawei Technologies Co.
Its memory and processor chips account for over three-quarters of overall profit and about 38 percent of sales.For October-December, Samsung estimated operating profit of 10.8 trillion won ($9.67 billion), missing 13.2 trillion won average of 26 analyst estimates in an I/B/E/S Refinitiv poll.
It also estimated an 11 per cent fall in revenue at 59 trillion won.Samsung routinely releases estimated earnings figures before posting detailed results and elaboration towards end of month.
For just-ended quarter, however, it issued its first commentary since late 2014, when mobile phone profit dropped.It said weaker-than-expected demand from data centre customers adjusting inventories drove down chip prices and hurt earnings in face of rising macro uncertainty.
It did not disclose customers or elaborate on macro uncertainty.Data centre demand - mostly from United States - currently accounts for as much as nearly 30 per cent of demand for Samsung's DRAM chips compared with 5 per cent five years ago, said analyst Kim Yang-jae at KTB Investment Securities."Smaller investment from data centres, a really bad smartphone market in China, and impact from US-China trade war have all hit Samsung's chip business," Kim said.On whole, analysts expect Samsung's profit to decline through 2019, with a slowing Chinese economy eroding demand."Second- and third-tier Chinese smartphone makers saw drastic drops in their sales, which also took a toll on chip demand," said analyst Kim Young-woo analyst at SK Securities.Chip pricesPrices for DRAM chips, which provide devices with temporary workspaces and allow them to multi-task, fell 10 per cent in fourth quarter, showed data from industry tracker DRAMeXchange.
Prices of NAND flash memory chips, which hold data permanently, slipped 15 per cent.DRAMeXchange expects memory chip prices to fall 10 per cent on an average in first quarter of 2019.Samsung also said a "stagnant and fiercely competitive smartphone market" pressured income and that firm would continue to innovate its product line such as with foldable handsets and models capable of fifth-generation (5G) networking."If Apple's not selling, then is it Samsung that's selling well It is not.
The smartphone market is already saturated," said senior analyst Greg Roh at Hyundai Motor Securities."Apple's iPhones have not been selling well in China That's even worse for Samsung because that would drag its chip prices down," Roh said, referring to Apple as a Samsung chip client.Later on Tuesday, domestic peer LG Electronics Inc also flagged a drop in quarterly profit, with analysts pointing to increased marketing spending on smartphones as well as worse-than-expected sales of home appliances such as refrigerators in regions, including China.Shares of LG closed down 3.6 per cent whereas those of Samsung closed down 1.7 per cent.
The benchmark Kospi index ended down 0.6 per cent.Last year, Samsung shares lost 24 per cent and LG fell 41 per cent amid a global tech selloff prompted by investor fears over impact on supply chains of Sino-US trade war.
The tech-heavy Nasdaq Composite index has fallen 16 per cent since setting a record high on August 30.