Samsung says chip demand recovering, but earnings weak

Samsung Electronics, which is suffering from sluggish memory chip demand, forecast that demand would gradually recover from the second quarter this year.

However, the firm warned of weaker 2019 earnings with the poor performance of its memory chip business.

Samsung Electronics, the world’s largest semiconductor and mobile phone manufacturer, reported 10.8 trillion won (US$9.7 billion) in operating profits in the fourth quarter of last year, down 29% from a year earlier. Its revenue also fell to 59.3 trillion won, down 29%.

Samsung said in a press release that “weak fourth-quarter earnings were affected by a drop in demand for memory chips used in data centers and smartphones. The System LSI and Foundry businesses also saw profits decline due to weak seasonality.”

The chip division’s fourth-quarter operating profits decreased to 7.8 trillion won from 10.9 trillion won a year earlier. Samsung’s mobile phone business posted 1.5 trillion won fourth quarter operating profits, way down from 2.4 trillion won in the same period last year.

Samsung sees a slowdown of memory chip demand continue in the first quarter of this year with weak seasonality and inventory adjustments, particularly inventory adjustments – mainly by server firms – will squeeze demand, it added.

However, Samsung expected its memory business would recover from the second half of this year.

“Demand for memory is seen gradually recovering from the second quarter, as the high-density trend in major applications continues due to the seasonal effects in the second half of 2019,” the company said.

It said the NAND price was low enough to boost demand from all applications and demand for high-density NAND chipsets used for high-performance servers and smartphones will be strong.

DRAM demand will also grow in the second quarter with positive seasonal effect and wrap up of inventory adjustments. The launch of new CPUs and increasing demand from high-performance servers will also help its DRAM business recover, the company said.

Lee Won-sik, a semiconductor analyst at Shinyoung Securities, partly agreed with Samsung. “Samsung will introduce soon Galaxy S10, a new high-end smartphone which uses twice as many DRAM chips as the current model. So, if the new phone sells well, it could positively affect DRAM demand. But still, uncertainties remain in the market,” he added.

In the forecast for its smartphone business, Samsung said demand would decline in the first quarter, but annual demand was expected to maintain the same level seen last year, while the price would rise due to a trend of using large screens, larger memory capacity and better cameras.

But, it added: “The environment overall will remain challenging due to the sluggish growth of the global smartphone market and material cost burden.”