Samsung Electronics flags 56% fall in Q2 operating profit

Samsung Electronics announced on Friday that its second-quarter operating profits are estimated to post 6.5 trillion won($5.55 billion), a 56% fall from the 14.87 trillion won figure for the same quarter last year. This follows a drop in first-quarter operating profits by 60% year on year to the lowest level in two years due to weaker demand for memory chip and display panels.

The earnings guidance regarding second-quarter operating profit estimates about a 4.33% increase from the 6.23 trillion won of the previous quarter. Despite that slight improvement of earnings, experts said that due to uncertainties it is too early to expect Samsung’s earnings to bottom out.

“The US-China trade war has not ended yet, and the Japanese government has launched sanctions on exports of semiconductor materials to Korea,” an official noted to Asia Times.” Even if the Japanese government does not impose an outright ban on those materials, the supply of those materials could fail to go smoothly, damaging chip and display production.”

Japan tightened export regulations, requiring Japanese chip and display material manufacturers to obtain approval from the Japanese government when they export to Korea fluoride polyamide, etching gas and resist.

Samsung’s revenue is estimated to record 56 trillion won in the second quarter, a 6.89% rise from 52.39 trillion won of the first quarter. But, the estimated revenue fell by 4.24% from 58.48 trillion won of the same quarter last year.

Flagship subsidiary has other problems

The firm is the flagship subsidiary of the giant Samsung Group, by far the biggest of the family-controlled conglomerates that dominate business in the world’s 11th largest economy, and it is crucial to South Korea’s economic health.

It has enjoyed record profits in recent years despite a series of setbacks, including the jailing of its de facto chief.

But now the picture is changing, with chip prices falling as global supply increases while demand weakens.

Samsung launched its top-end S10 5G smartphone earlier this year, after South Korea won the global race to commercially launch the world’s first nationwide 5G network.

But in April it made a high-profile decision to push back the release of its new Galaxy Fold phones after reviewers provided with early devices, within days of use, reported screen problems.

While Samsung’s device was not the first folding handset, the smartphone giant had been expected to help spark demand and potentially revive a sector that has been struggling for new innovations.

The South Korean firm had spent nearly eight years developing the Galaxy Fold as part of its strategy to propel growth with groundbreaking gadgets.

The firm is yet to announce its new release date.

Samsung supplies screens and memory chips for its own smartphones and Apple, and server chips for cloud companies such as Amazon.

But it is also one of the major semiconductor manufacturers that are being affected by Tokyo’s recent restriction of exports to South Korea.

The measures – which raise the stakes in a protracted dispute over South Korean court rulings requiring Japanese firms to compensate victims of a wartime forced labour policy – are expected to slow significantly the export of several key materials used by Samsung.

Human rights concerns

Tadashi Uno, display research director at IHS Markit, said an end-product that could be affected by Tokyo’s newly announced restrictions is Samsung’s Galaxy Fold.

“The display of the Samsung Galaxy Fold – now in pre-order status in the United States – is produced utilizing fluorinated polyimide film from Sumitomo Chemical, which is a Japanese electronic materials firm,” he said.

“South Korea-based Kolon Industries could act as an alternative supplier for the Samsung foldable smartphone display.”

The smartphone giant’s reputation had taken a hit after the bribery conviction of Lee Jae-yong, the son and heir of the group’s ailing current chairman Lee Kun-hee.

The junior Lee was a prominent figure in the scandal that ousted former South Korean president Park Geun-hye and was sentenced to five years in jail in August 2017.

He was freed in February last year after several of his convictions were quashed on appeal.

Its French subsidiary, on the other hand, is currently facing charges of deceptive marketing over its corporate ethics pledges after activists complained that the smartphone giant’s practices in its factories overseas violated human rights.

Based on information provided by other rights groups such as China Labor Watch, the NGOs allege that Samsung employs children under the legal of 16, subjects its employees to abusive working hours, that housing and labour conditions fail to meet basic conditions of human dignity and put workers in danger.

-With additional reporting by AFP-