UPDATED 21:13 EDT / MARCH 26 2019

INFRA

Samsung issues another profit warning amid weak demand for memory chips

Amid a decline in prices for memory chips and slowing demand for display panels, Samsung Electronics Co. Ltd. today issued another profit warning, saying Monday it’s likely to miss its targets for the first quarter of 2019.

The surprise announcement is the latest sign that technology firms are feeling the heat from a global economic slowdown. The news comes just two months after Samsung’s rival Apple Inc. shocked shareholders with its first profit warning since 2002.

Samsung followed Apple a few days later by forecasting that it would see its first quarterly operating profit drop in more than two years, and later duly confirmed that forecast with its official fourth-quarter earnings results. Samsung blamed the drop in profits on “mounting macro uncertainties” that resulted in weaker demand for its chips and lower smartphone sales.

The situation clearly hasn’t improved, and now Samsung is saying it will fall short of its original profit forecast for the first quarter of this year as well. “The company expects the scope of price declines in main memory chip products to be larger than expected,” it said in a statement.

Analysts say the tech industry is facing challenges from China’s economic slowdown and the ongoing trade dispute between China and the U.S. Fewer smartphones sales and a reduction in orders of memory chips from data center operators such as Amazon Web Services Inc. and Google LLC mean that components are being stockpiled, and as a result, prices have fallen sharply.

Samsung has also felt the effect of reduced demand for Apple’s iPhones, since it’s the main supplier of display panels and microprocessors for those devices. The company has also been hit by lower demand for its own smartphone products as more consumers refrain from upgrading their devices.

“The biggest issue is that the smartphone market is declining and Samsung makes most of its profits off smartphone components,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy.

Samsung had originally forecast an operating profit of 7.2 trillion won ($4.66 billion) for the first quarter, which is less than half the 15.6 trillion won profit it reported in the same period in 2018. At the time, it said it expected memory chip sales to pick up in the second half of the year.

Photo: Open Grid Scheduler/Flickr

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