Samsung Warns of Weak Financial Results on Chip-Price Slump

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(March 26): Samsung Electronics Co. said its first-quarter financial results will fall short of market estimates because of a slump in memory-chip prices, a surprise profit warning ahead of preliminary results due early next month.

The prices for memory chips and displays fell more than expected, leading to the shortfall, the Suwon, South Korea-based company said in a statement on Tuesday. The company said it will use its resources to be price competitive in the market.

The warning from the world’s biggest chipmaker underscores a steeper-than-expected dive in component prices amid a stagnant smartphone market. That’s been exacerbated by a global economic slowdown and U.S.-China trade tensions that have hit demand for semiconductors that account for the biggest portion of Samsung’s profits.

“Samsung’s trying to spread out the shock over its results,” said Song Myung-sup, an analyst at HI Investment & Securities Co. “Market watchers are bracing for a bad situation.”

Samsung Electronics shares were little changed in early Seoul trading. The stock had gained 18 percent this year through Monday’s close.

Prices for dynamic random-access memory slid almost 30 percent from the originally projected 25 percent in the first quarter, “resulting in the sharpest decline in a single season” since 2011, TrendForce said on March 5. Inventory levels also continued to rise after overall contract prices dropped in the fourth quarter, according to the research firm.

Together with SK Hynix Inc. and Micron Technology Inc., Samsung controls the bulk of the market for DRAM chips, used to store data on personal computers and servers. Samsung said in January it was reducing spending this year to focus on the profitability of its memory operations after its net income slumped the most in two years.

Samsung usually provides an estimate of its revenue and operating profit days after each quarter ends. The company then provides a full-breakdown of its performance later in the same month, holding a conference call with investors.

“In the short term, the company will strengthen the differentiation of its products based on its technological leadership to improve the difficult business conditions, while seeking to improve the price competitiveness through efficient use of resources,” the company said in its statement.

Aside from its memory-chip woes, Samsung has been struggling to stem the decline in its smartphone sales as consumers wait longer to upgrade their devices. Its display division, which provides smartphone screens to Apple Inc., has also been hurt by less-than-expected sales of iPhone devices and competition from Chinese makers of monitors and televisions. - Bloomberg