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Samsung earnings dive as chip demand slumps

Operating profit tumbles nearly 29% in preliminary Q4 results

Samsung Electronics controls 45% of the world DRAM market.   © Reuters

SEOUL -- Samsung Electronics posted one of its worst performances in the fourth quarter as global customers cut their orders for memory chips, anticipating that semiconductor prices will drop further this year.

The South Korean tech giant announced on Tuesday that its operating profit tumbled 28.7% on the year to 10.8 trillion won ($9.66 billion) for the October-December period, in preliminary earnings guidance. Revenue dropped 10.6% to 59 trillion won during the same period. The final data will be unveiled later this month.

Analysts attributed the weaker results to low global demand for server DRAMs as well as slowdowns in emerging markets. Samsung is the largest DRAM maker, with a 45% share of the world market.

"The macroeconomics issue is dominant," said Lee Jae-yun, an analyst at Yuanta Securities. "Global key customers stopped to order server DRAM temporarily, expecting an additional price decline. Demand for IT products in China and other emerging markets is also poorer than expected."

Industry watchers say the worst may be still to come. Nomura said DRAM and NAND prices will decline 31% and 44% respectively this year, lowering Samsung's operating profit in the memory sector by 45% to 24.2 trillion won.

"We expect Samsung's quarterly operating profit trough should be in the first quarter of 2019, which is one quarter earlier than the bottom for the memory division's operating profit in the second quarter," said CW Chung, a senior analyst at Nomura. "This is because we expect earnings improvement in the [organic light-emitting diode] and mobile businesses from the second quarter thanks to seasonality."

Samsung is seeking to improve its fortunes by joining hands with rival Apple. The two companies announced on Sunday that Samsung's smart TVs will offer the iTunes movie and TV show service from this spring, in a rare example of cooperation between them.

Both companies face tough challenges from Chinese competitors, such as Huawei Technologies and Xiaomi, which are expanding their presence quickly in China and other emerging markets with cheap and high-quality handsets.

"To me it looks like a pragmatic decision by both companies," said Paul Gray, an analyst at IHS Markit. "Smart TVs in general suffer from low shipments and installed base compared to smartphones. As a result, it is a difficult business for dedicated platforms as the accessible numbers are too low."

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