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Samsung founders as profit engines sputter

Declines across chips, phones and displays rattle pillar of South Korean economy

Samsung Electronics' display business fell into the red for the first time in three years last quarter. (Photo courtesy of Samsung Electronics)

SEOUL -- Earnings released Tuesday by Samsung Electronics show weakness in all of its mainstay businesses, a concerning development for a trade-reliant South Korean economy that counts on the company's exports.

Operating profit for the three months through March plunged 60% on the year to 6.23 trillion won ($5.37 billion), the lowest since the July-September quarter of 2016. But while there was a single clear reason for the earlier drop-off -- namely, the battery fires in Samsung's flagship Galaxy Note 7 smartphone -- last quarter's results owed to broader problems.

All three of Samsung's main profit drivers are struggling, with no clear alternative in sight, a South Korean analyst said.

Operating profit declined 40% in the information technology and mobile communications segment, which centers on smartphones, and by 64% in the chip business. Profits in the latter have fallen to a third of their July-September 2018 peak, yet still account for around 70% of the total. The company's display business fell into the red for the first time in three years, with a 560 billion won loss.

The results gave Seoul cause for alarm, given Samsung's key role in the South Korean economy.

South Korean President Moon Jae-in paid a visit to a Samsung chip plant after the earnings announcement to give management a pep talk. This was an unusual move for a president who had tried to avoid looking too friendly with the country's powerful chaebol conglomerates, out of consideration for the progressive citizens' groups that are a cornerstone of his support base.

A cooling global economy, stemming from such factors as the U.S.-China trade war, was the main culprit behind the decline. Overall South Korean exports of semiconductors sank 22% on the year in January through March, while exports of displays fell 17%.

A Samsung executive indicated that the outlook for this quarter is similarly grim. "Our customers are seeing slow inventory reductions," the official said.

Many market watchers believe that Samsung lost money on both organic light-emitting diode panels and large liquid crystal displays for televisions. Samsung's production lines making OLED panels for Apple reportedly operated at just 20% to 30% of full capacity last quarter.

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