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Japan-South Korea rift

Samsung says Japan's export curb a 'burden' as profit plunges

South Korean tech giant also scales back foldable smartphone goals

Samsung is aiming for a more modest roll-out of its foldable smartphones after a monthslong delay caused by faulty screens.   © Getty Images

SEOUL -- Samsung Electronics said Wednesday that Tokyo's export curb on South Korea is impacting its business by making it harder and more time-consuming to import key chemicals from Japan.

"We feel burdens due to the approval process from Japan's export restrictions even though exports are not banned yet," said Vice President Lee Myung-jin in a conference call after announcing its second-quarter earnings. "We will do our best to minimize negative impacts on production, although we cannot estimate how things will unfold at the moment."

The Japanese government is set to exclude South Korea from its "white list" of trade partners on Friday, after restricting the export of three high-tech chemicals to the neighboring country earlier this month. Tokyo has raised questions over Seoul's management of strategic materials and voiced concerns that they are being smuggled to North Korea. South Korea denies all such claims.

Lee's comments come as Samsung announced its April-June operating profit tumbled 55.6% on the year to 6.6 trillion won ($5.6 billion), while revenue fell 4% to 56.1 trillion won. The company's net profit in the second quarter plunged 53.1% to 5.2 trillion won.

Samsung attributed the disappointing earnings to a weak memory chip market as well as sluggish smartphone sales.

"The weakness and price declines in the memory chip market persisted as effects of inventory adjustments by major datacenter customers in the previous quarters continued, despite a limited recovery in demand," the company said in a statement. "The mobile business ... was overall weighed down by slower sales of flagship models and increased marketing expenses."

The world's largest smartphone maker is taking a cautious approach with its first foldable smartphone, which is due to hit the shelves in September after being delayed several months due to technical problems with its screen. "Galaxy Fold will be sold in limited countries in limited volumes this year," said Lee Jong-min, vice president of the company's mobile business.

This marks a scaling back of the company's previous aim of selling more than 1 million foldable smartphones this year. Samsung said it sold 83 million mobile phones and 5 million tablets in the second quarter with an average sales price of $210.

Analysts say that Samsung's flagship smartphone models have underperformed in the market, pushing down its profitability. Samsung launched its Galaxy S10 lineups earlier this year, including the premium 5G model.

"Shipments of the highly profitable Galaxy S model have underperformed our expectation, which could have led to ASP decline and increase in marketing costs burden," said CW Chung, a senior analyst at Nomura. "Yet the low-profitability Galaxy A series has shown strong shipments, meeting the company's total smartphone shipment target."

 

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