A few weeks ago, Samsung released its earnings guidance for the first quarter of 2019, estimating a 60% decline in operating profits. The company has now published a detailed report confirming that projection with an operating profit of 6.23 trillion won (about $5.35 billion), a drop of 60.2% from 15.64 trillion won a year ago. This is Samsung’s worst performance since the Galaxy Note 7 debacle in 2016.
Display Panel business running in loss
Samsung’s Q1 2019 profits were hit by multiple factors. The ever plummeting semiconductor business generated 30.4% less revenues as compared to Q1 2018. The company’s chip business, however, is still its largest contributor in operating profits, owing to improvements at the System LSI and Foundry businesses. Samsung expects the business to improve slightly in the second quarter, as demand for image sensors and 5G chipsets rises.
Samsung’s mobile business also saw a drop in profits, despite the solid sales of the Galaxy S10 series. The new Galaxy M and Galaxy A series smartphones are also selling well, but increased expenses from the lineup revamp means they aren’t contributing much to the profits. Sales of premium TVs, however, contributed to the earnings growth in the Consumer Electronics division. Going ahead, Samsung aims to secure profitability by improving cost efficiency with its mid-range and low-end smartphones. The company also sees the potential in 5G and foldable smartphones to strengthen its leadership in the smartphone market.
It is the display business that hurt Samsung badly in the previous quarter. The company suffered from lower than expected demand for its OLED panels, as well as weaker prices of LCD panels, resulting in operating losses of 560 billion won. Samsung expects the display business to recover going forward with the launch of flagship phones from its clients. The South Korean tech giant also has hopes on large-sized display panels to bring limited improvements in the next quarter. The demand for flexible displays and LCD panels is likely to remain weak.
Overall, Samsung expects slight improvements in profits over the next two quarters. However, the company may find it tough to reach the levels of the last two years, when it recorded its highest ever profits.