Business

Samsung’s profit falls by 56% due to slow chip and flagship phone sales

Samsung had warned investors in its earnings guidance for Q2 2019 that there will be a significant decline in profit for the period ending June 2019 compared to a year ago. It warned that the profit would decline by 56 percent as revenue slid by 4 percent compared to Q2 2018.

The company has posted its full earnings result for the second quarter of the year today. The numbers are only marginally better than what Samsung had forecasted but they still paint a gloomy picture. Its profit is down by 55.61 percent as consolidated sales have suffered due to slow chip and flagship phone sales.

Samsung’s Q2 2019 profit has slumped by more than half

Samsung has posted 56.13 trillion won in consolidated revenue for the quarter ending June 2019. That’s just under $48 billion. It made 6.6 trillion won or just about $5.6 billion in operating profit. Samsung had made $13.3 billion in operating profit this time last year. It had warned of significant challenges ahead which would drag down earnings.

One of the main reasons why Samsung’s profitability has declined is because of the supply glut of DRAM and NAND flash memory chips. Supply is greater than demand which is pushing down prices. Samsung had benefitted greatly when supplies were tight and its chips could command higher prices. That’s what led the company to post record profits last year.

Memory chip sales account for two-thirds of Samsung’s entire sales so this is evidently responsible for the decline in profitability. The company notes in its release that it saw demand for NAND and DRAM slightly increase during the quarter as its datacenter customers resumed purchasing. It now expects demand to grow in the second half of this year but warns of volatility because of external uncertainties.

Galaxy S10 fails to maintain sales momentum

Samsung continues to face challenges in the mobile market. While revenue was up by 8 percent at its mobile division, the profit came down by 42 percent compared to Q2 2018. Samsung points out that the overall market demand for smartphones declined during the quarter due to seasonal weakness. However, Samsung’s shipments have increased quarter-over-quarter due to strong sales of the new Galaxy A series, including the Galaxy A50 and Galaxy A70. It also mentions that sales of flagship models fell QoQ because of “weak sales momentum” for the Galaxy S10 and stagnant demand for premium devices.

Samsung says that the overall mobile market is expected to remain under pressure in the second half of this year. It reiterates that the company will strengthen its flagship lineup and also increase sales of new mass market models. It’s going to focus on successful launches of the Galaxy Note 10 and the Galaxy Fold in the third quarter of this year and will also enhance the 5G smartphone lineup.

It’s not going to be smooth sailing for the company. Samsung also warns investors of the challenges it faces due to external uncertainties, a possible reference to the business implications of various ongoing trade disputes between economic giants. South Korea and Japan’s dispute could have serious implications for Samsung’s business, particularly its chip division.

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locarno
locarno

“Investments in future technologies such as AI,
automotive components to continue”

you didn’t write about this.

RHBH
RHBH

They’ll just keep increasing the flagship price to compensate for the lower demand.

djcbs
djcbs

Yup. Except, just like it happened with Apple, they’ve already went over the limit and now even that price hike isn’t making up for the losses in sales. Hence why profits are down.

Khlad
Khlad

Huawei are pushing Samsung alot. I always have bougth the newest Galaxy S flagship, now S10+ but to be honest, phones like Huawei P Smart 2019 and Huawei Y9 Prime 2019, are just really good value for money phones even they arent high end but what you get for so little price might change my mind next time i buy a new phone and not go for a high end. If Samsung made same spec phones at same price, it would really help them alot with sales, but at that low price Samsung phones just suck compared to Huawei and… Read more »

martindale
martindale

No sh!t. I’m still using my ‘flagship’ Galaxy Note 4. It cost £440. It’s no longer on the shelves of course, but the space it used to occupy is now taken by a phone costing well over twice as much. Somebody at Samsung needs to look up “price elasticity of demand” and get real.

RoadRunner99
RoadRunner99

Old devices are good enough. The new ones are priced sky-high and they’re removing features trying to force users into buy more stuff to compensate for slowing growth. Removing the jack from the Note 10 and the latest tablets is just unforgivable. Apple may get away with it at least for a while but Samsung won’t. The more they offer products I don’t want, the more I’ll resist buying.

Freebandz321
Freebandz321

I can guess that word of mouth is starting to kill the enthusiasm of the Galaxy S10 series. If you want the newest phones with updates and patches that are months at a time behind it’s older Galaxy siblings then the Galaxy S10 series is for you.

nack37
nack37

it will be like this until they realize that flagship must have more than 2 major updates since price cannot go down, that flagships must be in focus for a long period for everything and that market doesn’t need 1000 phones a year

Shenoysiddhant
Shenoysiddhant

Well neither do we need that high a price tag