Falling Chip Prices and Disappointing Smartphone Sales Threaten Samsung’s First Quarter Earnings

The past few years have been painful for Samsung Electronics due to a variety of reasons, and perhaps the biggest among them is the fact that it has almost completely lost its share of the smartphone market in China. Considering the fact that China is the biggest smartphone market in the world, that is a heavy blow, and if recent reports are to be believed, then the company is all set to report disappointing earnings in the first quarter of 2019. The falling prices of memory chips is a big factor behind a disappointing quarter, and in addition to that, the new smartphones that Samsung introduced have not been able to generate as much in sales as the company would have hoped.

It is highly unusual for companies to issue warnings ahead of the official announcement, but the South Korean company has taken the step and it is believed, it is an attempt to not spook the markets when the earnings are eventually released tomorrow. Back in 2018, the company posted a profit of 15.6 trillion won but the forecast for the first quarter of 2019 stood at only 6.9 trillion won, and following the statement from the company, many are expecting a shocking quarter for Samsung. A DB Financial Investment analyst stated, “After Samsung’s rare statement about missing market expectations, I am waiting if there’s an earnings shock for the first quarter and expecting difficult times for Samsung to continue into the second quarter until the fall in chip prices slows.”

The problems for chipmakers are well documented. The industry is currently in flux due to various reasons, and the biggest among them is perhaps the lower demand for smartphones on a global level. Additionally, the demand from data centres has also been disappointing, and consequently, the prices of chips have taken a dive. On the other hand, the sales of Samsung smartphones are not particularly poor, but it is the company’s investment in a new range of smartphones that seems to have backfired. The company launched the new range of phones earlier this year but sales of the new models have been muted and in addition to that, those phones are costly to make. The rising cost of making that phone has further created a problem for Samsung,  however, the company does believe that it will eventually regain more market share in China.