Daily Management Review

Weak Smartphone Sale, Pick Up In Chip Business In 2020, Says Samsung


Weak Smartphone Sale, Pick Up In Chip Business In 2020, Says Samsung
Even though the revenues from sale of mobile phones drove the performance of South Korean electronics giant Samsung Electronics in the third quarter, the company expects that its growth next year will be driven by chip sales.
A warning that profits from the sale of its smartphones will be lower was issued by Samsung even as its global rival Apple issued a positive outlook for its iPhones. This announcement by Samsung during its third quarter earnings call also brought down hopes of investors and analysts that a host of new models from the company will help it top return its smartphone business on a profit growth path. 
Despite the warning, there is hope among investors that the smartphone business of Samsung, which once accounted for about half of the total global revenues and profits of the company, will stage a recovery, because the chip business of the company, which saw robust growth in revenues as well as profits in recent years because of high global demand, does not currently look very hopeful given the significant drop in demand and consequently prices of chips globally even as supply remains high.
In the three months ended in September, the South Korean firm report its best mobile business profit in six quarters thanks to strong sales of the Galaxy Note 10 smartphone in the period. The company is currently trying to repair damage to its image caused by a series of incidents of battery explosion in late 2016 which has also dented sales of its smartphones.
In the third quarter, there was a 32 per cent growth in operating profits in the mobile business of the company which came in at 2.9 trillion won ($2.5bn) which is the highest for the division since the first quarter of 2018.
However, rise in marketing costs and softening of sales of flagship models after their initial hike after launches forced Samsung to issue a warning that the fourth-quarter mobile earnings would decline.
The not so encouraging forecast from Samsung was issued just hours after its rival Apple reported better than expected earnings for the holiday season quarter driven by increased demand for its services, wearables and its latest iPhones.
"The new smartphone effect will likely fizzle out in the fourth quarter, as people don't find Samsung's new Note model, which came out several months ago, very attractive any more," said Song Myung-sup, an analyst at HI Investment & Securities.
"That will result in a drop in shipments and eventually less profit."
Mobile was on a downward trend, Lee Jong-min, Samsung's vice president of mobile communications business, told an earnings call.
"Although the mobile market in general will soon enter a period of a strong year-end seasonality, demand is expected to keep trending down year-on-year due to persistent uncertainties in the global macro environment," he said.
Samsung was however optimistic about a pickup in sale of its chip nest year as it witnessed positive sings for demand growth for advanced chips from -centre customers and 5G smartphone manufacturers.
The operating profit for the chip business of the largest maker of chip of the world in the third quarter dropped by 56 per cent to 7.8 trillion won ($6.7bn) which barely beat the company’s own estimates of 7.7 trillion won ($6.6bn) issued earlier. There was a 5.3 per cent drop in the revenues of the business at 62 trillion won ($53bn) which was in line with the previously announced estimates of the company.