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Samsung’s Q2 operating profit shrivels 55.6%

Aug 01,2019
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Samsung Electronics’ second quarter operating profits plummeted more than 50 percent due to the sluggish chip market and slow sales of high-end phones.

And despite major uncertainties in the semiconductor market due to trade conflict with Tokyo, Samsung clarified in a conference call Wednesday that it will not reduce wafer input, which its smaller competitor SK Hynix said it was doing last week.

The company admitted several times the existence of “external uncertainties” during the call with investors, acknowledging the remaining part of the year will not be easy.

Samsung announced Wednesday 56.13 trillion won ($47.52 billion) in consolidated quarterly revenue and 6.6 trillion won in quarterly operating profit. Operating profits plummeted 55.6 percent on year while revenue slipped 4 percent.

Second quarter operating profits from the semiconductor business were 3.4 trillion won, down 70 percent from the same period last year. This was the first time since 2016 the quarterly figure fell below 4 trillion won.

Memory chip demand and prices remained generally low through the second quarter, the company explained. It anticipated better demand later in the year, as data center customers recently resumed purchases of memory chips and are expected to keep buying, motivated by shrunken inventories and fallen chip prices.

Yet Samsung made clear it would not downsize chip production in a major way.

“We always flexibly adjust our production in line with demand [by relocating equipment]. At the moment we are not looking into reducing wafer input,” said Jeon Se-won, Samsung’s vice president for the memory unit.

Ongoing projects for new chip facilities will continue as planned: Production lines added to its existing Xian, China, and Pyeongtaek, Gyeonggi, factories will be complete later this year and next year, as announced earlier.

On Japan’s export restrictions for high-tech materials used in chip and display manufacturing, Lee Myung-jin, Samsung’s head of Investor Relations, said in the conference call that “predicting its impact was difficult at the moment as the company is uncertain how the tightened export procedures would work.”

The IT & mobile communications division saw low profitability. Shipments of budget smartphones were strong, led by the success of the Galaxy A series, whereas high-end models including the Galaxy S10 saw less robust sales. Marketing costs in the highly competitive industry and overall sluggish global demand were other negative factors.

In the second quarter, the IT & mobile communications division generated 1.56 trillion won in operating profits, slumping 41.6 percent from the same period last year.

“Despite the year’s second half being a high season for the mobile market, uncertainties in trade and the global economy are expected to perpetuate sluggish market demand,” said Lee Jong-min, senior vice president of the mobile division.

As for other business sectors, Samsung’s consumer electronics division reported 710 billion won in operating profits, a 39-percent increase, and display profits grew fivefold to 750 billion won.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]