(Bloomberg) – The surprise warning about the benefits of Samsung Electronics Co. is not that bad.
The world's largest chip maker announced Tuesday that its first-quarter results would be lower than expected, with chip and display prices falling more than expected, just days before the release of preliminary results. This came after Apple Inc., which bought Samsung's smartphone screens, reduced its revenue outlook in January for the first time in nearly two decades.
While the disappointing prospects of Samsung highlighted a global economic slowdown and stagnant markets for personal computers and smartphones, the demand for chips, which is the main source of profits for Samsung, will soon grow. Samsung and competitors such as Micron Technology Inc. have stated that the current weakness is a weak point for the memory sector and that once the stock is processed, demand and prices will improve in the second half of 2019. .
"The inventory correction will last until the end of the second quarter or the beginning of the third quarter. We are already seeing signs of inventory consumption among very large customers and smartphones, "Sanjeev Rana, an analyst at CLSA Securities Korea, told Bloomberg Television. Hyperscale refers to high volume server clients. "Stocks start to decline gradually."
Slower orders from data center owners such as Amazon.com Inc. and Google Alphabet Inc., which accumulated unused inventory, had a negative impact on computer memory prices. Deliveries from personal computers, another big end user of memory chips, have also been limited by a shortage of Intel Corp processors. Samsung is expected to post a 12% drop in its revenue in the first quarter – its biggest decline since the same three years. months in 2015. Analysts expected on average a halving of the operating result.
Samsung shares fell by less than 1% in Seoul trading; they gained 18% this year until the close of Monday. The company typically provides an estimate of its sales and operating profit several days after the end of each quarter. He then provides a full analysis of his performance later in the same month, arranging a teleconference with investors.
In collaboration with SK Hynix Inc. and Micron, the Korean company controls most of the market for DRAM chips used to store data on personal computers and servers. Samsung announced in January that it was reducing spending this year to focus on the profitability of its memory operations, its net income having plummeted to a maximum in two years. And Micron this month said it was cutting production, which would further address market imbalances.
"Last week, the shares of chips have seen a significant rebound. The advice of Samsung 1Q is somehow turned to the back, "said Rana. "The reduction in Micron's production will have an impact on chip stocks and prices in a few months, while Samsung was around a quarter."
It may be that the sector has been waiting for a long time with good news. Dynamic random access memory prices fell by almost 30% from the 25% originally forecast in the first quarter, "resulting in the biggest drop in a season" since 2011, TrendForce said on March 5th. Inventory levels continued to rise after the end of the contract prices fell in the fourth quarter, according to the research firm.
"Most DRAM providers currently have six weeks of inventory," TrendForce said. "Excessively high inventories will continue to cause downward price corrections this year if demand does not make a strong comeback."
In addition to its memory chip issues, Samsung is struggling to stem the decline in smartphone sales as consumers wait longer to upgrade their devices. Its display division, which supplies Apple with supplies, was also hurt by weaker-than-expected iPhone sales and competition from Chinese screen and TV manufacturers.
"Samsung is trying to spread the shock over its results," said HI Investment & Securities Co. analyst, Myition-Sup, Song Myung-sup. "Market watchers are preparing for a bad situation."
– With the help of Ian King and Kim Sohee.
To contact the reporter about this story: Sam Kim in Seoul at [email protected]
To contact the editors in charge of this story: Edwin Chan at [email protected], Robert Fenner, Peter Elstrom
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