Samsung resorbs investment spending, calls end after record third quarter

SEOUL (Reuters) – Samsung Electronics Co Ltd cut its investment spending for 2018 by more than a quarter on Wednesday and warned of a decline in profits until early in the year. next year, ending a memory chip boom that generated a record third quarter profit.

Chart: earnings of Samsung Electronics IMG – tmsnrt.rs/23JLkmD

The disappointing predictions of the world's largest maker of memory chips and smartphones further add to the sadness of investors in the face of declining global demand for mobile devices and other electronic devices that have shaken global equity markets this month.

Chart: Samsung Electronics Interactive Profit Growth – tmsnrt.rs/2OW0c5E

The South Korean technology giant said it expects a decline in its profits from one quarter to another in the fourth quarter due to weak demand for memory chips and memory chips. the rise in marketing spending for smartphones during the holiday season of the end of the year.

"By 2019, earnings are expected to be weak for the first quarter due to seasonality and then strengthen as market conditions improve, especially in the memory market," said Samsung. in a statement.

According to analysts, the reduction in capital investment should ease worries about continued growth in supply and lower prices, as prices of some memory chips have already fallen to their lowest level. for over two years and rivals are expected to create new production lines next year.

Samsung, one of the biggest buyers of chip making tools, has announced that investment spending will fall by 27 percent to 31.8 billion won ($ 28 billion) from a record high of 43.4 percent. billion wons last year.

"Prices for NAND chips (flash memory) will continue to decline in the first half of next year … The new Toshiba production line will start and Hynix will start serial production of one. of its NAND lines, "said Song Myung-sup. analyst at HI Investment & Securities.

"The excess supply should continue."

Samsung, however, sought to dispel the concern of investors faced with the sharp decline in the chip market, citing the strong demand for servers, while cloud data services are growing rapidly.

A Samsung executive said that the company thought it was at the "beginning of a virtuous upward cycle" in selling chips to the server sector.

"Temporary price changes can be repeated, but basically the demand for memory is very strong," said analysts Chun Sewon, senior vice president of memory marketing for Samsung.

Samsung also said it plans to convert some of its NAND production lines to make DRAM chips next year, rather than increasing its production capacity despite a glut of NAND chips.

SOFT LANDING

Samsung posted a record operating profit of 17.6 trillion won during the quarter, comparing the company's estimates.

With chip prices declining after years of strong growth, analysts expect Samsung's fourth-quarter profit to decline by 4 percent, according to Refinitiv data.

This increase will still be up 11% from last year, driven by efficiency improvements and cost savings in the chip business, which account for almost four-fifths of Samsung's operating profit.

"Since Samsung continues to reduce (semiconductor) costs, it is unlikely that we are witnessing a so-called" hard landing "situation, said April Wu, senior director of research at DRAMeXchange. .

An increased demand for servers would help the memory chip market regain its stability after the first quarter of next year, said Samsung, joining the outlook presented by its South Korean counterpart SK Hynix last week.

Samsung's semiconductor business recorded a 37 percent increase in operating profit to 13.7 billion won, while mobile business declined 33 percent to 2 percent. 2 billion won.

Faced with competition from Apple Inc. in the high-end segment and Chinese competitors in other segments, Samsung's smartphone sales have seen profits plummet since the first quarter of 2017.

He plans to share the details of his foldable smartphone development at a conference early next month, in the hope that this model will help revive his premium cache.

According to Samsung, third-quarter revenue rose 5.5% to 65.5 billion won, slightly ahead of its forecast.

Samsung shares, with a market value of $ 265 billion, dropped 1.2%. The stock has dropped 16% so far this year.