Samsung blames profit plunge on ‘fiercely competitive’ phone market

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Samsung Electronics surprised the market on Tuesday with an estimated 29 percent drop in quarterly profit, blaming weak chip demand and a “fiercely competitive” smartphone market in a rare commentary issued to “ease confusion” among investors already fretting about a global tech slowdown.

The South Korean firm also said profit would remain subdued in the first quarter due to difficult conditions in memory chips, but that the market is likely to improve in the second half of the year as customers release new smartphones.

Weaker earnings at the world’s biggest maker of smartphones and semiconductors adds to worries for investors already on edge after Apple Inc last week took the rare move of cutting its quarterly sales forecast, citing poor iPhone sales in China.

China boasts the world’s biggest smartphone market, but a slowing economy, exacerbated by a trade war with the United States, has seen demand for gadgets drop across the tech sector. Growing support for domestic champions has also impacted foreign brands, with Samsung’s market share falling to 0.9 percent from a high of 18.2 percent in 2013.

Still, the South Korean firm’s chips power the handsets of most major makers, including Apple and China’s market leader Huawei Technologies. Its memory and processor chips account for over three-quarters of overall profit and about 38 percent of sales.

For October-December, Samsung estimated operating profit of 10.8 trillion won ($9.67 billion), missing the 13.2 trillion won average of 26 analyst estimates in an I/B/E/S Refinitiv poll. It also estimated an 11 percent fall in revenue at 59 trillion won.

Samsung also said a “stagnant and fiercely competitive smartphone market” pressured income and that the firm would continue to innovate its product line such as with foldable handsets and models capable of fifth-generation (5G) networking.

“If Apple’s not selling, then is it Samsung that’s selling well? It is not. The smartphone market is already saturated,” said senior analyst Greg Roh at Hyundai Motor Securities.

“Apple’s iPhones have not been selling well in China… That’s even worse for Samsung because that would drag its chip prices down,” Roh said, referring to Apple as a Samsung chip client.