Samsung sees recovery after profit plunged by half in 2nd quarter

Falling semiconductor prices and trade wars bite into profits at the world's largest smartphone and memory chip maker.

    The outlook from Samsung gives investors hope that the cyclical memory chip industry is emerging from a downturn linked to slowing sales [File: Matthew Eisman/Getty]
    The outlook from Samsung gives investors hope that the cyclical memory chip industry is emerging from a downturn linked to slowing sales [File: Matthew Eisman/Getty]

    Samsung Electronics Co Ltd said it expected the chip market to bottom out and start to recover in the second half as it posted a 56 percent drop in quarterly profit on Wednesday, hit by declines in semiconductor prices amid oversupply.

    The outlook from the global chip leader will give investors hope that the notoriously cyclical memory chip industry is shifting out of a downturn linked to slowing sales of gadgets such as smartphones.

    "Server demand is expected to increase gradually as customers adjust their inventory levels and resume purchasing, while PC demand is also likely to expand," the South Korean tech giant said, referring to demand for its DRAM chips.

    Samsung, however, said it faced "persistent" uncertainties in the memory and mobile businesses in the second half. While it gave no further details on Wednesday, it has previously cited the US-China trade war as a drag on earnings.

    South Korean chipmakers' third-quarter results may be affected by Japanese curbs on the export of key materials, the latest salvo in a diplomatic row between Seoul and Tokyo over wartime forced labour.

    South Korea's SK Hynix last week warned of possible disruption in its chip manufacturing due to the Japanese export controls and said it would cut investment and production to curtail supply.

    The chip business was still Samsung's top earner but it reported a steep fall of 71 percent to 3.4 trillion won ($2.88bn) operating profit, from 11.6 trillion won i($9.83bn) n the same period a year ago.

    Weak mobile phone signals

    The mobile business booked 1.6 trillion won ($1.36bn) in quarterly profit, down 42 percent from a year ago, Samsung said, weighed by slower sales of flagship models and increased marketing expenses.

    While Samsung plans two high-end mobile product launches in the second half to revive profit - including its first foldable device - weakness in the global smartphone market will limit any upside.

    Arch-rival Apple Inc reported another quarter of lower iPhone sales but boosted overall revenue thanks to the rising contribution from content services such as music and apps, which Samsung lacks.

    Samsung's Galaxy Fold phone will go on sale from September in selected markets. Analysts say headlines about glitches with sample Folds will dampen consumer excitement around the launch.

    Samsung shares were down 0.9 percent as of 0100 GMT, versus a 0.6 percent fall on the broader market.

    SOURCE: Reuters news agency