SEOUL, Jan. 31 (Korea Bizwire) — Samsung Electronics Co. said Thursday its fourth-quarter net earnings declined 30.7 percent compared with a year ago due to weakening demand for its memory chips and smartphones.
In a regulatory filing, the world’s leading memory chip and smartphone manufacturer said its net earnings came in at 8.5 trillion won (US$7.6 billion) in the October-December period, compared with 12.2 trillion won a year earlier.
Its operating profit slid 28.7 percent on-year to 10.8 trillion won, and sales fell 10.2 percent to 59.2 trillion won in the last three months of 2018. The figures were in line with the firm’s earnings guidance announced earlier this month.
The quarterly profit, which missed the market estimate, was the lowest since the third quarter of 2016, when the company was hit by the recall of the Galaxy Note 7 phablet over its battery fire problem.
For 2018, Samsung posted a record high net income of 44.3 trillion won as a super cycle in memory chips boosted its overall profitability.
Its annual sales and operating profits stood at 245 trillion won and 44.3 trillion won, respectively, also touching an all-time high for the second consecutive year.
Revenue from memory chips, such as DRAM products used in PCs and servers and NAND flash chips embedded in smartphones and tablets, boosted its profits in much of 2018 except the final quarter.
Samsung attributed the lackluster fourth-quarter earnings to downbeat demand for memory chips and fall in the average selling price, citing the “worsening external environment” and inventory adjustments by major data centers.
Revenue from the semiconductor devices stood at 18.7 trillion won in the last three months of 2018, a 24 percent fall from the previous quarter, signaling an end to a two-year memory boom. Its operation profit margin from the memory chip business was 41.4 percent, hovering below 50 percent for the first time in seven quarters.
“Sales of DRAM products sharply fell due to sluggish sales in the fourth quarter, while prices of NAND flash continued to remain depressed due to oversupply by manufacturers,” Samsung said in a release.
Sales of smartphones also fell shy of market expectations, with promotion costs in the peak season cutting into its profitability, but the Korean manufacturer was able to maintain its leading position in the market.
According to market researcher Strategy Analytics, Samsung shipped 69.3 million handsets in the fourth quarter to take an 18.4 percent share of the global market, followed by Apple of the U.S. with 65.9 million and Huawei of China with 60.5 million.
“Smartphone sales remained weak in the peak season amid the stalling global market, leading to a drop in profits in the fourth quarter,” the firm said.
The manufacturer warned of lukewarm earnings in the first quarter of 2019 amid softening memory chip prices but anticipated the demand to pick up in the latter half of this year.
“Demand for memory chips is projected to remain weak in the first quarter as major clients continue to adjust their inventories, coupled with weak seasonality,” Samsung said. “However, the global memory market is anticipated to rebound in late 2019 on the back of rising demand for high-performing chips and the peak season effect.”
Last year, Samsung’s capital expenditure reached 29.4 trillion won as it expanded its memory chip line in Pyeongtaek, south of Seoul, and display production facilities to shift its focus from LCD to OLED panels.
Samsung didn’t specify its capital expenditure plan for this year but noted it will “flexibly respond to” the changing market demand in each segment.
“Considering external uncertainties, we won’t additionally expand production capacities,” the company said. “The investment will focus on establishing new fabrication chip plants in the mid- to long-term to meet demands from our clients.”
To find new growth drivers, Samsung vowed to accelerate innovation in emerging sectors, including 5G networks, artificial intelligence and OLED technologies.
The tech giant said it will launch 5G and a foldable smartphone model in the first quarter to better secure the premium segment, seen as a bid to have a competitive edge over its U.S. archrival Apple.
It also plans to restructure its more affordable mass market models, such as the Galaxy A series, to actively respond to changing market trends in China and emerging markets like India.
Samsung leads the global smartphone market with a 20 percent share, but it has been facing toughening competition with Chinese rivals like Huawei, which have aggressively expanded their foothold with cost-effective handsets.
“We will release the Galaxy S10 with a differentiated design and industry-leading specifications in the first quarter to improve profits and solidify leadership in the premium segment,” Lee Jong-min, vice president of mobile communications business, said in a conference call. “We will also expand supply of 5G equipment in South Korea and the United States to take a leading position in the global market.”
In the display sector, the manufacturer vowed to expand shipments of large-panel OLED displays to target the premium TV market and ramp up production of high-resolution screens for smartphones.
In a meeting with the ruling party’s floor leader Tuesday, Lee Jae-yong, vice chairman of Samsung Electronics, said the company will focus on expanding the non-memory semiconductors and foundry business to get a bigger chunk of the growing market.
Samsung, the top market cap on the Seoul bourse with 278.4 trillion won in market value, said it will pay 354 won per share in dividends, offering a total of 2.4 trillion won to its shareholders.
Shares of Samsung slipped 0.54 percent to 46,150 won on the Seoul bourse Thursday, slightly underperforming the broader market’s 0.06 percent decline. The earnings report was released before the market opened.