January 28, 2016
SEOUL (AFP) - Slowing global demand for smartphones as well as memory chips dealt a blow to Samsung Electronics as it reported Thursday a 40 percent on-year drop in fourth-quarter net profit.
The world's top handset maker continued to be squeezed at both ends of the lucrative smartphone market with high-end competition from arch-rival Apple matched by cheaper players like China's Huawei and Xiaomi.
Net profit for October to December stood at 3.22 trillion won ($2.7 billion), below analyst expectations and down 39.7 percent from a year ago, the company said in a statement.
Operating profit rose 16.1 percent on-year to 6.1 trillion won, in line with its earlier estimate.
In a statement, the South Korean giant said 2016 was expected to throw up continued challenges to maintaining earnings "due to a difficult business environment and slowing IT demand".
Fourth quarter earnings were down in the face of "global economic headwinds" including a sharp fall in oil prices, as the components side of the business was impacted by weakened prices for DRAM chips and LCD panels due to overall softer demand in the IT market and personal computers.
Samsung's semiconductor business since late 2014 has helped offset slumping profits at the firm's key mobile unit.
But sluggish demand for handsets and computers worldwide drove down prices for memory chips, squeezing margins in the semiconductor unit, which posted the first drop in quarterly operating profit for about two years.
The strengthening of the Korean won compared to major currencies meant a positive forex impact in the third quarter "changed to a negative impact" of approximately 400 billion won in the October-December period, it added.
"The global slowdown affected all the firm's business segments ... I see no major factor to boost profit down the road," said Lee Seung-Woo, analyst at IBK Investment and Securities.
"The situation looks pretty bleak," Lee said, warning of a further slip in global chip prices during the first half of this year.
- Apple woes -
Following the earnings report, shares of Samsung fell 1.56 percent in early trading to 1,156,000 won.
Samsung lost more than $8.0 billion in market value in 2015, with its flagship smartphone business struggling to hold market share.
Sales of the Galaxy S6 -- the latest edition of Samsung's top-of-the-range handset, launched in April -- failed to generate much excitement among consumers.
But Samsung was not alone in being forced to come to terms with a slowing market.
On Tuesday, Apple raised the spectre of the end of a technological era after reporting the slowest sales growth ever of its market-leading iPhone and warning it expects worse to come.
The California technology colossus said it expects to see its first decline in iPhone sales in the current quarter on a year-on-year basis.
Samsung last year revamped its product lineup to provide a move diverse price range and vowed Thursday more efforts to expand its presence in the non-high end segment.
"The overall smartphone industry is struggling, but the low-and mid-end segments are still growing and competition will be even fiercer," Lee Kyeong-Tae, vice head of Samsung's mobile unit, said at a conference call.
The firm will this year launch updated mid-end models like Galaxy A and Galaxy J in emerging markets including China, Lee said.
Apple's woes have a knock-on effect for Samsung's semiconductor division, which, as well as providing components for the company's own handsets, also makes the processors for a number of other companies -- including Apple.
The company is currently building a new $14.3 billion chip plant in Pyeongtaek, 65 kilometres (40 miles) south of Seoul.
This investment in the factory, which is to begin production in 2017, is the largest the firm has ever committed to a single plant.
But with global demand for chips slowing, Samsung will focus more on maintaining market share than aggressively seeking growth, said Chun Se-Won, senior vice president of the firm's semiconductor unit.