Samsung warns of profit drop as chip demand slows

A man tries out a Samsung Electronics' Galaxy Note 9 at its store in Seoul South Korea Jan. 7 2019. Kim Hong-Ji Reuters

In a statement on Tuesday, the firm cited lacklustre demand and rising competition for its darkening outlook.

Samsung said it expects earnings to remain subdued in the first three months of the year due to hard conditions for memory.

Amid the smartphone woes, overall operating profit at Samsung's chip business is expected to have slipped 3.7 percent from a year ago to 10.5 trillion won.

Weak demand in the memory division caused the profits to decrease sharply, Samsung said. The guidance, released Thursday ahead of full earnings later this month, didn't provide specific divisional results but did offer some clues as to how some divisions have performed, specifically its memory and mobile businesses.

"We expect earnings to remain subdued in the first quarter of 2019 due to hard conditions for the memory business", the South Korean tech giant said in a statement. Apple receives memory chips and smartphone screens from Samsung and is the South Korean manufacturer's biggest customer, according to data compiled by Bloomberg.

The warning from the South Korean company added to concerns about the wider tech sector after Apple last week shook world markets when it said it was set to miss its latest revenue target thanks to a slowdown in China.

Last week, Apple warned that its sales have been slowing, blaming economic weakness in China.

Apple's surprise cut to its sales forecast last week suggested a worsening outlook for orders for Samsung.

As for the smartphone market, Samsung said it expects to boost its prospects with foldable and 5G handsets. To make matters worse, this figure also represents a drop of 38.5% from the record high of $15.6 billion in profit registered in the previous quarter. The world's largest smartphone maker by shipment has been increasingly dependent on chips for profit growth, riding on a spike in global data traffic while yielding to stiffer competition for phones.

Samsung's reputation suffered a major blow after a damaging worldwide recall of its Galaxy Note 7 devices over exploding batteries in 2016, which cost the firm billions of dollars and shattered its global brand image.

The 50-year-old scion was a key figure in the scandal that ousted former South Korean President Park Geun-hye following massive nationwide protests, and was sentenced to five years in jail last year.

But Lee was released from jail in February past year after several of his convictions were quashed on appeal.

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