Samsung has issued a surprise profit warning, blaming a significant drop in memory chip prices and decreased demand for display panels. It is the latest sign that technology firms are facing stricter times amid a global economic slowdown.
This warning from one of the Big Fours of Technology arrived just after two months of Apple’s citation of the “magnitude” of the economic slowdown in China. As a result, Apple’s investors marked this as their first profits warning since 2002.
A few days later, Samsung, the world’s biggest chip and smartphone maker, forecast its first drop in quarterly operating profits in two years. The company attributed “mounting macro uncertainties” for weaker chip and smartphone sales in the fourth quarter of 2018.
The market remains robust and on Tuesday, Samsung, which is heavily reliant on computer chips, said its first-quarter profits would miss forecasts. “The company expects the scope of price declines in main memory chip products to be larger than expected.”
Global Analysts have warned and predicted the impact of China’s economic slowdown and the US-China trade tensions on global electronics firms. With weaker smartphone sales and noticeably fewer orders from data centered companies such as Amazon and Google, the situation has led to a glut of memory chips. Hence, the radical decrease in prices.
CHINESE FIRMS AFFECTING THE GREATEST TECH GIANTS
With the emergence of several domestic Chinese smartphone companies in China, Apple’s iPhones have consistently gone downhill in China. While both companies have blamed China’s slowdown, Apple and Samsung are facing fierce competition from numerous rivals around the world, including firms in China that can match their hardware quality and produce cheaper phones.
Due to the overall decreased sales of iPhones, Samsung hasn’t earned much from its supplied display panels and chips. Despite Apple being its competitor, it is Samsung’s biggest customer too.
FIGURATIVE DECREASE IN SALES
Apple said in January that due to weak iPhone sales and the significant Chinese downturn its revenues have reduced by 4.5% to $84.3bn in three months since 29th December as compared to the last year. The company’s profits fell to $19.97bn. Smartphone sales have also slowed because consumers now take longer to upgrade their phones.
Samsung was forecast to make a 7.2tn won (GBP4.66bn) operating profit between January and March, less than half the 15.6tn won a year ago. Sales were expected to fall to 53.7tn won from 60.6tn won a year ago.
The company told shareholders at its annual meeting last week that sales of memory products were likely to pick up again in the second half of the year.
Samsung is to launch a folding phone that has been nearly a decade in the making, priced at $1,980 and available on 26 April in the US and on 3 May in Europe.