Samsung dragged down by slump in smartphone sales

Company had been weathering the weakened demand even as competitors floundered

SEOUL— Even as most global smartphone makers felt the impact of slowing smartphone sales months ago, Samsung Electronics Co. managed to weather the downturn. Not any more.

The maker of Galaxy phones reported that operating income rose to 14.8 trillion won ($17.3 billion) in the three months ended June, short of the $18billion average of analysts’ estimates, according to preliminary results released Friday.

Smartphone shipments start- ed to cool last year after a decade of robust growth, but Samsung had managed to exceed projections, thanks to demand for memory. Now, weaker sales of its Galaxy S9 devices unveiled in the first three months of the year are starting to have an impact on the Suwon, South Korea-based company, even as it dominates in both DRAM and NAND markets. Sales of organic light-emitting diode screens to Apple Inc. have also not lived up to expectations, while the growth of semiconductor prices has been slowing.

“While chip sales keep rising, smartphones aren’t looking good,” said Jung Sang-jin, a fund manager at Korea Investment Management.

Sales for the second quarter fell to $68 billion, compared with the $71.3-billion average projection compiled by Bloomberg. Samsung won’t provide net income or break out divisional performance until it releases final results this month.

Samsung warned in April that its mobile business would see “stagnant sales of flagship models amid weak demand and an increase in marketing expenses” in the second quarter.

Samsung’s market share is forecast to fall to 20.4 per cent in the second quarter from 21.4 per cent in the previous quarter, while Huawei Technologies Co., Oppo and Xiaomi Corp. would all raise theirs, according to TrendForce. Chinese companies have also been challenging Samsung in the LCD television market, where the South Korean manufacturer leads.

Samsung also faces an investigation in China over allegations of collusion in chip sales with Micron Technology Inc. and SK Hynix Inc. while facing regulatory pressure at home over cor- porate governance.

Protectionism may end up benefiting the South Korean chipmaker if the U.S. puts tariffs on Chinese imports and China retaliates, Jung at Korea Investment Management said. Samsung offers China an alternative to Micron in chips and U.S. companies may look to Samsung for displays if Chinese firms such as BOE Technology Group Co. are hit, he said. The won may also help Samsung bounce back in the second half. The currency has weakened sharply since early June amid fears of a trade war.