Samsung cuts back on capital spending
South Korean-based electronics giant posted quarterly profits, but has signalled caution in semiconductors
SAMSUNG Electronics posted quarterly profit that topped analyst estimates on growth in its memory chip business, but signalled caution in semiconductors by announcing a cut in capital spending for the year.
Net income rose to 13 trillion won (R169 billion) in the three months ended September, the Suwon, South Korea-based company said in a filing yesterday.
That compares with the 12.9 trillion won average of estimates compiled by Bloomberg. Capital spending this year will drop 27 percent to 31.8 trillion won.
Samsung said it’s seeing “weak seasonality” for the chip market in the fourth quarter, and warned that earnings would decline in the period. Assessing demand for memory forms the heart of Samsung’s business plans as the semiconductor division provides the biggest chunk of profits for the company that also makes smartphones and display panels. As it becomes more and more difficult to cut costs in memory production, manufacturers such as Samsung scrutinise prices while adjusting spending on plant and equipment.
“Suppliers must react faster to oversupply, which will stop the industry from going through long downcycles.” said Mike Howard, vice-president of memory research at French researcher, Yole Développement.
“If suppliers don’t react promptly to a weak market by cutting capex and thereby future supply, then they could see prices decline more than 25 percent in a year, which would be very bad for margins.”
Samsung shares rose 2.4 percent in early trade yesterday, before falling as much as 1.1 percent. Operating profit was 17.6 trillion won on sales of 65.5 trillion won, the company said, in line with preliminary numbers released earlier last month.
Samsung, SK Hynix and Micron Technology together control more than 90 percent of the market for dynamic random access memory or DRAM chips, used in everything from data servers to smartphones. Operating income from the chip unit amounted to 13.7 trillion won, accounting for the lion’s share of profit.
Contract prices for 32-gigabyte DRAM server modules fell 0.1 percent in the three months ended September, the first quarterly decline since 2016, according to InSpectrum Tech.
Prices for 128 gigabyte MLC NAND flash memory chips fell about 6.9 percent. Samsung’s smartphone division posted 2.2 trillion won in operating income, down from 3.3 trillion won a year earlier.
While Samsung is the world’s biggest handset maker, it is struggling with shrinking market share as Chinese rivals Huawei and Oppo catch up while Apple seeks to win over shoppers for premium devices.
Samsung’s operating profit from its display business was 1.1 trillion won, up from 970 billion won a year earlier.
The display division benefited from “increased demand for flexible displays from major customers”, Samsung said in a statement, adding that it expects “solid demand to continue in the OLED business.” Samsung supplies OLED screens to Apple for its iPhones, even as the two companies vie for dominance in the premium phone market. “Chips and displays led the earnings,” said Greg Roh, a Seoul-based analyst at Hyundai Motor Securities. “Displays did better than expected and we think that’s because Samsung shipped more than 30 million units of large 17cm screens for iPhones.”
Samsung’s consumer electronics unit, which includes TVs and appliances, had operating profit of 560 billion won.
Samsung is one of South Korea’s biggest exporters. |