Samsung’s Operating Profit Plunges 29 Per cent in Q4 2018 Due to Weak Memory Demand

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To boost profits, the company is planning to accelerate innovation in the emerging sectors, including 5G networks, artificial intelligence and OLED technologies.

 Samsung Electronics Company said demand for its memory chips in the last three months of 2018 fell far below the market expectation, which led to a sharp decrease in its operating profit.

The South Korean tech giant said on Tuesday its operating profit plunged 28.7 per cent in the fourth quarter of 2018 compared with the previous year.

Its operating profit came to 10.8 trillion won ($9.66 billion) in the October-December period, the company said in a regulatory filing. This was far below market expectations of 13.6 trillion won and the lowest since the first quarter of 2017. The figure is down 38.5 per cent from 15.1 trillion won posted a quarter earlier, Yonhap News Agency reported.

Sales fell 10.6 per cent on-year to 59 trillion won over the cited period, the company said.

Tepid demand for memory chips

Samsung said demand for memory chips declined as major data centers adjusted their inventories, which drove down the prices of DRAM products.

The prices of DRAM, a type of memory used for temporary storage in computer systems, sank 10 per cent in the fourth quarter from the previous quarter due to the weak demand for PCs, servers and smartphones, according to corporate tracker DRAMeXchange.

DRAMeXchange forecast the total capital expenditure for DRAM production at about $18 billion in 2019, a 10 per cent drop from the previous year.

Operating profits also decreased due to intensifying competition in the smartphone sector, Samsung Electronics said in a rare release for a preliminary earnings report.

Sales of smartphones also slowed in the maturing market with promotion costs in the peak season cutting into its profitability, it noted.

Expecting positive business prospects in the latter half of the year

The company’s earning is expected to remain weak in the first quarter due to the tepid chip demand but is positive about the business prospects in the latter half of the year.

“Memory demand will rebound in the second half with the release of new CPUs and smartphones. In the mid and long term, the supply and demand will be in balance as technical barriers and capital intensity will put pressure on the supply side,” the company said.

To boost profits, the company is planning to accelerate innovation in the emerging sectors, including 5G networks, artificial intelligence and OLED technologies.

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