Samsung Profits Dropped 60% In Q1 2019

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After multiple warnings, even from Samsung itself,  we now have the official numbers for Samsung's financial performance in Q1 2019, and it's every bit as bad as expected. Samsung’s operating profits plummeted 60% in Q1 2019, compared to the same quarter last year. This is less than a year after the company reached record-breaking profits, due to the high-priced RAM modules the company was selling.

Samsung Profits' Sharp Decline

Samsung’s revenue fell 13% year-on-year to $45 billion, while the company’s Q1 operating profit dropped to $5.33 billion, which is a 60% drop from the same period a year before. Although the company reported “solid” results for the latest Galaxy S10 flagship device, the financials were ultimately “weighed down” by the negative performance in the memory chip and display markets, two of the company’s most profitable markets not too long ago, Samsung said in its announcement. 

Samsung blamed the semiconductor chip price decline on high inventories at data center customers. The company expects the DRAM market to remain slow in Q2 as well, but also to recover somewhat in the following quarters.

The display business, which has been a strong income generator for the company in the past few years, showed loss in the last quarter as customers seemed much less interested in flexible OLED panels than they were before. However, Samsung is now seeing increased demand for larger displays and high-resolution TVs.

Despite solid sales for the Galaxy S10, Samsung also saw lower profitability, as competition increased in the low to mid-range mobile markets.

For the System LSI Business, demand for image sensors was also slow, but the company saw increased earnings for the division due to it beginning to sell the world’s first 5G chipset solution.

Increased Demand In 2H 2019

Samsung expects to do better in the second half of the year, primarily due to the seasons but also because of new product launches, such as a new Galaxy Note and 5G and foldable phones.

The Korean company expects its SSD business to start growing in the second half of 2019, primarily due to data center companies starting to purchase more high-density server SSDs. Additionally, Samsung is expecting to lower costs for high-density storage products with its fifth generation NAND-V technology in the second half of the year. It's also expecting smartphones with 256GB or larger storage to help keep demand "stable" in Q2. 

Samsung predicted its DRAM business will improve in the second half of the year, as new CPUs appear and consumers demand higher amounts of RAM in their smartphones. Samsung plans to making more LPDDR4X memory for high-end smartphones, while also focusing on the transition to the 1y-nm process in major applications.

The Korean firm intends to start offering 3D/fingerprint-on-display sensors and chips for automotive and Internet of Things (IoT) applications. Furthermore, the company aims to strengthen its competitiveness through tape-out of the EUV 6nm process and by completing development of the 5nm process.

Samsung’s Profits Closely Tied to Memory, Storage Margins

Over the past two years, Samsung’s profits have kept climbing with strong presence in the DRAM and NAND markets and the high prices (and margins) for those products during this time. The company reached record operating profit of $15.1 billion in Q3 2018. However, once the demand started falling for high-priced RAM and SSD products started falling, so did Samsung’s profits. The company saw a sharp 29% decline in profits by Q4 2018 to $10.8 billion, and  profits suffered another 60% drop this last quarter. 

Samsung's financial performance is apparently tightly connected to the kind of profit it can make from selling memory and storage products, two categories that have historically seen steady and significant declines in price every year. If Samsung wants to maintain the kind of profits it's been saw previously, it might need to consider focusing more on products that have traditionally had high profit margins, such as cutting-edge processors, wireless modems, etc.

Lucian Armasu
Lucian Armasu is a Contributing Writer for Tom's Hardware US. He covers software news and the issues surrounding privacy and security.
  • ElectrO_90
    Price Gouging made them have the profitts, just like you say in the article. Now prices are going back to where they should be.
    I still hope China successfully finds them guilty of price gouging and not being competitive in the market.
  • milktea
    Maybe Samsung should try incorporating ESS Sabre Quad-DAC to their flagship for a change?!?!
    Samsung phones have nice display, but lacking in the audio department.

    And stop including those throw away AKG earbuds. They ruin the musical experience.

    For a real change, Samsung should try to teaming up with HiFiMAN or Audeze or Shure for some nice flagship package deal.
  • Tanyac
    I have a Samsung Galaxy S6. I'd love to upgrade, but the S10 is around $1,799. The S6 cost me $499.
    Ain't gonna happen.

    I'd like to upgrade the memory in almost a dozen PCs as well as upgrade the 250GB SSDs I have. Prices haven't flinched from the over-inflated prices of 2018.

    Seems to me all these people blaming price decreases need to take a reality pill. Prices (at least here), are still so high the problem is lack of sales because people just can't afford to buy their products. Same deal for Intel, nVidia and AMD (and the motherboard manufacturers - $1600 for a motherboard - get real!)
  • tazmo8448
    Lucian Armasu said:
    As the prices of DRAM and NAND flash products have continued to drop, so have Samsung's profits. However, the company expects its business to stabilize by 2H.

    Samsung Profits Dropped 60% In Q1 2019 : Read more
    well they certainly have the SSD market in their pocket. My first thought was ...yeah everybody bought the SSD's back in the day...that blew up the profit margin now it has settled a bit and more companies are in on it...there for a while they were the Gold Standard when it came to SSD's. Phones eh...TV's? at one time yeah now no...hey... the big dogs got their bonuses and now there are a lot of dogs after the same bone.
  • chetmaster12
    Pretty hard for me to feel bad for them... acquiring Harman group (and seeing how far down-hill that company has gone in the last few years) isn't making me like them very much. As far as I'm concerned they bought Harman for AKG, because companies like Studer, Crown, Dbx, Lexicon an BSS have relatively little to do with the rest of Samsung.

    And none of those companies are really doing anything spectacular anymore. They're being milked for the name. Studer built a strong name on tape decks (see A827) and broadcast consoles, Crown on amplifiers, etc. I don't see these companies leading the way they once did.

    At some point, a company just gets too big (with a product range that is far too diverse) to function.