Samsung Profits Drop on Falling Memory Chip Prices, Smartphone Sales

Credit: ShutterstockCredit: ShutterstockSamsung today in its Q1 2019 earnings reported its lowest operating profits in the past five years, primarily due to a rapid decline in memory chip prices, as well as slowing smartphone sales. Samsung hopes to improve its profits later this year with a rise in demand for server DRAM and higher than expected Galaxy S10 foldable-phone sales.

Memory, NAND Chip Prices Keep Falling

Samsung’s operating income fell 60% 6.2 trillion won ($5.5 billion) in the quarter ending in March, which was worse than the 56 percent drop analysts expected. This was the company’s biggest decline since the third quarter of 2014.

Samsung said it received fewer orders from cloud service providers, such as Amazon, as well as from handset makers, such as Apple, which has recently seen a slowdown of its own smartphone sales. This low demand in the cloud services and smartphone markets for both DRAM and NAND flash chips have pushed the prices of these chips down.

According to Bloomberg, data centers are still going through their unused memory chips right now, Apple has cut its forecasts for iPhone sales and China’s economy, which is Samsung’s largest market for embedded components, has also slowed down this year.

According to IHS Markit, a research firm, the market for DRAM is set to reach $77 billion in sales this year, which is a drop of 22% compared to last year. In this last quarter, DRAM prices fell over 30% (38% for server DRAM), which is the “sharpest decline since 2011," according to TrendForce.

An Uptick In Sales Expected Soon

Analysts expect Samsung’s sales and profits to improve in the second half of the year, as the company continues to sell the well-received and high-margin Galaxy S10 and foldable smartphones. Samsung also plans to reduce spending and focus on profitability for its memory facilities.

Micron said recently that it would also lower output for the rest of the year, and SK Hynix announced that it’s considering cutting investment, if necessary.