Samsung warns earnings to weaken further due to coronavirus crisis

Samsung Electronics warned of a larger hit to its earnings from the coronavirus pandemic in the coming months, as the crisis pummels global demand for electronic devices.

The world’s largest producer of computer chips, smartphones and electronics displays — which is seen as a bellwether for global technology demand — said on Wednesday that its first-quarter profits fell to their lowest level in five years.

It forecast an even weaker set of earnings for the current quarter and joined other global technology groups in signalling a highly uncertain outlook for the second half of the year.

“Looking ahead to the second quarter, the company expects the memory business to remain solid, but overall earnings are likely to decline from the previous quarter because Covid-19 will significantly impact demand for several of its core products,” the South Korean company said.

“In the second half, uncertainties driven by Covid-19 will persist as the duration and impact of the pandemic remain unknown,” the company added. It declined to provide an outlook for the rest of 2020.

Net profit at the group fell 3.2 per cent year on year to Won4.9tn ($4bn) in the first three months of 2020, while sales rose 5.6 per cent to Won55.3tn. Operating profit increased 3.4 per cent to Won6.4tn.

The results came after other chipmakers such as Intel and SK Hynix last week reported better than expected first-quarter earnings, but did not provide full-year forecasts owing to uncertainties as a result of the crisis.

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Operating profit at Samsung’s semiconductor division, which accounts for more than half the group’s total, fell slightly to Won4tn in the first quarter.

The company said it expects memory chip demand to remain “robust” for servers and PCs in the second quarter as more people work from home, boosting use of video conferencing platforms and streamed digital entertainment.

But Samsung forecast that sales of smartphones and TVs would fall “significantly” in the second quarter. The outbreak has forced Samsung to pause production at factories in South Korea, India and Brazil and close some retail operations in Europe and the US.

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The mobile division’s operating profit increased to Won2.7tn from Won2.3tn a year earlier owing to lower marketing costs. Samsung plans to launch a new foldable phone and a new Note smartphone model in the second half.

Operating loss at the display division halved from Won560bn to Won290bn, but the company predicted that earnings from OLED (organic light-emitting diode) screens will decline because of falling smartphone sales.

“The full impact from the coronavirus will be felt in the current quarter, with a significant slowdown in demand,” said JJ Park, analyst at JPMorgan. “But a recovery is expected in the second half, given pent-up demand.”



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