Samsung shares tumble after the company says its second-quarter profit fell 56%

Key Points
  • Samsung Electronics says that profits for the three months that ended June more than halved from a year earlier due to falling memory chip prices.
  • The world's largest smartphone maker says its operating profit was 6.6 trillion Korean won ($5.6 billion), down 55.61% from the same period a year ago. Its consolidated sales came in at 56.13 trillion won.
  • Those numbers are slightly better than the guidance the company had provided earlier this month.
A South Korean flag, left, and Samsung Electronics flag fly outside the company's headquarters in Seoul, South Korea, on July 5, 2019.
Jean Chung | Bloomberg | Getty Images

Samsung Electronics said Wednesday that profits for the three months that ended June more than halved from a year earlier due to falling memory chip prices.

Operating profit for the quarter came in at 6.6 trillion Korean won ($5.6 billion), down 55.61% from the same period a year ago, the world's largest smartphone maker said. Its consolidated revenue was at 56.13 trillion won.

"The weakness and price declines in the memory chip market persisted as effects of inventory adjustments by major datacenter customers in the previous quarters continued, despite a limited recovery in demand," Samsung said in a news release.

Those numbers were slightly better than the guidance the company provided earlier this month. Samsung shares tumbled 2.58% in morning trade.

Samsung said its semiconductor business posted consolidated revenue of 16.09 trillion won and an operating profit of 3.4 trillion won for the quarter, which was down almost 71% from a year ago. The company said its memory unit saw increased demand despite weak market conditions.

For the second half of the year, Samsung said, "demand is expected to grow although the Company sees volatility in the overall industry due to increased external uncertainties."

Memory components, which are used in mobile handsets and enterprise servers, make up Samsung's main profit-making business.

This is the second consecutive quarter where the South Korean tech giant's operating profit more than halved from the same period a year earlier. In the three months that ended March, Samsung's profits fell about 60% on-year to 6.2 trillion Korean won ($5.3 billion).

The global semiconductor industry is undergoing a period of inventory adjustment that is keeping demand low and causing a supply glut, which is squeezing prices. Analysts have said they expect a recovery to get underway in 2020.

Last week, Samsung rival SK Hynix reported its smallest quarterly earnings in three years, missing an industry estimate.

South Korean chipmakers have another cause for concern: An ongoing dispute between Japan and South Korea resulted in Tokyo restricting exports of crucial high-tech materials that are used by the likes of Samsung and SK Hynix to make chips and smartphone displays.

While the short-term impact of the restriction is expected to be limited due to high inventory levels, analysts have said companies may face longer term difficulties in sourcing for alternatives. While that could potentially help push up chip prices, it is likely to make smartphones and other electronics more expensive.

"We are facing difficulties due to the burden of this new export approval process, and the uncertainties that this new process would bring," a Samsung executive said on the earnings call. "The visibility is low. However, our executives and the relevant business divisions are dedicating their utmost efforts and deriving solutions to minimize any potential negative impact these new measures may have on our manufacturing process."

Samsung's mobile business reported 25.86 trillion Korean won in consolidated revenue and booked 1.56 trillion won for its operating profit, down about 42% from a year ago. The smartphone maker said it expects overall mobile demand to remain weak in the second half due to "growing uncertainties over the global economy and trade."

Samsung is set to unveil the Galaxy Note 10 smartphone in August and release its previously delayed Galaxy Fold a month later.

During its earnings call, Samsung declined to give a shipment forecast for the Note 10 but said it expects the smartphone to "achieve higher volumes" than those of the Note 9.

— Reuters contributed to this report.