Tech

Samsung says it expects Q2 smartphone and TV sales to 'decline significantly' due to coronavirus

Key Points
  • Samsung Electronics said Wednesday it expects a decline in overall earnings for the three months ending in June due to the coronavirus pandemic. 
  • The tech giant warned sales and profits of smartphones and TVs are "expected to decline significantly as COVID-19 affects demand and leads to store and plant closures globally."
  • But as millions around the world are being forced to stay indoors, Samsung's main profit-making memory business stands to benefit.
Samsung logo at store in Shanghai. A South Korean multinational conglomerate.
Alex Tai | SOPA Images | LightRocket | Getty Images

Samsung Electronics said Wednesday it expects a decline in overall earnings for the three months ending in June due to the coronavirus pandemic. 

The virus, which causes the disease Covid-19, has infected more than 3.1 million people worldwide in just a few months and killed over 216,000. 

Samsung warned sales and profits of smartphones and TVs are "expected to decline significantly as COVID-19 affects demand and leads to store and plant closures globally." It added that there is a possibility it might delay or cut back its investment in 5G technology.

Still, Samsung said it plans to go ahead with the launch of new models for its foldable smartphones and the Galaxy Note in the latter half of the year despite lingering uncertainties. 

Other tech companies, including Apple, have issued similar warnings as the global economic downturn caused by the virus outbreak forces people to cut back on nonessential spending. 

But as millions around the world are being forced to stay indoors, Samsung's main profit-making memory business stands to benefit.

The tech giant said it expects continued robust demand for its chips used in servers and PCs as more people work from home, consume streaming content and participate in online education. Samsung's memory components are used in data centers, PCs and smartphones. 

Memory chip makers are benefiting from investments in data centers by companies like Amazon, Microsoft and Google, according to Sanjeev Rana, a senior analyst at CLSA. 

"For the time being, I think this trend will continue," he told CNBC's "Squawk Box" on Wednesday. "We have strong visibility into the second quarter orders and pricing. We think that prices, especially for the server DRAM, will go up by like 20% to 30%." 

DRAM memory is used in computers and servers to run various applications at the same time.

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.
Samsung Electronics

Beyond the second quarter, Rana said there's less visibility on how demand and price for memory chips will affect earnings for companies like Samsung, but he expects third-quarter numbers to "hold up well." Once the Covid-19 crisis is over, there could be some deceleration in demand in the second half, he explained. 

For its part, Samsung signaled an optimistic outlook for the memory business. 

"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," Samsung said in a statement. 

Samsung added that in the second half of the year, uncertainties will persist as "the duration and impact of the pandemic remain unknown."

For the three months ended in March, Samsung reported its operating profit was 6.45 trillion Korean won (almost $5.3 billion), in line with earlier guidance, as earnings from the memory business offset the weakness in its consumer electronics division and display business. Revenue came in at 55.33 trillion won.

Samsung shares gave up earlier gains of 0.6% to trade down 0.2%.