Samsung guidance shocks: fourth-quarter profit 18 percent less than market expected

Jung Yeon-je | AFP | Getty Images

Samsung Electronics said on Tuesday that its fourth-quarter earnings likely decreased sharply due to lackluster demand in its memory chip business as well growing competition in the smartphone segment.

The South Korean tech giant predicted operating profit for the three months ended December was approximately 10.8 trillion Korean won ($9.67 billion) — a 38.5 percent drop from the previous quarter and below the 13.2 trillion won that analysts predicted.

Consolidated sales for the fourth-quarter is predicted to be around 59 trillion won, lower than the 62.8 trillion won analysts predicted in a Reuters poll, and nearly 10 percent down from the third quarter.

The chipmaker said weaker-than-expected demand in the memory business led to a decline in shipments and a notable drop in memory chip prices.

For its smartphone business, marketing expenses in an essentially stagnant smartphone market led to decline in profitability. Over the third quarter of 2018, Samsung saw more than 13 percent year-over-year decline in global smartphone shipments, according to International Data Corporation.

Samsung will disclose detailed earnings later in the month but added that difficult business conditions for the memory business would likely keep its earnings subdued for the first quarter of 2019.

The weak guidance from Samsung comes after Apple lowered its revenue and gross margin predictions last week, citing a weakening Chinese economy and lower-than-expected iPhone revenue in Greater China as some of the factors.

Concerns over a slowdown in the Chinese economy have kept investors on edge. It could pose a worry for Samsung since it sells memory chips used in smartphones and data centers to Chinese firms. At the same time, it also has production plants in the world's second-largest economy for some of the memory chips — those are likely to be hurt by the ongoing trade tensions between Beijing and Washington.

In December, a report from the Korea International Trade Association said the trade war may pose higher risks to both Samsung and its chipmaking rival SK Hynix.

At the same time, a slowdown in Chinese consumer demand could potentially affect Samsung's consumer electronics business, including smartphones. One analyst said that China accounts for between 20 to 30 percent of global consumer tech demand.