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China Slowdown Primary Reasons For Anticipated Profit Drop At Samsung In Q4

China Slowdown Primary Reasons For Anticipated Profit Drop At Samsung In Q4
The slowdown of economic growth in China - which is one of the crucial markets for the South Korean tech giant Samsung Electronics, was cited to the primary reason for the company being set to announce its first quarterly operating profit in two years.
Such a result would definitely add to the worries of investors because of Samsung is the largest manufacturer of smartphones and amongst the largest makers of semiconductors and chips. Investors had already been spooked by the profit warning issued by Apple just last week which was a first for the company in its history, citing slowdown in demand for its iPhones in the key market of China.
Accoridng to I/B/E/S data from Refiniti, it is expected that Samsung would report a 12 per cent drop in the operating profit year-on-year at 13.3 trillion won ($11.85 billion) for the in its preliminary fourth-quarter results.
It is also expected that revenues would drop by 5 per cent because of reducing memory-chip shipments in the quarter.
Its capital expenditure for the rest of 2018 was cut by Samsung in October which essentially brought to an end a two year period in which the memory chips market was booming but it has slowed down considerably in the current year because of slowdown in the global smartphone market.
According to Counterpoint Research, this slowdown has weighed down on the chip industry throughout the fourth quarter, as there was 8 per cent drop in overall sale in China - the largest smartphone market in the world in the three months preceding the quarter.
Refinitiv data shows that this trend also hit Samsung's worldwide smartphone business and it is now expected that the company would report a 20 per cent drop in its profits form the business in the fourth quarter.
The market share of Samsung in the Chinese smartphone market is just 1 per cent compared to the 9 per cent of Apple.
However, the smartphone chips that are manufactured by the company run smartphones including those from China's top player Huawei. The chip business of Samsung comprises of more than three forth of the earnings of the company and accounts for about 38 per cent of its total sale revenues.
Markets also expect a drop of 3.7 per cent year on year in the overall operating profit at Samsung's chip business at 10.5 trillion won primarily because of the global slowdown in demand for smartphones.
There was a drop of 10 per cent on an average in the fourth quarter in the shipment of Samsung’s memory-chips.
According to analysts, global business is set to face tougher times in the near future as indicated by the problems of Apple and Samsung which has been compounded by the slowdown in economic growth of the second largest economy of the world and the protracted China-US trade war.
In December, there was a contraction in the factory activity in China for the first time in over two years. And according to the estimates of the World Bank, 2018 would be the weakest year in terms of GDP growth for China in almost three decades.

Christopher J. Mitchell

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