Samsung Electronics warned of slowing demand and economic turbulence after its quarterly earnings missed analysts’ estimates, joining Apple in foretelling a downbeat 2016 for that technology sector.
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The Korean conglomerate, whose quarterly profit fell short of expectations by almost 40 per cent, said the deteriorating global economy was eroding interest in computers and smartphones and depressing component prices. Samsung invested in new screen and semiconductor technologies for example foldable displays to try and boost profit, executives said on a business call.
Samsung’s warning came days after Apple – its biggest customer based on data compiled by Bloomberg – predicted its first sales decline inside a decade. Ceo Tim Cook said the organization was seeing “extreme conditions” unlike anything the world’s largest technology company had ever encountered, with economic growth in China at its weakest pace in 25 years.
“All technology companies all over the world will face a really tough industry ahead. Until the overall demand picks up, it’s a matter of how well they can hold out instead of how good they are able to battle out,” said Yoo Eui-hyung, an analyst at Dongbu Securities Co. “For 2016, since no demand growth is expected, it largely depends on how good the availability of chips and displays could be managed.”
Shares of Samsung, the world’s biggest maker of phones, displays and memory chips, finished 2.6 percent reduced Seoul. The stock has fallen more than 9 percent this year, compared with a 2.8 percent decline within the benchmark Kospi index.
The cautionary tones adopted by Apple and Samsung sent ripples with an industry whose fortunes are entwined with the market’s two leading players. Mobile component suppliers TDK Corp., Murata Manufacturing Co. and LG Display Co. slid on Thursday after Apple shares tumbled 6.6 percent.
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Alps Electric Co., which Bloomberg-compiled data shows is most closely co-related with Apple, led losers with a decline of 17.4 percent.
Samsung reported net income excluding minority interests fell 39 percent to three.24 trillion won (US$2.7 billion) within the December quarter, lagging the five.4 trillion-won average of estimates compiled by Bloomberg. That result features a 2.5 trillion won non-operating loss because of impairment charges, the outcome of a stronger Korean won and anemic development in its key smartphone and chip units.
On Thursday, it said will buy back 2.99 trillion won of stock in the second phase of its buyback program.
The overall smartphone market will remain difficult throughout this year but we still see development in the lower-end segmen
Global smartphone shipments rose just 6 per cent in the final quarter of 2015 – the slowest pace of growth on record, based on research firm Strategy Analytics.
Samsung said it shipped 97 million handsets – including low-end feature phones – and 9 million tablets in the holiday quarter. Strategy Analytics estimates Samsung’s smartphone shipments grew only 0.8 percent in 2015 due to tougher competition from Apple in the high-end segment and China’s Xiaomi Corp. and Huawei Technologies Co. within the budget category.
“The overall smartphone market will stay difficult throughout this year but we still see development in the lower-end segment, although competition is going to be tougher,” Lee Kyeong-tae, vice-president from the mobile communications business, said around the call. “We’ll continue to increase the follow-up models of the A and J series this season to strengthen our competitiveness in the lower-end space.”
To turn on consumers, Samsung will introduce two new versions of their top-tier Samsung galaxy s models at the Mobile World Congress in Barcelona the following month, according to people with understanding of the problem. The S7 phone will have a 5.1-inch front screen and also the S7 Edge have a 5.5-inch screen stretching on the sides, among the people said.
It’s dependent on how good they can hold out instead of how well they can battle out
Cost controls helped enhance margins even while mobile division sales fell. Operating profit in the unit rose 14 per cent to two.23 trillion won from 1.96 trillion won last year.
Operating income in the chip unit rose just 3.7 percent to 2.8 trillion won. Prices for DDR3 4-gigabyte dynamic ram chips averaged US$1.93 within the quarter, compared with US$3.77 a year earlier, based on data from inSpectrum Inc.
Samsung said this month that it is foundry business received orders from Qualcomm to make Snapdragon 820 chips. It’s chose to use Qualcomm’s chips for about 1 / 2 of its upcoming S7 devices only a year after turning away from the U.S. company, individuals with direct understanding of the problem have said.
Operating income from displays fell 36 per cent to 300 billion won while profit at the consumer electronics division, which comprises TVs and home appliances, rose a lot more than fourfold to 820 billion won in the quarter, benefiting from falling panel prices and strong U.S. holiday-quarter demand for 4K televisions.