Samsung Electronics Co., Ltd. released its first quarter earnings guidance and warned that profits likely fell by 60% year-over-year due to weakness in demand for memory chips and displays.
The South Korean tech giant announced on Friday that its operating profit for the first quarter would be approximately KRW 6.2 Trillion (USD 5.45 Billion), falling from KRW 15.64 Trillion (USD 13.75 Billion) from the same quarter a year ago. Analysts expected operating profit of KRW 6.8 Trillion (USD 5.97 Billion). Samsung also expects sales of approximately KRW 52 Trillion (USD 45.72 Billion).
Samsung previously released a filing in late March that it expects its profits to decline due to seasonal weakness. Prior to that, Samsung also issued a warning for its previous quarter’s earnings back in January.
A slowdown in data center companies buying memory chips, as well as flagging smartphone sales have affected demand for Samsung’s memory chips, according to CNBC.
Sanjeev Rana, senior analyst at brokerage firm CLSA, told CNBC’s “Squawk Box ” on Friday that Samsung’s earnings are expected to take a further hit in the coming months.
“I think this earnings decline will continue for the time being, especially on the memory side,” he told CNBC, adding that the average selling price for some memory chips could fall as much as 20 percent in the next quarter and continue further declines. “We expect 2Q (second quarter) to be the profit trough for memory earnings for companies like Samsung and (SK) Hynix.”
Weakness in the tech sector also affected many other chipmakers such as Nvidia (NASDAQ: NVDA) and Apple, Inc. (NASDAQ: AAPL). Both of the Companies slashed their guidance in the previous quarter due to ongoing global economic slowdown and declining demands.
Nvidia warned in its filings that weaker sales in its Gaming and Datacenter business segments impacted its previous quarterly financial results. The Company also said due to declining macroeconomic conditions, especially in China, negatively affected consumer demand for Nvidia gaming GPUs.
Apple saw similar problems in China as well. Apple Chief Executive Officer Tim Cook said in a letter to investors that the timing of iPhone launches would impact its financials. Cook also noted that economic weakness in emerging markets, specifically China, would have a “significantly greater impact” than expected.
Tech companies are experiencing similar consumer trends with their respective marketplaces. CNN reported that a range of factors are impacting financials such as increasingly saturated markets, consumers replacing their phones less often, and frustration over rising prices.
Despite Samsung’s earnings slash, investment firm Fitch Ratings said that the Company’s declining profits is expected to be short-lived. The firm highlights that demand for chips is still rising within other sectors such as autos and industrials.
“We believe that Samsung’s results are likely to recover towards the end of this year,” Fitch analyst Shelley Jang wrote in a note to clients Friday.