Breakingviews - Samsung may stay true to its bleak words

FILE PHOTO: A visitor uses a mobile phone at the Samsung booth at the Mobile World Congress in Barcelona, Spain, February 26, 2019. REUTERS/Rafael Marchante/File Photo

HONG KONG (Reuters Breakingviews) - Samsung Electronics isn’t mincing words. The South Korean semiconductor manufacturer reported a whopping 60 percent fall in first-quarter operating profit, blaming lower prices for memory chips amid a glut of supply. The abundant usage of “weak” and “slow” in its statement suggest investors may have to wait a while for a rebound.

The results, including $5.4 billion of operating profit for the first three months of the year, track Samsung’s rare earnings warning in late March and its more explicit guidance earlier in April. What the $264 billion company made clearer on Tuesday was just how bleak things are. The word “weak,” or some derivation of it, appears 14 times in the statement while “slow”, “slower” and “slowing” make a combined five appearances. That compares to 21 instances of both words last quarter, 15 a year ago and 10 or fewer in the intervening quarters.

It’s true the adjectives most often refer to the past quarter rather than ones to come. Samsung does expect the market for so-called DRAM, or dynamic random-access memory, to gradually pick up as inventory clears and new customers emerge. The overall tone, however, is drab given ongoing weakness. South Korea’s producer price index for semiconductors and electronic displays has been falling since summer 2017, according to Refinitiv data. The company, which also just postponed the launch of its first foldable Galaxy smartphone after tech journalists reported breaks and other problems, cautions that “uncertainties in the external environment will persist” for certain chip products.

Even so, shareholders expect stronger and faster performance. Samsung’s stock price has increased by more than a fifth this year, doubling up over the benchmark Kospi index. Exuberance over developments in artificial intelligence, cloud computing and high-speed 5G networks should spill into chip demand. Growth will come. It just may be slower and weaker than anticipated.


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