Samsung’s Q2 Guidance Shows Operating Profit to Fall 56 Percent from Chip Downturn

Samsung has issued guidance to investors ahead of its Q2 earnings report, and it’s not going to make investors happy.

Samsung expects revenue of 56 trillion Korean won ($62.5 billion CAD) in Q2 2019, compared to 58.48 trillion Korean won ($65 billion CAD) a year ago, and an operating profit of 6.5 trillion Korean won ($7.3 billion CAD), compared to 14.87 trillion ($16.6 billion VAD) Korean won YoY, which is down 56.2% YoY. This would be Samsung’s lowest profit since Q3 2016.

The poor earnings guidance comes as the semiconductor industry recovery is being delayed by the slowing global economy, the US-China trade war, and the export controls on Huawei. The U.S. campaign against Huawei has increased chip inventories with the Chinese company being one of the Korean tech sector’s biggest customers.

Chip prices have continued to fall since late last year but Samsung shares have gained nearly 20 percent so far this year on expectations of a second-half recovery in the chip cycle. However, the downturn is expected to continue through the second half amid the growing external headwinds.

“Oversupply will continue in the second half, putting pressure on semiconductor margins,” said CW Chung, an analyst at Nomura. “A price recovery is expected only after the second quarter of next year.”

To make this half-empty glass a little more full, it could have been worse for Samsung this quarter. Analysts speaking to Reuters believe that the company received a one-off payment of 800 billion won ($893 million CAD) from Apple as its top-end iPhones – which use Samsung OLED screens – missed an agreed sales target.

Samsung has previously said it expects smartphone and chip sales to pick up in the second half of the year, possibly with a little help from the imminent release of the Galaxy Note 10. We’ll just have to wait and see what the Sout Korena firm’s Q3 earnings report looks like.