Samsung's Q2 profit halved from low memory demand

Samsung expects "persistent uncertainties" in the memory business for the remainder of the year but will pursue an aggressive investment plan in the second half.

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Samsung wants to become the global top in logic chips by 2030 much like it is now in memory chips. 

Image: Samsung

Samsung Electronics saw its second quarter profit get halved due to weakness and price drops in the memory chip market and slower sales for its flagship smartphones.

The company posted an operating profit of 6.6 trillion won, a drop of 56% from the same time a year ago, and revenues of 56.1 trillion won, which was a decline of 4%.

Samsung's memory business still contributed the lion's share of the conglomerate's revenue, earning 3.4 trillion won, but it is the unit's lowest profit total for a quarter since the third quarter of 2016.

The South Korean tech giant said weakness and price drops in the memory chip market has persisted as data centre customers continue to adjust their inventories. The company added that it expects "persistent uncertainties" in the memory business for the remainder of the year.

Though Samsung didn't explicitly state what the uncertainties are, it is likely referring to the escalating trade dispute between South Korea and Japan where the latter has imposed trade restrictions on key materials.

But unlike competitors that have been affected by the trade restrictions such as SK Hynix, which has said it would lower its production rate of memory chips, Samsung has made no such announcement.

Having invested 8.8 trillion won in capex during the first half of the year in semiconductor infrastructure, it plans to invest more in the remainder of the year to react to mid to long-term demand, though a investment plan is yet to be finalised, it said.

See also: Samsung Galaxy Note 10: Latest rumors, features, and release date

Its display panel unit posted an operating profit of 750 billion won, primarily thanks to recovered demand for mobile OLED panels and a one-time payment. The one-time payment likely refers to Apple's penalty to Samsung for not buying the minimum batch required due to lower-than-expected sales of its iPhones.

Samsung said the business would see profits grow in the second half however, thanks to flagship phone launches from clients.

Its mobile business, meanwhile, posted an operating profit of 1.56 trillion won, much lower than analysts' estimations. It is significantly lower than last year's 2.67 trillion won and the previous quarter's 2.27 trillion won.

The South Korean tech giant said the sales of Galaxy S10 have slowed and the competition in the low to mid-end has intensified. The company said it would work hard to increase profitability with launch of the Galaxy Note 10 and Galaxy Fold in the second half of the year.

Though Samsung didn't refer to it in the fiscal report, the lower-than-expected profits are likely also caused by the delay of the Galaxy Fold's launch due to its review units being faulty. The company initially expected an April launch with the goal of moving a million units for the foldable device that would have helped profitability. The company will now launch the Fold in September.

The firm's network business saw profit slightly rise year over year thanks to the commercialisation of 5G networks in South Korea, which it is a major vendor of, and said it would strengthen its market share for the next-generation network through expanding deployment in its home country and the US in the latter half of this year.

The consumer electronic business posted operating profits of 710 billion won, a rise of 200 billion won from a year prior, and revenue of 11 trillion won, a rise of 6% from the same period a year ago.

Samsung said sales of its QLED TVs expanded in the quarter, but profitability has slightly decreased from intensifying price competition. It expects sales boost in the remainder of the year from the high-demand season in the holidays and will expand 8K deployment.

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