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Samsung's Q4 guidance suggests a 29% drop in profits

By Cookie Monster - on 9 Jan 2019, 12:00am

Samsung's Q4 guidance suggests a 29% drop in profits

The Samsung Galaxy Note9.

Samsung's Q4 guidance reveals that its profit is likely to decrease significantly and miss market expectations. 

According to CNBC, Samsung predicted its operating profit to be about US$9.67 billion which is a drop of almost 30% from a year ago. It is also almost 20% lower than what market analysts had predicted. The guidance numbers are even worse than what the Institutional Brokers' Estimate System (IBES) had claimed.

The weaker-than-expected demand for memory chips from data center customers, growing competition in the smartphone market and the slowdown in the Chinese economy contributed to the weak numbers.

Mark Newman, managing director at Sanford C. Bernstein, believes the memory demand has "fallen off a cliff" after 24 months of "very, very aggressive growth". Data center companies such as Amazon, Microsoft and Google suddenly realized that they have enough memory and stopped ordering. While the memory business is expected to face difficult business conditions this quarter, Samsung believes it will improve in the second half of the year. 

Marketing expenses and flat sales volumes resulted in a decline in profitability in the competitive smartphone market. Analysts believe smartphones have become very similar in features and functionality that consumers no longer see a reason to upgrade or buy a more expensive handset. The upcoming Galaxy S10 and foldable phones could help to boost Samsung's struggling mobile business. 

Newman states that the overall demand for technology is weak and much of it is in China. Apple also warned its investors about weaker-than-expected revenue due to the slowdown in the Chinese economy and lower-than-expected iPhone revenue from China. 

Source: CNBC

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