Tuesday 6 December 2016

Samsung sees fourth-quarter earnings sink 40%

Published 28/01/2016 | 00:56

Weakening demand for smartphones is hitting Samsung's mobile components sales
Weakening demand for smartphones is hitting Samsung's mobile components sales

Samsung has reported a wider-than-expected decline in its earnings for the final quarter of 2015 as its two core businesses face a slowdown amid weakening world demand for consumer electronics products.

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The South Korean company also hinted at a profit decline for the first half of this year, citing difficult business environments.

Samsung's October-December net profit plunged 40% from a year earlier to 3.2 trillion won (£1.9 billion).

The result fell short of expectations, even after considering the negative impact from foreign currency exchange rates estimated at 400 billion won. Analysts expected 5.1 trillion won in net income, according to FactSet, a financial data provider.

Sales edged up 1% to 53.3 trillion won for the quarter while operating income rose 16% to 6.1 trillion won, in line with its earnings preview earlier this month.

The latest results reflect new challenges for Samsung as two core businesses, smartphones and semiconductors, face a slowdown.

Weakening global demand for smartphones is taking a toll on Samsung's sales of mobile components to companies like Apple, as well as sales of Samsung's own mobile devices.

The company is the world's largest maker of memory chips that are used in PCs and mobile devices and also the world's largest maker of smartphones and TV sets.

For the full year, it earned 19.1 trillion won (£11 billion), down 19% from the previous year and the lowest level in four years. It was the second year in a row with a decline in annual net income after the company's earnings peaked at 30.5 trillion won in 2013.

During the final quarter of 2015, the semiconductor business reported its first quarter-over-quarter profit decline in more than a year. It logged 2.8 trillion won in operating income, about 25% lower than the previous quarter but slightly higher than a year earlier.

In addition to the softer global demand for mobile devices and PCs, an oversupply of memory chips that pushed down prices also drove the weaker-than-expected profit growth.

The mobile phone business posted its second straight quarterly profit decline with 2.2 trillion won in operating income. Even though Samsung expanded sales of its high-end smartphones, including the Galaxy Edge series with curved displays, consumers flocked to cheaper smartphones, driving down its overall profit.

Apparently aware of growing pressure to seek new revenue sources, Samsung gave out some hints about its future plans, pointing to transparent, mirror, automotive and flexible displays as future display business areas.

And it singled out home and health as areas it will initially focus on with internet-connected gadgets and home appliances.

Samsung reiterated its promise last year to increase shareholder returns, including a plan to buy back and cancel shares. The move did little to shore up its share price. After the earnings release, the company's shares traded 2% lower when the Seoul bourse opened.

Samsung is not likely to see a revival in its profit in the near future.

"It would be a challenge to maintain the 2015 operating profit level as we expect weak macroeconomic conditions and the IT demand to persist during the first half," Robert Yi, a senior vice president at Samsung, said.

"However, we expect the business conditions to improve in the second half driven by the strong seasonality in set businesses," he said referring to mobile phones, home appliances and TVs.

Press Association

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