Samsung released its earnings guidance for the fourth quarter of 2018, shortly after its CES press conference this afternoon. And the numbers are much lower than the market expected, about 18-percent lower. Samsung announced earnings guidance of around 59 trillion Korean won ($52.7 billion USD) for Consolidated Sales and 10.8 trillion Korean won (about $9.67 billion USD) for Consolidated Operating Profit. Because Korea does not allow companies to offer these estimates in a range, so those are the median in the range that it expects to report.
Slowing smartphone market hits two lucrative Samsung divisions
Samsung is quoting that its lower-than-expected profit is due to its memory chip business. In the quarter, it had a notable drop in memory chip shipments, and the prices of memory chips have also dropped, forcing Samsung to rake in less profits for that division of the company. That's slightly different than Apple's issue and why it is expecting to miss out on several billions of dollars for the fourth quarter itself. Apple says that it's because of the iPhone stagnating in China. Which is likely affecting Samsung too, seeing as Samsung sells these memory chips to Apple and many other smartphone makers. So the stagnating smartphone market is not only affecting Samsung's smartphone division, but also its memory chip business.
Speaking of its smartphone business, it performed somewhat decently in a stagnating market. Samsung did not mention how well any of its smartphones sold in the quarter. Which is pretty common for Samsung and most other smartphone makers. But what cost Samsung some profits in the quarter was the rising marketing expenses of those new smartphones. According to the IDC, after the third quarter, Samsung did drop about 13-percent when it comes to shipments. Though that numbers comes from a third-party, so that should be taken with a grain of salt here.
Concerns of a slowing Chinese economy
After Apple made its announcement last week – and subsequently had the worst trading day in nearly 15 years – there's been a lot of concern of the economy in China slowing down. Samsung is now giving us more signs of that being true. Though, Samsung isn't a huge smartphone maker in China, it does sell memory chips to Chinese makers, and other firms that have servers in the country. So the slowing economy is going to hit Samsung two-fold here, unfortunately. On top of the Chinese economy slowing down, the trade war between the US and China is also at play here. With the US placing tariffs on virtually everything, and China doing the same thing. Samsung will be announcing its detailed earnings for the quarter later this month, which will give us more insight on exactly what happened in the quarter – and possibly which markets suffered the most.
While Samsung is not that big in China, from a smartphone perspective, it could still have a bit affect on Samsung's smartphones. As analysts say that China accounts for around 20 to 30-percent of the global consumer tech demand.
Earnings to be weak in first half of 2019 before turning in second half
Samsung is expecting this to continue through the first half of 2019, and expecting it to change in the second half of the year. This is due to "difficult conditions for memory business." It expects the memory market to improve in the second half, however, and it also expects to see more adoption of new CPU's, partly from launches of new smartphones. Samsung also just announced its Exynos Auto chip last week, which it said at CES this week, is already garnering a lot of attention from auto-makers. Which could really help Samsung bolster its memory chip business in the first half of 2019 and continue into the second half, as the company expects.
The company is expected to release the Galaxy S10 in February with it being available in March. Early rumors are pointing to Samsung launching about five different models of the Galaxy S10, including a 5G model. Not only that, but Samsung is planning to launch its foldable smartphone this year. Samsung showed off its foldable phone last year at its developer conference, though that was a pretty early prototype, but is planning to mass produce it in 2019. These launches are going to have a pretty major impact on how well Samsung is able to come back in its earnings. It's still going to be tough for the company, with the smartphone market raising prices on smartphones, and people are keeping their smartphones longer and longer – which means that less smartphones are being sold.