Samsung is in for a rough year as the honeymoon period that lasted longer than most analysts expected due to an unprecedented chip industry boom is now definitely over.
While the company already gave investors some cause for concern last quarter, the 28-percent profit drop it saw over the final three months of 2018 fades away in comparison to its latest guidance which estimates the technology giant's bottom line will be roughly 60-percent slimmer in Q1 2019.
That isn't to say Samsung is scraping by; naturally – even a massive drop-off still leaves plenty of net income for its investments and savings. The Seoul-based chaebol is estimating it ended the first quarter of the year approximately $5.5 billion in the black. This week's guidance is yet another confirmation Samsung's record-breaking results posted over the course of the last couple of years were primarily driven by its foundry business whose semiconductors were not only in high demand but were more or less without true competition, particularly in the NAND flash memory market.
Even though Samsung continues to enjoy a significant technological advantage over most chipmaking rivals when it comes to embedded solutions for smartphones, connected vehicles, and Internet of Things applications, that likely won't be the case by the time the global demand for those technologies picks up again.
The company isn't sugar-coating the current state of affairs; simultaneously with its latest guidance, Samsung released a rather pessimistic warning to investors that outlines the aforementioned situation and advocates for a patient approach to portfolio management moving forward. A giant corporation telling shareholders not to worry on the heels of an objectively horrible quarter is often a recipe for panic but Samsung stock was little change following the guidance, having only dropped by the equivalent of 0.26 cents throughout Friday, way under a single percentage point.
Besides a weaker demand for all kinds of chips that brought down their prices, Samsung is partially attributing its massive drop-off to its supply clients such as Apple; with the global smartphone industry stagnating in recent times and even declining to a degree, Samsung was unable to sell as many small-sized OLED panels as it used to.
The uncharacteristically mature reaction even the smallest of Samsung investors had to the news can be largely explained by the rest of the company's guidance, which provides crucial context to Samsung's sustainability. Namely, even as its profits eroded by quite a margin over the course of the last twelve months, the company is only expecting a 12-percent revenue decline. In other words, there's little Samsung could have done to avoid the current situation and many analysts were rather vocal about pointing that out in the past, warning investors the juggernaut's period of insane growth is not sustainable simply due to how well its foundry bet made around fifteen years prior paid off.
What remains to be seen is whether Samsung will at least pick up the pace in the mobile segment where it lost significant momentum throughout 2018, emboldening Huawei that's now publicly and brazenly announcing it's coming for its number-one vendor spot.