The so-called “super cycle” in the semiconductor market in the past two years has helped Samsung Electronics set the second annual operating profit record for the entire 2018 year for the second year in a row. But it may not be easy for a technical tycoon to do this three times in a row due to the deteriorating market situation this year.
Samsung announced Thursday’s earnings announcement that sales were 243.77 trillion won (US $ 219 billion) and last year’s operating profit was 58.89 trillion won, which is a record sales and operating profit figure for the second year in a row.
Of the annual operating profit for the semiconductor business, the company accounted for 75.7% with an operating profit of 44.57 trillion won.
However, the fourth-quarter chip unit revenues were worse than expected, and reduced the company's total profit in the last quarter.
In the period from October to December, Samsung received sales of 59.27 trillion won and 10.8 trillion won, which is 29% less than a year earlier.
“Profit in the fourth quarter was affected by the drop in demand for memory chips used in data centers and smartphones,” the company said. "The LSI system and the foundry business also faced a drop in profits due to weak seasonality."
During the earnings conference call held after the announcement, Samsung officials made cautious and not very positive predictions about the first two quarters of this year, concluding that the current slow demand for memory — especially the company's top-selling DRAM chips — will remain during the first half of the year and will begin to improve later in the second quarter.
“We find the reason for the drop in demand for memory in the combination of inventory processing for hyper-scale customers and their expectations of further price reductions,” said a Samsung spokesman. "They tried to ensure a stable memory supply over the past two years, and we will see a recovery in demand when they are made using inventory."
Given the uncertainty in the market, Samsung will not expand the production capacity of its memory lines this year, the official said.
In 2018, Samsung spent a total of 29.4 trillion won on capital expenditures, of which 23.7 trillion won was allocated to semiconductors and 2.9 trillion won to displays.
“Capital expenditures for 2019 have not yet been confirmed, but the volume of investment in facilities is expected to decrease this year without a plan to expand production capacity,” the official said. "Instead, Samsung will focus on investing in equipment for the newly established factories."
The IT and mobile division increased operating profit by 10.17 trillion won over the year, and only 1.51 trillion won in the fourth quarter due to the stagnation of the premium smartphone market.
"This year, the company will focus its efforts on increasing sales compared to last year with the help of the Galaxy S10 series," the mobile business representative said. "We are considering a wide range of prices for flagship models with a more detailed composition of the model range in order to expand the choice of consumers."
The consumer electronics division earned 2.02 trillion won a year, which is a slight improvement over the previous year, thanks to high sales of premium TVs. In the fourth quarter, the consumer electronics division made an operating profit of 680 billion Won.
Song Soo Hyun (firstname.lastname@example.org)