Samsung Electronics should take a preliminary look at the second-quarter earnings report next Friday. The numbers should show that the South Korean manufacturer was negatively affected by the US ban that prevented Huawei from obtaining parts and software from the US. Memory chip shipments from Samsung to Huawei have been significantly reduced during the three months from April to June. This led to a backup in the supply of Sammy DRAM and NAND chips, forcing the manufacturer to reduce prices to move its inventory. Given that 67% of Samsung’s profits come from chip sales, Huawei’s purchases greatly influence the manufacturer’s performance in each quarter.
Huawei’s inability to access the US supply chain wasn’t bad news for Samsung. Due to the fact that international sales of Huawei phones fell by 40% in the quarter, it is very likely that Samsung was able to recover some of this business. The Galaxy S10 high-end line and its highly successful Galaxy A store may have ended up in the pockets of consumers outside of China who had moved away from buying a Huawei model. HI Investment & Securities senior analyst Song Myung-sup states that if sanctions are imposed on Huawei, Samsung could sell 37 million additional smartphones a year. Despite the recent truce in the trade war between China and the US, consumers outside of China fear that the Huawei phone they buy now cannot receive Android updates in the future.
So, how bad will Samsung Electronics’ second-quarter earnings be? A consensus of 29 analysts estimates that Samsung will report a 60% decline in operating profits to 6 trillion won, equivalent to $5,140 million. So, despite the decline, it is not necessary for the company to install a GoFundMe page. Last year, during the same quarter, Samsung reported profits of 14.9 trillion won ($12.7 billion). The decline in operating profits is due to the strong sales of the company’s Galaxy S10 smartphone line. As we said earlier this week, Samsung’s flagship series shipments increased 12% in the quarter compared to deliveries in the Galaxy S9 range made in the same quarter last year.
Samsung Has Its Commercial Problems That Could Reduce The Production Of Displays And Smartphone Chips
TrendForce researcher Avril Wu predicts the price of DRAM chips will probably not recover during the rest of the year. TrendForce also states that the prices of these chips have fallen by 25% during the second quarter and predict a further decline from 15% to 20% during the current quarter that began on Monday and will continue until the end of September. Micron Technologies, Samsung’s US competitor in the memory chip industry, says the demand for these chips will recover in the second half of the year, which should bode well for the more solid prices in 2019. Ma Wu, from TrendForce Samsung says it will not be able to clean its DRAM chip inventory until the first half of next year.
Samsung may also have difficulty finding the consumables needed to produce smartphone chips and displays. The materials that the company obtains from Japan to help produce these parts, fluorinated polyimide, and resistance and high purity hydrogen fluoride (HF), will require the Japanese government’s permission to send to South Korea from tomorrow. Obtaining this permission can take up to 90 days each time it is requested. The countries are discussing a judicial sentence issued by the Supreme Court of South Korea last October. The court ordered Japan to compensate the South Koreans who were forced to work for Nippon Steel during World War II. As a result, Samsung may have difficulty producing enough OLED panels for Apple and its other customers. As a result, the company could lose part of the memory chip business to rivals.
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