Samsung Electronics profit dips as phone sales fall

Smartphone sales drop mitigated by strong demand for memory chips.

Samsung Electronics on Tuesday said its second-quarter net profit dipped slightly from a year earlier, with a fall in smartphone sales mitigated by strong demand for its memory chips.

A sluggish market for premium mobile phones and stiff competition contributed to a decline in Samsung's smartphone shipments and revenue compared to the previous quarter, denting demand for its flagship Galaxy device, the South Korean company said.

The world's biggest maker of memory chips, Samsung has weathered a series of setbacks, including an embarrassing global recall of its Galaxy Note 7 smartphone due to exploding batteries in 2016.

Adding to its troubles, its vice-chairman Lee Jae-Yong, scion of the Samsung group's founding family, was jailed last year for his part in the sprawling corruption scandal that brought down former president Park Geun-Hye.

Lee has since been released after some of his convictions were quashed on appeal, and the company has posted record profits in recent quarters, until now.

Net profit for the April to June period came in at 11.04 trillion won ($9.9 billion), slightly lower than the 11.05 trillion won in the same period in 2017, the company said in a regulatory filing, and missing the 11.6 trillion won average of estimates compiled by Bloomberg News.

While total sales fell 4.1 percent year-on-year to 58.48 trillion won, the company's mobile division was particularly hard hit, with revenues plunging 22 percent in the same period.

"Second quarter revenue fell due to softer sales of smartphones and display panels," Samsung said in a statement.

Weak sales of its flagship smartphone, the Galaxy S9, drove down its earnings but robust demand for premium TVs -- thanks to soaring interest in the recently concluded 2018 World Cup -- and memory chips helped boost the operating profit up nearly six percent.

Samsung's chipmaking unit, which dominates the global market after the firm invested tens of billions of dollars to build and expand factories, provides chips for the company's own devices as well as those manufactured by competitors including Apple.

Although its semiconductor business was a bright spot, achieving record-high operating profits of 11.6 trillion won, the earnings were lower than expected, with market forecasts averaging 12 trillion won.

"The semiconductor sector fell short of expectations but its outlook for the second half of this year is rather positive as demand for DRAM chips is solid... Therefore, chip prices are expected to remain strong," a Samsung official told AFP on condition of anonymity.

Analysts said the semiconductor division would continue its upward trajectory and set new records in coming months.

"Operating profit in the semiconductor sector is likely to hit the largest-ever 13.7 trillion won in the next quarter, due to the high DRAM chip prices and increasing shipments of NAND flash memory products", said Park Yoo-ak, an analyst with Kiwoom Securities.

Samsung said it expected "growing demand for flexible OLED panels to drive earnings higher in the second half" of the year.

But "the mobile market condition will likely remain challenging in the second half amid pricing competition and new product launches," it said, adding that it would respond by launching its Galaxy Note 9 smartphone earlier than expected.

The company said it would bolster its flagship lineup by marketing the new phone "at a reasonable price" and packing its middle-and-low end products with updated features to fend off competition.

The move comes as the global market for premium smartphones hits a wall, with customers no longer as eager to shell out for expensive devices.

"Consumers are losing the belief that the next version of a smartphone is actually smarter," Paul Swiercz, a management professor at George Washington University, told Bloomberg News.

"Even those wanting to own the latest and greatest are having difficulties paying high-margin prices for performance and features that have topped out," he added.

Operating profit was 14.87 trillion won, in line with the estimate of 14.8 trillion won suggested in a preliminary guidance report released earlier this month.

Overall earnings were sharply down from the 11.69 trillion won net profit registered last quarter, when the company reported a 52 percent jump on year.

The disappointment over the latest figures was reflected in afternoon trade, with Samsung Electronics shares down 0.5 percent.

Samsung also announced that it would pay out dividends of 354 won per share for the second quarter on August 20.