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Samsung slashes capex, calling the end to chip boom after record third quarter

SEOUL (Reuters) – Samsung Electronics Co. Ltd broke 2018 capex by more than a quarter on Wednesday and warned of…

SEOUL (Reuters) – Samsung Electronics Co. Ltd broke 2018 capex by more than a quarter on Wednesday and warned of lower profits until the beginning of next year and called for the end of a two-year boom in memory chips that ran record third quarter earnings.

PHIL PHOTO: Samsung Electronics logo is viewed at the office building in Seoul, South Korea March 23, 201

8. REUTERS / Kim Hong-Ji

Graphics: Samsung Electronics Results EMG – TMSnr.rs/23JLkmD

The Negative Forecast from the World’s Largest Manufacturers of memory circuits and smartphones contribute to investors over the declining global demand for mobile and other electronics devices that ruled the world market markets this month.

Graphics: Samsung Electronics Motion Growth Interactive – tmsnrtrsrsOWOW0c5E

The South Korean technology giant said it expected a quarterly decline in the quarter due to the weak demand for memory circuits and higher smartphone marketing spend during the year-end semester season.

“Future prospects are forecast to be weak in the first quarter due to the age of the season, but are strengthened when business conditions, especially in the memory market, are improved,” Samsung said in a statement.

Analysts said that the kapex cut should ease concern over further growth growth and price cuts, as prices on some memory circuits have already fallen over two years low and competitors will start new production lines next year.

Samsung, one of the industry’s largest chip-making buyers, said capital expenditures this year would fall by 27 percent to 31.8 trillion dollars ($ 28 billion) from a record 43.4 trillion won last year.

“NAND (flash memory) chip prices will fall further in the first half of next year … (as) Toshiba’s new production line will begin and Hynix will launch mass production of one of its NAND lines,” says an analyst, Song Myung-sup.

“Over-acquisition is expected to continue.”

However, Samsung tried to insure investors’ concerns for a sharp drop in the chip market, given strong demand from servers as cloud-based data services grow rapidly.

A Samsung executive said the company thought it was “starting a good up-cycle” in chip sales to the server industry.

“Temporary price changes may repeat, but basically we have a very strong demand for memory,” said Chun Sewon, Senior Vice President of Samsung’s Memory Marketing, for Analysts.

Samsung also said it was considering converting some of its NAN D production lines to make DRAM chips next year, rather than adding capacity among several NAND flash chips.

SOFT LANDING

Samsung reported a record 17.6 trillion water operating profit in July-September quarter, in line with the company’s estimate.

The weakening of chip prices after years of strong growth, analysts expect that Samsung’s fourth quarter will decline by 4 percent from the third quarter, according to Refinitive Data.

It will still be 11 percent higher than a year ago, using efficiency enhancements and cost savings in the chip industry, accounting for nearly four fifths of Samsung’s operating profit.

“As Samsung continues to reduce the cost of semiconductor, it’s not likely that it will be a so-called landing mode,” said Avril Wu, Senior Research Director at DRAMeXchange.

Higher server demand would help the memory market to regain stability after the first quarter of next year, Samsung and chiming said with the prospect of South Korean colleague SK Hynix last week.

Samsung’s semiconductor business posted an operating profit of 37 percent to 13.7 trillion of water, while mobile operations increased 33 percent to 2.2 trillion.

Compromised with Apple Inc. in the premium segment and with Chinese rivals in other segments, Samsung’s smartphone business saw that profit dropped to the lowest level since the first quarter of 2017.

It plans to share details about its development of foldable smartphones at a conference at the beginning of next month, and hope that the model will help revive its premium cache.

Samsung said sales for the third quarter increased by 5.5 percent to 65.5 trillions of water, slightly before its guidance.

Shares in Samsung, worth $ 265 billion in market value, fell by 1.2 percent. The share has fallen 16 percent so far this year.

Reporting of Heekyong Yang and Ju-min Park; Write by Miyoung Kim; Editing Stephen Coates

Our Standards: Thomson Reuters Trust Principles.

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