Samsung will cut 38% of Q4 profits because of memory prices reduction and pressure from Chinese mobile manufacturers

Samsung will officallly release its 2018 Q4 financial report at the end of this month. Last quarter is in season all year round which is normally seemed to have a best performance, however, Q4 performance has Samsung worried. Its operating margin is 10.8 trillion won, which is about $9.6 billion with a 28.7% YoY decline and a 38.5% QoQ drop, according to Samsung’s offical 2018 Q4 financial report guidance. It also has a 18.2% lower expectation than Wall Street analysts, which is because of memory prices reduction and decline in mobile phone bussiness of Samsung.

Samsung has a 65.46 trillion won earnings in Q3, which is about 400.4 billion yuan/$57.48 billion with a 5% QoQ rising and a 12% YoY rising. Operating margin is 17.57 trillion won, which is about $15.5 billion/107.5 billion yuan, while it is $12.9 billion in the same period of last year and $13.2 billion in Q2 of last year with a 21% YoY surge and a 18% QoQ rising. Net profit reaches 13.15 trillion won, which is about 80.4 billion yuan/$11.55 billion with a 5% YoY rising and a 19% QoQ rising.

Samsung’s performance of last Q3 is record-breaking, but the situation changes in Q4 due to inflection point of semiconductor department nearly ontributing 70% profit, which especially thanks to its memory chip business. NAND flash memroy prices keep falling in last year, while DRAM slightly rises in first three quarters but decreases by 10% in October of Q4, which keeps falling. Even though Samsung, SK Hynix and Micron try to prevent memory from falling by cutting investment and reducing capacity, DRAM prices reduction is hopeless to stop.

According to market expectations, Q4 performance of Samsung will be influenced by memory prices reduction. Its official financial report guidance is lower than analysts’ expectation. Q4 revenue is predected to be $53.26 billion. Average market expectation is about $55.93 billion, while official operating margin is $9.6 billion which is different from the optimistic expectation given by Korean analysts, $11.76 billion.

Compared with former perfomance, Q4 operating margin has a 28.7% YoY decline and a sharp decline, which decreases by 38.5% compared with last quarter.

There are two major factors of Samsung’s performance decline. One is DRAM prices reduction, which is used to be a big earner of Samsung. Its DRAM gross margin is up to 70% when in high price, which is the highest among three major manufacturers, but Samsung’s profit is affected by memory prices reduction.

The other one is mobile telephony business, which has a fierce competition with Chinese smart phone manufacturers. It has been commonplace for Samsung, however, it can’t stop the downtrend in 2018.

These problems are not only affecting Q4 businesses of last year, but also results a bad performance of Q1 in this year. However, memory market is prediceted to rise in the second half of this year.

As for smart phone business, Samsung keeps strengthening competitiveness in the low and medium markets and also hoping innovative products such as 5G mobile phone and folding screen to reverse the tide.