Samsung joins Apple in warning of a gloomy 2016 for technology

SEOUL — Samsung Electronics warned of slowing demand and economic turbulence after its quarterly earnings missed analysts’ estimates, joining Apple in foretelling a downbeat 2016 for the technology sector.

The Korean conglomerate, whose quarterly profit fell short of expectations by almost 40 per cent, said the deteriorating global economy was eroding demand for computers and smartphones and depressing component prices. Samsung will invest in new screen and semi-conductor technologies such as foldable displays to try and boost profit, executives said on a conference call.

Samsung’s warning came days after Apple — its biggest customer according to data compiled by Bloomberg — predicted its first sales decline in a decade. Chief Executive Officer Tim Cook said the company was seeing “extreme conditions” unlike anything the world’s largest technology company had ever encountered, with economic growth in China at its weakest pace in 25 years.

“All technology companies around the world will face a very tough industry ahead. Until the overall demand picks up, it’s a matter of how well they can hold out instead of how well they can battle out,” said Mr Yoo Eui Hyung, an analyst at Dongbu Securities. “For 2016, since no demand growth is expected, it largely depends on how well the supply of chips and displays can be managed.”

SHARES DECLINE

Shares of Samsung, the world’s biggest maker of phones, displays and memory chips, fell 2.4 per cent as of 11.51am in Seoul. The stock has fallen about 9 per cent this year, compared with a 3.2 per cent decline in the benchmark Kospi index.

The company reported net income excluding minority interests fell 39 per cent to 3.24 trillion won (S$3.8 billion) in the December quarter, lagging the 5.4 trillion-won average of estimates compiled by Bloomberg. That result includes a 2.5 trillion won non-operating loss due to impairment charges, the impact of a stronger Korean won and anaemic growth in its key smartphone and chip units.

Today, it said will buy back 2.99 trillion won of stock in the second phase of its buyback programme.

‘SOFTENING DEMAND’

Samsung shipped 97 million handsets — including low-end feature phones — and 9 million tablets in the holiday quarter. Smartphone shipments probably fell a second straight year in 2015 due to tougher competition from Apple in the high-end segment and China’s Xiaomi and Huawei Technologies in the budget category.

“The overall smartphone market will remain difficult throughout this year but we still see growth in the lower-end segment, although competition will be tougher,” Mr Lee Kyeong Tae, Vice President of the Mobile Communications business, said on the call. “We will continue to add more follow-up models of the A and J series this year to strengthen our competitiveness in the lower-end space.”

To fire up consumers, Samsung will introduce two new versions of its top-tier Galaxy S models at the Mobile World Congress in Barcelona next month, according to people with knowledge of the matter. The S7 phone will have a 5.1-inch front screen and the S7 Edge will have a 5.5-inch screen stretching down the sides, one of the people said.

COST CUTS

Cost controls helped enhance margins even as mobile division sales fell. Operating profit at the unit rose 14 per cent to 2.23 trillion won from 1.96 trillion won a year earlier

Operating income at the chip unit rose just 3.7 per cent to 2.8 trillion won. Prices for DDR3 4-gigabyte dynamic random access memory chips averaged US$1.93 (S$2.96) in the quarter, compared with US$3.77 a year earlier, according to data from inSpectrum Inc.

Samsung said this month that its foundry business received orders from Qualcomm to make the Snapdragon 820 chips. It’s decided to use Qualcomm’s chips for about half of its upcoming S7 devices only a year after turning away from the US company, people with direct knowledge of the matter have said.

Operating income from displays fell 36 per cent to 300 billion won while profit at the consumer electronics division, which comprises TVs and home appliances, rose more than fourfold to 820 billion won in the quarter, benefiting from falling panel prices and strong US holiday-quarter demand for 4K televisions. BLOOMBERG