Samsung Electronics and LGE Give Poor Preliminary 4Q Guidance
January 14, 2019
Samsung Electronics released preliminary 4Q 2018 guidance of 59t won ($52.4b US) in sales and operating profit of 10.8t won ($9.6b US), down Y/Y by 12% and 28.7%, respectively. Detail will be available at official 4Q release date, at or near the end of this month. While the quarterly miss was bad, the focus will be on how much of the shortfall can be attributed to the mobile, display and chip businesses. Samsung Display did not see the recovery it had hoped for in 4Q, and that the slowing of the Apple and Samsung Mobile smartphone market along with general macro and trade fears pressured Samsung Electronics’ smartphone business, but the surprise is that the chip side has been impacted, which is a major concern going into 2019, given Samsung’s growing revenue and profitability dependence on that segment in 2018. “Depressed demand in China will further drive down Samsung’s chip sales there. But its memory and processor chips, which account for over three-quarters of its earnings and about 38 percent of sales, power smartphones including those from China’s top player Huawei. Amid the smartphone woes, overall operating profit at Samsung’s chip business slipped 3.7 percent from a year ago to 10.5 trillion won. Its memory-chip shipments fell 10 percent on an average in the fourth quarter, according to brokerage Eugene Investment & Securities.
Samsung Electronics also lowered its 2019 smartphone sales goal for 2019. The assumed previous goal of 320m units, set in October 2018, has been reduced to ~ 290m, down 9.4%. Typically such goals are set in October of the preceding year, with changes usually made in January, May, and July of the target year. The impact of Samsung’s reduction will also impact the supply chain course, Chinese smartphone brands are expecting to capture a portion or all of the reduction by Samsung and the implicit reduction by Apple, although we expect even the most popular Chinese brands will be a bit more cautious toward their smartphone growth expectations as the year develops. Chinese smartphone leader Huawei (pvt) is expecting 20% to 25% growth, with Xiaomi (1810.HK) set at ~20%, and both Oppo (pvt) and Vivo (pvt) set for 15% to 20% growth. All in the top 4 Chinese smartphone brands expect an increase in unit shipments of ~120m units, which at this early stage, is looking to be a difficult task. As we reported last week, China’s factory activity contracted for the first time in over two years in December. The World Bank has estimated the weakest GDP expansion for the country in nearly three decades this year. Samsung’s profit could decline through 2019 as the weakness persists as prices for DRAM chips, declined 10 percent in the fourth quarter, according to industry tracker DRAMeXchange. Prices of NAND flash memory chips, which hold data permanently, slipped 15 percent. DRAMeXchange anticipates memory chip prices to fall 10 percent on an average in the first quarter. ($1 = 1,122.3700 won).