viewSamsung Electronics Co Ltd (ADR)

Samsung and Apple face tough battle in tackling stagnant smartphone market

Samsung said first-quarter profit would likely miss market expectations due to declines in chip prices and slowing demand for display panels

A weaker smartphone market has hit Samsung's phone sales and demand for its display screens

A shock profit warning from Samsung Electronics Co Ltd has underscored the challenges facing the smartphone market as tough competition and fewer user upgrades dent sales.

On Tuesday, Samsung said first-quarter profit would likely miss market expectations due to declines in chip prices and slowing demand for display panels.

Prices for chips, the main source of Samsung’s profits, have been hit by slower orders from data centre owners including Amazon.com Inc (NASDAQ:AMZN) and Google parent company Alphabet Inc (NASDAQ:GOOG).

READ: Samsung Electronics disappoints with second-quarter trading statement

A shortage of Intel processors has also limited personal computer shipments.

Samsung’s display division, which supplies screens to Apple Inc (NASDAQ:AAPL), has been affected by poor iPhone sales and competition in China.

Apple is Samsung’s largest customer but also its biggest competitor in smartphones.

READ: Apple hints at cutting iPhone prices to address sluggish sales after disappointing quarter

Like Apple, Samsung’s own smartphone sales have slowed.

With prices of the latest smartphones from the two companies creeping higher with each new release, customers have been upgrading their phones less often or opting for cheaper handsets from smaller rivals.

A wider global economic slowdown and worries over US-China trade tensions have provided a further drag on the electronics market.

Second-half recovery expected as foldable phones released

However, there are hopes that the release of new foldable phones and an uptake of 5G networks will lead to improved smartphone and chip demand this year.

Samsung unveiled its first foldable smartphone and 5G version to its Galaxy series in February and a month later, Huawei showed off its foldable phone.

Apple is also rumoured to be working on a foldable phone, although it is not thought to be releasing a model at the next iPhone release in September, with the latest patents suggesting it is being considered for a future design.

Most analysts expect the memory chips market to pick up later this year.

Samsung has said once inventory has been worked through, demand and pricing will improve in the second half of 2019.

Rival US chipmaker Micron Technology Inc has also forecast a recovery in the memory chip market around the middle of the year.

“The inventory correction will last until the end of 2Q or early 3Q,” Sanjeev Rana, an analyst with CLSA Securities Korea, told Bloomberg 

“We are already seeing signs of inventory consumption by hyperscale and smartphone customers.”

Weak manufacturing data marks 'negative prelude' ahead of earnings season

However, Morgan Stanley semiconductor sector analysts said recent weak global manufacturing data does not bode well for the next corporate earnings season.

“Bad news has not mattered this year, with stocks continuing to rally on hopes of a [second-half] recovery,” the broker said in a research note.

“But we can't help to think that this divergence will be reconciled at some point — either growth starts to surprise to the upside to sustain the move or the more likely scenario that [the second half] disappoints.”

Quick facts: Samsung Electronics Co Ltd (ADR)

Price: 1097 USD

Market: LSE
Market Cap: $261.95 billion

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