What do analysts have to say after Samsung Electronics issued a profit warning for the second quarter?

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[Ignatius Bose]

Samsung Electronics anticipates its second-quarter operating profit to plunge by 56.3% year on year due to sluggish demand for memory chips, arising from the US-China trade conflict. The South Korean electronics giant said it expects operating profit to tumble to 6.5tr won ($5.56bn) from 14.87tr ($12.72bn) a year earlier. The company, however, estimates a smaller 4.2% drop in revenues to 56tr won, beating analysts’ expectations of a 6.01tr won operating profit on revenues of 54.6tr.

According to analysts, the ongoing trade war between the United States and China, coupled with the US exerting pressure on allies from carrying out business with China’s Huawei Technologies has hurt demand for memory chips. Samsung is the world’s largest manufacturer of memory chips and counts Huawei as one of its clients, and while Washington and Beijing have called for a truce, the issue remains and is expected to negatively impact Samsung in the near-term. In addition, the tech giant is currently caught in a political wrangle between South Korea and Japan with the latter imposing export restrictions on three materials used in the production of semiconductors and displays, a key requirement in the company’s production of chips and displays.

Last year, chip sales contributed to about three-quarters of Samsung’s operating profit. However, market experts predict a weak outlook for the company going forward as the falling demand in the consumer electronics industry is expected to last a few more quarters, driving down the tech firm’s revenues and profit.