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Samsung directive shows weak profits Despite Apple Deal, Huawei Ban

The Huawei ban is likely to have hit Samsung, with a drop in chip sales, but an increase in smart phone sales in selected markets.

Reuters

updated:July 5, 2019, 8:05 PM IST

Samsung directive shows weak profits Despite Apple Deal, Huawei Ban
The Huawei ban is likely to have hit Samsung, with a drop in chip sales, but an increase in smart phone sales in selected markets.

Samsung Electronics Co., Ltd predicts a steep dip in second quarter operating profit, as the US-China trade war is causing great damage to the global chip and smartphone markets, although one-off gains have defeated analysts' expectations. The South Korean tech giant is on its way to year-on-year profit declines for a third consecutive quarter, when chip prices fell due to an abundance of products and US sanctions against Huawei Technologies, a major Samsung customer, for the Chinese telecom equipment.

Memory chip makers such as SK Hynix from Samsung and South Korea hurt because rising rates are affecting global demand for electronics. Seoul lowered the annual economic growth target on Wednesday to a lowest point in seven years, while exports collapse. South Korea's technical majors also suffer from Japanese curbs on exports to South Korea of ​​materials used in memory chips and smartphones, the newest flash point in a fight over the use of forced wartime labor by Japan.

"There is not enough to say that the positive earnings momentum has come. A more intense war between the US and China and Japanese export restrictions and signs of global trade conflicts are likely to delay the recovery," said Lee Kyoung-min, analyst at Daishin Securities. Operating profit in April-June probably fell by 56% to 6.5 trillion won ($ 5.6 billion), with Samsung making a regulatory application prior to the publication of detailed earnings at the end of July. The turnover probably fell by 4.2% from a year earlier to 56 trillion won.

The predicted profit is better than the 6 trillion won indicated by Refinitiv SmartEstimate and which gives greater weight to top rated analysts, according to the Refinitiv data. One-off profits in the display division, which supplies display panels to Apple Inc, were reflected in operating profit, the company said without elaborating. Samsung received a refund of around 800 billion won for display panels sold to Apple, since the American smartphone maker had missed a sales target that the parties had agreed, analysts said.

The shares in Samsung Elec fell by around 1% compared to the almost flat market in a wider time from 0615 GMT. In a further sign of the problems faced by South Korean smartphone manufacturers, LG Electronics Inc said that second quarter operating profit was likely to fall 15.4% compared to the same period a year earlier. LG's expected profit of 652.2 billion won for the April-June period.

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