The initial quarter revenue and profits of Samsung soared, but it warned of tougher times ahead in the mobile market, including a slowdown in the demand for its newest phones, the Galaxy S9 and Galaxy S9 Plus.
The South Korean electronics monster reported on Wednesday a 20 percent hike in the revenue and a 58 percent hike in operating profits as it benefited from the strong demand for its memory chips that are used in everything starting from phones to servers. Samsung even received a boost from its flagship smartphones that hit the market in the mid-March.
But the company warned that the second-quarter profits in its mobile business must sequentially decline because of “stagnant sales of flagship models amid weak demand and an increase in marketing expenses.” It warned that its display business — that counts Apple among its customers — would struggle, at least in the June quarter. It also said that while the memory chip demand has been strong in the servers, the flash memory sales are being hurt by a smartphone slowdown.
While the memory business must stay strong in the second quarter, the company warned that “generating overall earnings growth across the company will be a challenge due to weakness in the display panel segment and a decline in profitability in the mobile business amid rising competition in the high-end segment.”
To boost the Galaxy S9 and Galaxy S9 Plus sales, Samsung has got plans to expand its “experiential stores,” work closely with the partners and continue the promotional programs like trade-ins. That could imply a lot of upcoming discounts on the flashy new devices of Samsung. The company even said that it would launch a new flagship model — presumably the Note 9 — in the second half of the current year and would keep investing in its Bixby voice assistant “to provide a seamless multi-device experience for consumers.”
The smartphone market, in the recent quarters, has been slowing down. It has become difficult for the handset vendors to make big changes in their devices and differentiate from one another. The prices for the greatest and latest phones actually have increased at the same time the US carriers have gotten rid of subsidies. All of that implies that people are waiting longer to upgrade. The smartphone sales dropped for the first time ever in the fourth quarter.
Samsung and its biggest rival, Apple, have not been immune. Apple that reports its quarterly results next week, is expected to report weak demand for the iPhone X. That is also impacting Samsung that supplies the OLED displays of the smartphone.
Samsung, which launched its S9 and S9 Plus earlier than normal to get a sales boost, might not experience the impact of a mobile slowdown as much as Apple. Apple generates around two-thirds of its revenue from the iPhone, and it is believed that the bulk of its profit even comes from the smartphone. Both the mobile and components business of Samsung comprise almost half of its sales, but the major part of its profit — in the case of the initial quarter, around 75 percent — comes in from its chip business.