Samsung’s Smartphone Sales Drop in Q2 of Current Fiscal Year; Chip Sales Offset the Loss

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Until now, Samsung has suffered a drop of 12 per cent in smartphone sales and analysts put the blame on its technologically-handicapped smartphones

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Market leader in consumer electronics, Samsung Electronics is estimated to have experienced the slowest earnings on Friday in the second quarter of 2018 in over a year. This decline highlights the growing concern over the company’s smartphone sales, which is suffering loss amid the fierce competition from other competitors like Xiaomi, Lenovo, Apple among more. However, the brand’s memory chip earnings are only expanding, and this has somehow balanced its smartphone losses.

A constant competition by Xiaomi and Apple

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Although India is a price-sensitive nation where the price segment of Rs 10,000 is still highly preferred for smartphones, Apple’s iPhone range has gained wide popularity. Besides this, Samsung’s lack of implementing the latest technological innovations to its smartphones such as the premium Galaxy devices has also been a major setback for its decline in the sales scenario.

According to analysts, Samsung shares fell by 2 per cent on Friday and that made the company’s total loss to stand at 12 per cent as of now in the financial year 2018-2019. This is an interesting move, especially because according to International Data Corporation (IDC) report, the first quarter of this ongoing fiscal year saw Samsung reach a 68 per cent year-on-year (YoY) growth in the ultra-high-end-segment due to the shipments of Galaxy S9 series. This series arrived in the last quarter of the financial year 2017-2018 (January to March 2017) and triggered the South Korean electronics giant to own 77 per cent share in the ultra-high-end-segment.

In the first quarter of FY18, Samsung has vowed to grow its memory chips, smartphones and TV sales by 5.2 per cent (US$ 13.2 billion) – slightly missing out the average estimate of US$ 13.3 billion as suggested by 18 analysts who were polled by Thomson Reuters.

However, due to the failure of the Galaxy series in India that was well benefited by Apple’s iPhone 8 (coming off from being a flop-show in Europe) and two of the biggest Chinese brands – Xiaomi and Huawei Corporation, Samsung has till now failed to live up to their target.

Lee Won-sik, an analyst at Shinyoung Securities said, “It is going to be tough. The smartphone market is not growing anymore but the competition is intensifying.”

China – the world’s largest smartphone market, saw Samsung’s market share reach only 1.3 per cent in the first quarter of the ongoing financial year in comparison to Huawei’s 22.5 per cent, reported by research firm Strategy Analytics.

Massive chips sales contribute to one-third of the revenue and offset smartphone loss

While smartphone sales have been a disappointment for the electronics giant, chip sales have yielded stunning global sales with DRAM and NAND sales accounting for one-third of Samsung’s revenue.

With the seven-year-long legal feud between Apple and Samsung finally coming to an end this year, chip price tracker DRAMeXchange suggests that Apple’s next iPhone is probably going to back Samsung’s NAND flash memory prices after they dropped by up to 15 per cent in the second quarter of FY18 (April to June 2018). The average selling price of DRAM chips, on the other hand, is expected to jump to 14.8 per cent this fiscal year, said research firm Gartner. “Overall, third-quarter profit will be stronger than the second quarter as Samsung will perform better in the semiconductor and display businesses,” Song Myung-sup, an analyst at HI Investment & Securities, said.

Analysts are expecting that the chips business will expand about 50 per cent to a record 12.5 trillion Korean won this year as compared the previous year. This is thought because gaming PCs, cryptocurrency mining devices and servers need more chips to process steaming.

A possible all-out trade war between China and the US can disrupt the chip market too

Samsung’s investors have increasingly grown concerned over a probable all-out trade between China and the US, and if it would in anyway affect South Korea’s export scenario because the country massively depends on their exports’ business.

Park Jung-hoon, a fund manager at HDC Asset Management that has Samsung shares, said, “Sentiment is absolutely not positive as South Korea heavily relies on exports, but we should see if that really hurts financially key exporters like Samsung.”

Moreover, investors also fear that China – the largest country to import memory products, which function at lower margins might arrange a price-fixing probe including Samsung, which could in return affect the South Korean giant’s DRAM prices.

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