Samsung Electronics Co Ltd likely to post lower operating profit due to U.S.-China trade war

The news is likely to add to investor worries as it comes in the wake of Apple reducing its sales forecast for its smartphones.

Slowing demand in China has had a significant impact on Samsung Electronics Co Ltd, with the South Korean conglomerate set to post its first drop in quarterly operating profits in two years.

China is a key market for the South Korean tech giant.

Unfavourable results from Samsung, the world’s top maker of smartphones and semiconductors would pile worries on investors who are already on edge following Apple’s Inc slashing its sales forecast on reduced iPhone demand in China.

Samsung is set to publish its preliminary fourth-quarter results on January 8 and analysts expect it to post a 12% year-on-year drop in its operating profit to $11.85 billion (13.3 trillion won) for this quarter, according to Reuters I/B/E/S data from Refinitiv.

“Depressed demand in China will further drive down Samsung’s chip sales there. And China’s overall smartphone market is stalled and declining, which will affect not only Apple but Samsung,” said Song Myung-sup, a senior analyst at HI Investment & Securities.

Analysts expect revenues from its semiconductor business to drop by 5% due to lower memory-chip shipments.

In October 2018, Samsung had slashed its capital expenditures for 2018 and had called for an end to a two-year bonanza for memory chips since the global smartphone market is showing signs of slowing down.

“You see, Apple’s iPhones are already losing sales in China. For Samsung too, how long this weak demand from China’s mobile phone market will continue is key,” said Park Jung-hoon, a fund manager at HDC Asset Management.

Samsung has a less than 1% market share in China’s smartphone market, compared to Apple’s 9%. However, its its memory and processor chips, account for more than three-quarters of its earnings and about 38% of its sales.

China’s top smartphone maker Huawei buys memory chips and processors from Samsung.

According to Eugene Investment & Securities, Samsung’s memory-chip shipments have fallen by 10% on average during the fourth quarter.

According to analysts, Apple’s and Samsung’s woes are reflective of tougher times to come for global businesses with the U.S.-China trade war taking a toll on the Chinese economy.

In December 2018, for the first time in two years, Chinese factory activity saw a contraction. As per an estimate by the World Bank, China is expected to post its weakest GDP expansion in nearly three decades.

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